I only started a month ago exploring the world of the crypto currencies. Here are some practical things I learned on my journey.
This post is perfect for when you have no idea what is going on. All the information I wish I had before I started.
How do you buy Bitcoin?
First thing first right? The way to buy bitcoin is by using an exchange. Exactly like when you are traveling and buy the local currency.
I used one of the most popular exchanges, Coinbase/Gdax. Important to note these are two different products from the same company, we are going to need both.
Step 1 : Transfer your $/€ on to Coinbase.
Go to the Coinbase website and make an account, get your ID and passports ready as you need them to verify yourself. First we need to transfer money from your bank account to your Coinbase account.
Use the SEPA bank transfer, don't use your creditcard (3.99% fee!). This might take a few days, 3 days in my case.
Once you have the $/€ in your Coinbase account, don't convert $/€ into Bitcoin on Coinbase! There are fees and they use not the latest exchange rate. Instead it is time to go Gdax.
Step 2 : Buy Bitcoin on Gdax.
Go to the Gdax website and login using your Coinbase login. Gdax is a platform to trade crypto currencies realtime. You can transfer your money instantly and free from Coinbase to Gdax.
On Gdax you can buy Bitcoin/Ethereum/Litecoin & Bitcoin Cash at the current rate. Use the limit order not the margin order, again limit orders are free margin orders are not. With a limit order you can set to buy or sell crypto currency automatically when it reaches a certain price.
What is a wallet?
Important to note that when you have crypto currency on an exchange you don't really 'own' it. Same with having money on a bank account vs having it cash.
If the exchange would crash you would lose everything, something that already happened in the past. So what you should do is withdraw your crypto currency from the exchange into your personal wallet.
A wallet basically is a set of two different keys, where a key is just a string of numbers.
Your public key, which is your 'bank account number'. This is the one you need to enter when doing a withdrawal from an exchange.
To give you an idea here is my public Ethereum key :
Please send me all your Ethereum. Important note; every crypto currency will have a different address/key, so don't send me your Bitcoin to this address.
Your private key, this is your 'password'. With a private key you have full control over your cryptocurrency. This is your creditcard number, expiration date and cvc all in one. So don't share it with anyone.
To keep your private key safe there are different types of wallets.
Online same like for example your Gmail you have 24/7 access from any computer. But what if the company gets hacked and they steal your private key?
Software you store your key on your own computer is safer. Unless of course your computer gets hacked.
Hardware basically a hardware wallet is a USB drive not connected to the internet so it can't be hacked.
Exchange you can make a wallet on an exchange, only difference is you don't have access to your private key.
How do you buy all the alt coins?
Bitcoin is where it all started but in the meanwhile there are literary hundreds of alternative (alt)coins and currencies. While one Bitcoin costs you into the thousands you can buy other coins for pennies.
Where Bitcoin will probably still be going up and might even double in a few months, but those penny coins can do 150% in a single day. Who doesn't want that?
Gdax is by far the best looking and designed exchange, only downside you can only trade in four currencies.
When you are looking for those double and triple digit daily gains you will have to go look elsewhere.
It is important to know that Asia is one of the main drivers behind this whole crypto currency hype. We in Europe and even US are late to this party. That is why I go with Binance in order to hopefully be able to pick up coins early before they go mainstream on the other exchanges.
You can easily transfer your Bitcoin from Gdax or your personal wallet. Go to funds in Binance, create an address and transfer your funds there.
Transferring money with crypto currencies is so easy it becomes scary. Make sure to always double check the address you are sending it too.
How do you keep track of everything?
At some point you get excited about life and might be holding 20 different coins on 4 different exchanges and wallets. How do you keep track of everything?
I use Coinigy which is not free (€15 a month) and also not perfect (no iPhone app yet/statistics could be better). However it easily let you link all your wallets and exchanges using their API (just copy/paste two keys), it even let's you trade on them.
Where they are sometimes lacking in tracking progress on coin level it is great to give you a good overview of your total portfolio.
What is a good strategy?
What are you asking me for, I am just a beginner! Two strategies I have learned that don't work; short term trading and investing all your assets in one or a few currencies.
Trading short term.
You start reacting emotionally to every little change and make bad decisions. I found that no matter what strategy I used, I always ended up worse than if I would have just bought and hold.
Here are two important aspects for this strategy to work.
- Don't be over-invested. When you put money on the line that you can't miss, you will freak out when it suddenly drops 20% in one day. Only use money you won't miss for the next year and preferably not even if you never get any of it back.
- Get in early and buy the lows. You will feel more comfortable if it first goes up with 50% and then drops 10% than the other way around.
Have all your assets invested in one or a few currencies.
Nobody knows for certain who will be the eventual winners will be. You will also feel a lot better if one of your favourite coins goes down if there are others going up at the same time.
Which coins should I buy?
Again, I am a beginner I wouldn't know. Keep in mind though that this is a fully a supply and demand market. If everybody wants it, prices will be going up. So your mission will be to find out first what the next hype is going to be.
Information is the most valuable currency.
The way to do this is start following people on Twitter, Youtube, Telegram, etc. and start reading all the blogs.
Find out which people are right often and figure out which are their sources.
One of your go to places should be Coinmarketcap it gives you an overview of all the coins including their market capitalisation. Definitely also keep an eye on the overal market cap on the top of the website. Compare the market cap of the coin you are interested in with one in the top 10, this will give you an idea of the maximum potential for growth.
Very important also is the overal market cap. When this will go down Bitcoin will go down, when Bitcoin goes down by single digits the alt coins will go down by double digits, and vice versa. You might want to check this before making your first investment, get the low.
Always make sure you feel comfortable with your strategy, if you have a low risk profile don’t go buy penny coins or even ICO tokens.
What is an ICO?
You want to be a true hipster and buy coins before anybody thought they were cool, you will have to buy at an ICO (initial coin offering).
If you thought Bitcoin or penny coins where risky, this takes it to a whole other level. This makes you all of a sudden a venture capitalist investing in start-ups, potentially high reward but also very risky.
Each ICO will have a white paper on their website describing their project and team. You will need to do your due diligence and check all of this, a lot of ICO's out there which are scams and will just steal your money. Luckily there are review websites which can already do a first selection for you.
How to buy ICO tokens?
Most ICO's work with Ethereum, so get you some at Gdax or another exchange and send it to your wallet. Never transfer funds for an ICO from an exchange, you will most likely lose your money. In order to transfer your tokens later you need access to your private key, which you don't have at an exchange.
- You send them Ethereum from your wallet to the address mentioned on their website (I use Metamask as my ethereum wallet for ICO’s it has a cute fox).
- They transfer the ICO tokens back to your ETH address.
- Add the according token address to your Metamask wallet and your tokens will show.
- Wait and burn some candles. When the tokens make it to an exchange you can transfer them from your wallet to the exchange and sell them.
Do you think this is a bubble?
Short answer, yes this is most certainly a bubble. After doing my own due diligence my conclusion is the current crypto currency valuation totally makes no sense that all.
Regardless when you look at it from a financial or technical angle.
There is a lot of value in future applications of block chain technology but right now is just in it's infancy. For example Bitcoin can only do 7 transactions a second, where Amazon alone is doing 600. In peak times a transaction can take already take hours. Same goes for all the alt coins where only a few already have practical applications.
Here is a short video on the dot com bubble and the similarities are uncannily. I can totally see a similar scenario happen, a big crash followed by the coins that bring actual value raising form the ashes. When however, nobody knows.
One of the determining factors will be government regulation. One of my favorite aspects of cryptocurrencies is the fact that they are decentralised. Governments don't have control over it and it might in the long run be a threat to their own national currency. While it is impossible to control the currency itself it, they can control the exchange between crypto and fiat currencies or regulate the mining of it.
When big countries like South Korea, United States or Russia would decide to shut down the exchanges it will most certainly affect crypto currencies in a big way.
Do you think it is a good idea to get into crypto currency at this time?
I think it is a good idea to at least invest some of your time in trying to understand what is going on in the crypto space. Similar to the internet and social media, blockchain technology will have a huge impact on business and society in the future.
You could also make a long term investment (5 years) as the technology is very promising. This probably will be long enough for a burst and recovery scenario. Just remember this is a high risk investment as you don't know which ones might survive. Base your decisions on the impact the technology of the specific currency might have.
There is a lot of volatility in the market so there is also a lot money to be made or lost trading. However current valuations are not based on actual value and application of the technology. Most of it is based on rumors and hype, which makes it more gambling then investing.
Don't put money on the line if you are not willing to lose it all.
Most post you will read about cryptocurrencies will end with a disclaimer that the author isn't a financial advisor and can't be held accountable for potential losses. Which I think is funny even the best financial experts can't predict what will happen next in the crypto space.
A more meaningful disclaimer might be that this is gambling. If you are prone to (gambling) addictions you should stay away from this.