My First-Hand Experience With Bitcoin & Ethereum
Well, it’s official. For the past several months (and technically since the beginning of 2021) everyone and their mother has been talking about cryptocurrencies, altcoins, Bitcoin, Ethereum, blockchain, ledgers, wallets, HODLing, Doge, breakouts, rising wedges, and going to the moon. If that all sounds like Chinese to you, welcome. You’ve come to the right place.
If you have no idea what cryptocurrencies are, here’s the high-level explanation. If you already have some idea of what Bitcoin is, or you’re like an expert or something, go ahead and skip down to the next section.
Let’s take a step back and think about what money is in order to understand cryptocurrency. What is money? Money is a generally recognized medium of exchange for transactional purposes in an economy. Money is valuable because of the goods and services that it can procure for us.
If we stepped into a time machine and went back several thousands of years, we would be living in a bartering society. I see that you have some nice rugs and clothes that I want, so I’m going to give you two goats from my flock in exchange for them. You accept the goats because you need to eat.
Eventually, currencies are created. Civilizations start minting coins of gold, silver, bronze that can act as value in exchange for good and services. And gold coins are valuable, because gold is a limited earthly resource, and takes work to mine and mint. So there is intrinsic value to a gold coin.
Later on, we graduate to paper money, or bills. These represent bills or credit or IOUs, backed by gold or silver. My paper money means that I can withdraw gold or silver from a bank at any time. This was exemplified after World War II, during the Bretton Woods Conference in 1944. Allied nations got together and established the International Monetary Fund (IMF), and exchange rates were pegged to gold and the US Dollar due to the US being an economic powerhouse at the time (from there came the saying that the US Dollar was “as good as gold”).
This lasted until 1971, when President Nixon cancelled the direct international convertibility of the US Dollar to gold (known as the “Nixon shock”). This ushered in the freely floating fiat currencies of different nations we have today. This means that money is only established as money by government regulation, and has no intrinsic value. That’s why we can just keep on printing more money, as we’ve seen with recent stimulus packages in the US.
Anyway, after paper money comes the plastic. We now all carry around debit cards. Pieces of plastic that have access to the numbers and zeros stored digitally in our banks. We’ve already been living in a ones and zeros world for awhile.
Cryptocurrency is just the next evolution.
Cryptocurrency: A digital currency in which transactions are verified and records maintained by a decentralized system using cryptography, rather than by a centralized authority.
Bitcoin: A type of digital currency in which a record of transactions is maintained and new units of currency are generated by the computational solution of mathematical problems, and which operates independently of a central bank.
Bitcoin, the oldest cryptocurrency, was launched in 2009 by a developer that went by the alias of Satoshi Nakamoto. We don’t know who he is or was.
Bitcoin is a bank-free internet money. It is decentralized. Meaning, there is no bank or central authority governing Bitcoins. Bitcoins are controlled by a network of users who control and verify the monetary transactions. In this sense, it is peer-to-peer. It is not tied to any country or nation. In this way, it can function unhindered as an international currency. The crypto part of cryptocurrency refers to the use of cryptographic hashes to ensure the integrity of the blockchain. The shared ledger literally keeps a copy of every cryptocurrency transaction that gets verified by all nodes.
Bitcoin was designed in such a way to be ‘mined’ by computer processors solving complicated math equations. There is a limited supply of Bitcoin too — it is capped at 21 million. In this sense, Bitcoin is like a digital gold.
My first-hand experience
So obviously, I’ve done some research. There is still so much I haven’t dived into, and so much I don’t know. But I would always recommend doing your research. Never invest in something you don’t quite understand.
I first bought into Bitcoin on November 11th, 2020. I bought $150 worth when the price of Bitcoin was at $15,732, on Robinhood (something I don’t recommend doing, but we’ll get to that).
Then I fell down the rabbit hole. I discovered how vast and expansive the technology of cryptocurrencies really was. The price was rising, there was bullish sentiment, and more and more people were understanding its use cases.
So I bought another $2,000 of Bitcoin on December 19th, 2020, when the price of Bitcoin was at $23,486.
As I began studying the use cases of Ethereum, the second-largest cryptocurrency, I bought in there as well. Technically, Ether is the currency of the Ethereum network, which is much larger. Different blockchain applications can be built on the Ethereum network as a whole (a lot of altcoins are built off of the Ethereum network). The network uses something called smart contracts to ensure the integrity of the network.
“When you interact with an Ethereum application, you don’t have to rely on any intermediary to broker your transactions. You don’t need a bank, wholesaler, or transaction broker to provide trust. As a result of Ethereum’s disintermediation, you can often complete transactions faster, with far lower service fees and without requiring approval from external authorities.” Source
On January 7th, I bought $700 of Ethereum when the price was at $1,180.
On January 16th, I bought another $250 of Ethereum when the price was at $1,271.
I also added another $500 to my Bitcoin holdings between January 8th and January 16th, when the price of Bitcoin was between $37k and $40k.
Transfer to Coinbase
On February 25th, 2021, I bit the bullet and transferred my crypto investments from Robinhood to Coinbase. I had found out too late that when buying into crypto on Robinhood, you don’t actually own your cryptocurrency. Rather, it acts more like a contract where the crypto is in Robinhood’s possession, and you can collect your profits (or take your losses) at any time.
When you actually own your cryptocurrency, you have more freedom. You can take it off the market at any time for example, and store it onto ‘hot’ or ‘cold’ wallets (hot meaning still connected to the internet, cold meaning a physical hardware wallet that is not connected to the internet, and more secure).
So I cashed out of Robinhood and bought the actual crypto on Coinbase towards the end of February, knowing full well that I would have to pay capital gains taxes on it. But the pros outweighed the cons for me.
The final tally as of mid-April
So ultimately, over the course of 3 months, I invested the following:
- $2,750 in BTC
- $1,371 in ETH
- Total: $4,121
What is that total now worth?
- $6,209 in BTC
- $2,398 in ETH
- Total: $8,607 (reached a high of $9,000 a couple days ago)
What I’ve learned and what I think about the future
Obviously, no one can predict the future, and there is always risk involved with any investment.
My opinion is that we are currently still in a bull market with crypto, but the window for jumping on board is closing. I still believe it is entirely possible the prices of Bitcoin and Ethereum could reach $100k and $10k at least. For a more in-depth look at Bitcoin halving cycles and the true price potential, check out this article.
However, my advice is to never invest more than what you are ultimately willing to lose. Keep your financial life in order, become debt-free, have a emergency fund, and be investing in a proper retirement account before considering investing in cryptocurrency. The crypto market could very well get into a bearish momentum anytime, and start dropping. However, based on historical trends and Bitcoin halving trends, I will be paying more attention to that come September (a different topic for another time).
Anyway, I hope my first-hand experience gives you some perspective, and I hope you can walk away having learned something about the subject. The blockchain technology is truly fascinating, and we are all just scratching the surface, no matter what the price of Bitcoin or Ethereum may be in the future.