This article is written for the beginner who is interested in learning more & getting involved in Cryptocurrencies, or “Decentralised Distributed Ledgers”.
And actually that is the half the problem. The language and lingo used often makes this industry seem a bit overwhelming at first. There is a lot of work to be done to make it more accessible. Just take a Bitcoin address for example. Not the easiest of things to understand for the non-technical person.
1. Learn about the technology
If you want to learn more about the technology we highly recommend Andreas Antonopoulos as your source of learning. He has hours of YouTube videos here and you can follow him on twitter here. He is easy to understand and breaks down the barriers of complicated lingo despite being a programmer with a deep understanding of this space. He advised US Congress, is an advisor to CME and has spent years travelling the world educating and inspiring inventors and pioneers. After someone attacked and joked that Andreas should be a Bitcoin millionaire but wasn’t, the community jumped to his rescue and through donations Andreas become a millionaire overnight.
Andreas M. Antonopoulos
Public Speaker | Author | Coder | Entrepreneur | Commentator Follow @aantonop on Twitter Andreas M. Antonopoulos is a…
2. Learn about the projects in this industry
Next up you will want to start doing your homework on the different types of Cryptocurrencies and projects that are in this space. Bear in mind that over 26,000 projects have been created, with more than 90% now being dormant or simply gone. It is important to know that nearly all projects in this space have adopted an Open Source Code mentality and approach. Know this — anyone can download the original source code of Bitcoin, rename it to “coopcoin” or whatever and launch it as their own Cryptocurrency. Maybe you want to make more coins than Bitcoin will, or make transactions faster… tweaking and making minor changes is easy. Solving the problems that Bitcoin faces or to actually innovate is not so easy. For this reason, bear this in mind as you sift through the 1400+ (at time of writing) active projects.
Your one stop to see all active projects and to learn more about them is:
Cryptocurrency Market Capitalizations | CoinMarketCap
Cryptocurrency market cap rankings, charts, and more
Pay close attention to 24 hour Volumes being traded. This will be a key indicator for you about projects picking up interest and liquidity flows between cryptocurrencies.
3. Investing VS Trading
Just like buying stock of a company you own a portion of that company. With Cryptocurrencies you can buy and store the rights to tokens/coins of that cryptocurrency. These can be stored indefinitely regardless of price fluctuations.
However, you can also trade Cryptocurrencies using margin & leverage. In which case your gains and losses will be amplified and whilst you might see very fast gains, as this is the most volatile asset class on the planet, the downside and losses will also be amplified.
The majority of people we know are simply buying and holding the tokens/coins. This is the easiest and safest way to become an investor in Cryptocurrencies. Trading on margin should be done with extreme caution and be done by traders with experience.
4. Where to buy Cryptocurrencies
You need to research “Fiat Crypto Exchanges”. First you need to get some of your Euros or Dollars onto an Exchange to then enable you to buy some Bitcoin or another Cryptocurrency. Because you are dealing with fiat money the exchanges will often want to verify your identity first — usually with passport and proof of address. This process can be lengthy and painful — because the exchanges are unable to handle the influx in new user registration, waiting times can be long. (There are even cases of users selling their accounts to other people for up to 0.5BTC). So plan some time to research the best exchanges; based on your region, laws and your own due diligence of them as a company.
If you are looking to buy more than 25,000 USD worth of Bitcoin I highly recommend you look into OTC (Over The Counter) dealers.
Examples of OTCs:
- There is a lot of media talk that this industry & that cryptocurrencies are unregulated. This is simply not true. Many exchanges are now very well regulated and certified.
- With that said, exchanges still remain the weak-link in this industry. They are susceptible to hacking, dishonest practices, lack of transparency and often just damn scandalous.
- Often exchanges will not have every Cryptocurrency available, so you will want to check that before you go through a lengthy process of verifying an account. Often you will find yourself depositing fiat, buying bitcoin and then transferring that bitcoin to another exchange in order to buy another Cryptocurrency. (i.e Fiat Deposit to Kraken — Purchase of Bitcoin — Withdraw from Kraken to Bittrex — Purchase from Bitcoin to XRP Ripple).
- If you find yourself using a lot of exchanges you will want to invest in a 2FA fob (2 Factor Authentication Hardware fob). This will save you a lot of time and pain. Here is an example of one from Yubico.
5. Where to keep your Cryptocurrencies safely
As we mentioned in the notes above — Exchanges are currently the weak link in the industry. For this reason you should consider storing your Cryptocurrencies off exchange. You have several options to research:
- Hardware Wallets — Such as Ledger Wallet
Update: Warning — Always buy from the manufacturer and not resellers! Otherwise you could be dealing with something that has been tampered with. (Thanks to Vinayraj Pillai for this contribution)
- Software Wallets — Just download any number of wallets that run on your computer
- Coldstorage — A process where you print out your private and public keys (your rights to claim the tokens) and then store them somewhere safe like in a bank vault. Yes there is irony here — A digital currency meant to disrupt the traditional financial institutions being kept on paper inside a bank. :)
Whichever approach you take just remember one thing — there is no happy smiling cashier to help you when you turn up with your passport because you lost your banking card. No hotline to call when someone steals your private keys. If you lose your own access to your tokens you are doomed. Just like this very unhappy chap.
6. Trading Cryptocurrencies on margin
Warning: Be very careful about trading crypto with MT4- most of the exchanges or brokers that support mt4 close at weekends. Traditional Spread Bet Brokers for example (FxPro, fxchoice etc) are the counter party, so if 90% of customers are long and Bitcoin goes up in crazy fashion like it has been doing they are in a sticky situation. There are even brokers offering interest if you short this product. Be very very careful with any traditional FX Broker now offering BTC or ETH etc.
Examples of exchanges that offer margin:
www.bitmex.com (Futures Derivative 100x BTC)
Warning / The CEO admits BitMEX targets gamblers, they have big red and green buttons and 100x leverage on Bitcoin. Pretty close to Binary Options trading if you ask us. Approach with care and caution. Also note the very high withdrawal fees.
https://www.okex.com (Futures 20x)
Please comment if you know of others you feel worth mentioning and we will update the article
- Sierra Chart (My personal preferred option with BitMEX) Supports Bitfinex, BitMEX, Poloniex — but Im not sure which ones actually support trade execution — I only use BitMEX for execution and Bitfinex for charting xxxusd)
The great thing about this industry is the fact it’s all using new tech. That means most exchanges will have a public API you could can go grab and start using to build your own automated strategies. BitMEX have even published their own API connectors and example bots.
I personally use a very basic continuation strategy, buy side only. I will hedge my Bitcoin by trading on margin altcoins. With a focus on ADA, ETH, ETC, ZEC, LTC, DASH, XRP.
I wait for a top to be called and for sellers to step in. Once those sellers have got it wrong I wait for a round retest of that level (Support & Resistence) and will use a base set of rules to engage the market and set SL, TP and Entries.
Nothing complicated. Can be explained in a few minutes. My point is this — I suggest you work with basic price patterns and ways of observing an imbalance of price and then focus on the buy side. After all the risk is to the upside in this bull market.
7. How to avoid investing in ICO turds
How to avoid turds. My own personal checklist I use to filter out projects I do not want to investigate further prior to investing.
These are not necessarily all showstoppers, but will at least cause me to investigate the root reason for any negative answer.
- Are they modeling their ideas and business around the core values of the original Bitcoin White-paper?
- Is their Blockchain/DAG/otherwise Public?
- Is their entire project open source code?
- Is anything centralized or private in their software & protocol?
- Is this something new or just a derivative of a parent protocol?
- Are they solving a problem that cannot be solved with a basic database?
- Have they just pivoted their business so they can include “Blockchain” in their title?
- Do they actually have a solid team of programmers and cryptographers?
- Does their White paper actually have any solutions, or is it just hopes and dreams based on vague ideas
- If they have partners (as lots use big names to self promote) have they actually integrated and worked with those partners, or again, is it just hot air and “use cases”.
- Are they ahead of the curve? if so, are they too far ahead of the curve? (Think Bitcoin ATMs before we have adoption).
- Are they breaking any laws now & if so in which countries? How could this impact them?
- Would they be breaking any laws if some common sense laws or regulations were created? In which countries?
- What exchanges are they trading on, which ones are planned?
- Do the creators hold tokens? If so, what percentage or on what terms?
- If they had or are going to have an ICO how much are they trying to get? Is this inline with the goals on the project? (Over funding can actually be worse than under funding).
- Is there any negative press about this project? Have you researched to nullify any technical or negative claims against this project?
- After their initial funding how are they going to sustain development?
- Could there be intrinsic value in their coin or tokens?
Many times now the media and general public get crazed about Cryptocurrencies and all start investing like mad and also many times before they got bored and all left again after a sharp drop or as the price ranges, chops and consolidates :)
When Bitcoin hit $100 people said it was the top, then again at $500, then $1000, then 5k, 10k, 15k and now 20k. It is important to take a step back, deep breath and remember the hype and misinformation in this industry that is still in its birthing phase are at insane levels.
Currently $800 billion invested in all Cryptocurrencies (a lot more if you consider all project investments as well) and yet I believe all existing projects could be compared to Tape Cassettes.
We didn't even get to CDs, Video, blue-ray yet. And frankly speaking nobody knows where this crazy experiment is heading. Because that is exactly what it is — an experiment with money and exchanging value. Who knows where and what this will lead to. Right now we are still in the phase of creating liquidity. We need liquidity in order to have adoption. Remember this when you consider projects to put your money behind and which ones to support in terms of a technology curve. Too far ahead and they wont have the adoption necessary to survive. If you are trading on margin these opinions should have little weighting of course on what you do.
A key takeaway from this article should be that you need to do your own research. Do not believe anyone, even your best buddy. Go out there, get mucky with the code of the projects if you can, download the whitepapers and get reading, get active in their chat rooms and participate in their network. Do your own due diligence always and remember, as price is going parabolic — this is just the start of a new industry. There will be many opportunities ahead. So do not fear missing out right now, before you have educated yourself. If you instead spend the time understanding and educating yourself you stand a better chance of picking a winner over a turd in the long run.
We hope you found this article of use, please feel free to share and ask questions in the comments below.
ROC is all about collaboration with others. If you have any suggestions or ideas you would like to contribute to the article please let us know.
There will be a follow-up article on a project we are invested in and consider to be a great potential for the future: Cardano (ADA)