Know what you are investing in: A quick primer on crypto currencies
In the last couple weeks, I’ve noticed a large spike in friends and colleagues reaching out to me about investing in Bitcoin and Ethereum. I’m used to getting these occasionally but it seems to be happening much more frequently as of late.
This tells me a few things. First, a more varied group of people is getting interested and involved in cryptocurriencies. I love to see this trend continue as I think there is a lot to be gained from this technology going mainstream. However, this also causes some concern because it means there is a lot of speculation. While this isn’t a revelation, the magnitude to which the value is being driven by people who don’t understand what it is they are investing in is a little unnerving. While its true the mass market doesn’t necessarily need to understand the tech behind cryptocurrencies, just as very few understand HTTP or SMTP but everyone can search the web and send emails, the difference here is they are actually investing money rather than simply using a product.
I don’t consider myself a blockchain expert, more an avid enthusiast. I started learning about the technology 4 years ago and have tried to read as much as I can and talk to as many folks as often as possible since. While I‘m no Nick Szabo, Vitalik Buterin, or Adam Back, I do know enough to be dangerous and have some experience investing in this space.
Inevitably, when friends and colleagues reach out to learn about investing in cryptocurrencies, they ask some version of “Do you think it’s going to crash soon?”
My response: I don’t know. Maybe.
But I do know this.
The last couple days we have seen cryptocurriencies across the board drop a fairly significant amount. But that’s been a recurring story for the last several years; rise and fall in price only to be followed by another higher rise and fall and then rise higher still. How high can or will it go? Who knows. Is it over valued now? Don’t have a clue. What I do know is that there is a lot of real innovation behind many of these currencies. Like the Internet, I believe it will redefine social, economic and political landscapes over the next 10–15 years and for the first time in history, it is possible for anyone anywhere in the world to invest in the underlying protocol of a global infrastructure. Investing in Bitcoin, or Ether or any other cryptocurrency is analogous to investing in HTTP requests of the early Internet or SMTP for email. Not a website or an email provider, but the Internet and email itself. If this turns out to be true, it only stands to reason the currencies tied to these platforms will appreciate in value as well.
So when friends and colleagues ask me about investing in cryptocurriencies, here is my advice:
1. In the last seven years, developers have created numerous applications for the technology, which has made it possible for cryptocurrency buyers to make a great deal of money. That said, it’s still the Wild Wild West. The market is far from mature and cannot be considered stable. Whatever you invest, you have to be ok losing it all.
2. If you are going to invest, I suggest investing with a long-term mindset. Don’t try to time the markets and play day trader. To be comfortable with this, you need an elementary understanding of the tech and industry and come up with a simple thesis for your investment.
3. Hence, go learn as much as you can about the protocols and currencies. I’ve listed a few resources below to get you started but there is a ton of information available and I highly encourage you to take the time to educate yourself on it.
4. Then make your decision. If you decide to invest, you’ve avoided making that decision out of FOMO.
5. Don’t store your cryptocurrency on an exchange and keep a copy of your keys stored safely, preferably offline. Here are a variety of ways to store your cryptocurrencies.
6. And last, lets go grab a drink and we can talk for hours on hours about this stuff. I’m more than happy to answer any questions you might have.
If you are interested in investing, I encourage you to do so. However, I highly recommend you do some research and talk to someone who knows about this space before you do.
General Overview of Blockchain
Trust Disrupted Series from TechCrunch
Quick overview of Ethereum from the founder
