Adventures in cryptocurrencies

My colleagues at work talk a lot about blockchain technologies in the recent years. We did some prototyping projects in 2016 with FinTechs in Frankfurt and are about to start some real project work with customers. Blockchain is certainly one of the most influential technology trends. But somehow this one didn’t infect me spontaneously. I wasn’t too convinced by the technological story of blockchains. But the use cases of blockchains seemed always very intriguing to me. Especially getting rid of expensive intermediaries between two parties sounded interesting. So I waited for a chance to get personal first hand experience with the application or usage of blockchain technologies.

At the beginning of October I learned about the upcoming launch of the Wysker shopping app. Wysker plans to use blockchain technology on several levels: They issue their own tokens (WYS tokens) in order to use them for discounts, rewards and promotions between users, advertisers and retailers as you can see in the following picture:

I found the general idea quite fascinating: Giving users back control about their data, even getting them paid for the usage of their data. This made perfect sense to me — especially for German consumers who are traditionally very concerned in terms of privacy. Wysker also plans to find investors via an ICO — the first ICO in Germany. Wysker is located in Berlin and run by an interesting team.

So I decided to join that ICO with a small amount of money. I finally wanted to get a better personal feeling for what everybody was talking about!

What looked quite easy at the start became a little spare-time project in the end. Questions arose like:

• How do I get generic Ethereum tokens (ETH) that I need to trade for Wysker tokens (WYS)?
• Which platforms are safe to use?
• Why do I need a wallet?
• Where do I store my private keys?

I didn’t expect so many difficulties. The more you read the more suspicious you get. It is very simple to lose your money when you deal with tokens. So I took one step at a time.

I knew I needed ETH to trade them for WYS tokens. So the first question was: How do I get ETH? Kraken or Coinbase were recommended on many sites as established and secure exchange platforms for many standard tokens. Coinbase seems very usable but has slightly higher fees from a German/EUR perspective. Kraken is cheaper but is not as easy to use and lacks a bit of stability (as I learned afterwards).

But didn’t we want to get rid of intermediaries with the blockchain approach in the first place? And now: The first step involves a third party that wants to earn money…

Nevertheless I started my first steps with Kraken. Surprise number one was that Kraken is very explicit about your identity. They have 5 tiers (0 to 4) of verification. It turned out that I needed tier 3 verification to trade from Germany as I needed. So this needs some time (read: hours)!

The next step is to transfer some “real money” from your bank account to your Kraken deposit. Kraken calls this “funding/deposit”. I used a SEPA transmission. It was free of charge in October 2017. But things get “interesting”. You get clear instructions for your SEPA transfer. Kraken uses Fidor Bank as intermediary bank. You transfer money to Kraken’s account at Fidor bank and name your Kraken account in the comment of the transaction.

Sounds like adventure? It is!

So you perform the transaction as proposed. The money leaves your private bank account — and is gone for some days. You get nervous but read many reassuring posts in the web that the money will arrive at kraken — eventually. It did arrive in my case after 3 days. So finally I was ready to trade at Kraken.

So I found the second intermediary with Fidor bank in this peer to peer blockchain world...

In the meantime I had watched the exchange rate between EUR and ETH going up and down quite heavily. So you face an exchange rate risk at this point. Also the presale of the Wysker ICO was about to close. I just had two days left before the presale closed. It offered 30% discount on WYS tokens. Appealing, but ETH/EUR exchange was also ranging between 245 and 275 EUR/ETH in a few hours at the time. Nevertheless I finally bought my first ETH at a price that seemed somewhat reasonable.

There are a lot of handy tools out there to watch cryptocurrency prices rise and fall. I use CryptoTrader at the time of writing.

In the meantime I had learned that you can’t participate in an ICO with your tokens from a token exchange like kraken. You need an ethereum wallet that can handle standardized ERC20 tokens. These days most ICOs issue ERC20 tokens. Your wallet doesn’t store your tokens, but it stores your private keys and has an associated public address that gets used in etherium token trading. There are software wallets and hardware wallets. Software wallets are comfortable to use but many sources recommend the usage of a hardware wallet like Trezor or Ledger Nano S. I bought the latter. And again: Be aware of shipping time! This can take days to weeks…

So my next step was to prepare my hardware wallet and transfer my ETH tokens from Kraken to my hardware wallet. but: It didn’t work. Kraken reported errors that I didn’t understand. With the help of the Kraken support team I found a solution in a Kraken forum: You are not allowed to withdraw money or tokens for three days after you first transferred money to your deposit! At least not as a German citizen.

Note: your residence plays an important role in crypto trading!

So finally I missed the 30% Wysker ICO presale discount because of this unexpected delay. In rear-view I had accepted a rather bad EUR/ETH exchange rate to be on time but didn’t get my ETH into my wallet in time. Too bad.

But I used the time to get accustomed to my hardware wallet and how to use it. As recommended on many sites I decided to use MyEtherWallet (MEW) in the Chrome browser to work with my Ledger Nano S wallet. Ledger has its own software package, but MEW is open-source and kind of a standard tool. It is also used in many tutorials. So I gave it a try. You use MEW to access your wallet — either to retrieve your current token status or to transfer tokens. The rest of the time your wallet (and your private key) is offline. This increases your security.

I also used the time to understand etherium trading concepts like gas and gas limits. They are important, because they determine the transaction price you pay for etherium trading. MEW has a lot of great documentation on these aspects like this explanation on gas prices. I also learned about tools like ETH gas station that you can use to determine a good gas price for your transaction.

Note: The pre-configured default gas price in tools like MyEtherWallet is not always the best option.

I finally made it and transferred my ETH from Kraken to my wallet. Kraken handles this as a withdrawal. Withdrawals have small fees (like trading EUR to ETH). The fees can get paid in EUR or ETH.

When your tokens arrive in your wallet then you are finally prepared for your ICO. So for first-timers I would recommend to consider at least two weeks preparation time for your first ICO. Maybe more if you want get a good ETH exchange rate!

To be clear: there are no real tokens in your wallet. There is a transaction in the public blockchain that proves that some account address owns these tokens and that account address is associated with your wallet. I think many people get confused with the term “wallet”. The wallet is more or less a secured key store with a publicly known account address...

To continue my personal story: I finally traded ETH for WYS tokens. Due to the described delays I only got 15% presale discount because I missed the deadline. You send/transfer ETH tokens to the public address provided by the ICO. I did that via MEW. You get a transaction number in return. You can use this transaction number to watch the blockchain process your transaction. And this really is the nice part: It just took seconds to complete my transaction. The transaction fees were really small.

Most ICOs are based on ERC20 tokens. You can use tools like ETHplorer to learn about new ERC20 tokens and how to configure them to show up in MEW.

Days after my investment in Wysker I learned that they were affected by the Parity bug. Bang! I was grateful to learn that Wysker did everything for early investors: They issued a new token and associated the new token with my account (with a factor of 1.25). I just had to reclaim the new tokens.

At the time of writing (November 2017) ETH price rose 50% in only 4 weeks to now 390 EUR. So your investment in ICOs is all about timing.

Note: The right time to buy ETH might be more crucial than to get a 30% ICO presale discount.

I hope I could draw a realistic picture about the subtleties of this brave new world with my story. Technologies like blockchain certainly enable new possibilities and even new markets. As always you need to be very careful if you enter places with little to no regulation. You will sense a lot of greed. At the same time it is fascinating to see new technologies arise and getting adopted in an immense speed. It’s nearly impossible to believe that this will go away again.

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