SO WHAT’S IT ALL ABOUT?
This is a bit of a break from my usual photography-based blog posts but after my last post about accepting Bitcoin/Ethereum for wedding photography & commercial commissions I have been asked by a number of people what bitcoin actually is and how they can buy it.
Below is a very simplistic explanation of cryptocurrencies. I believe, along with millions of others, that cryptocurrency and blockchain technology will play a very strong part in the future and alongside this it offers great investment opportunities if you are prepared to take a risk.
Trading in cryptocurrencies is essentially gambling although blockchain technology is set to become ingrained in the way technology and the internet operates so the potential opportunities for growth are huge. In this last week Bitcoin (and many altcoins) have started heading back up in value at a pretty serious rate, now is a great time to get involved in cryptocurrency trading and it’s really not as complicated as many people fear it to be.
The following is not financial advice or specifically a recommendation to invest in cryptocurrency, it is provided as an educational article. The cryptocurrency market is highly volatile so to get involved is entirely at your own risk. Only invest what you can afford to lose. There are opportunities to make a lot of money, often in a short amount of time, it is also possible that the value could drop leaving you with less money than you started with.
• WHAT IS BITCOIN?
Bitcoin (or BTC as it is abbreviated to) is the biggest of all of the cryptocurrencies – a virtual currency which doesn’t exist in a physical form. Cryptocurrencies are designed to work as a medium of exchange allowing money to be transferred all over the world extremely quickly and without the involvement of banks or governments. I won’t go into the whole blockchain explanation and the detail of how bitcoin/crypto is created (mostly because it confuses the hell out of me!) but they are ‘mined’ by computers and made available to buy through Crypto Exchange websites such as Coinbase, more on that later.
You can buy fractions of BTC with real money (known as fiat money) and then exchange it back to £££ at any time, ideally once it has gone up in value, so that you can make a tidy profit. In that respect it’s similar to buying stocks & shares. For this reason people that buy & sell bitcoins are known as cryptotraders.
Bitcoin is not owned by one central entity such as a government or a central bank, in other words it’s decentralized and unregulated. Control is in the hands of the people that buy it. Power to the people!
The value of BTC goes up & down, driven by the demand for it. The more people that want to buy it the higher it’s worth (usually defined by BTC/USD), if lots of people decide to sell then the value of it drops. What makes people decide to buy or sell can be influenced by many factors, notably bad press can cause ‘FUD’ (Fear, Uncertainy & Doubt) which can cause many people to sell, sell, sell in turn leading to a price drop or in extreme cases – a crash.
At the time of writing if you wanted to buy a whole bitcoin then it would cost you $9,972 but if you just wanted to buy £10 worth then you can, you don’t have to buy a whole bitcoin! Back in December 2017 one bitcoin was worth $20,000 so if you had bought $100 worth of BTC in 2010 when they were just $0.04 each your 100 BTC in Dec 2017 would have been worth $50,000,000! It’s unlikely that we’ll see such an amazing opportunity as that now although John McAfee (the multi-millionaire anti-virus software pioneer) is convinced that one BTC by 2020 will be worth $1,000,000 so if you bought £100 worth today (and his prediction came true) your £100 would be worth over £10,000.00 in just two years time. Now that would be nice! In fact, Mr McAfee is so sure of his prediction that he has publicly proclaimed he will eat a certain part of his own body if it doesn’t come true!
• OTHER CRYPTOCURRENCIES
The second largest cryptocurrency is called Ethereum (aka ETH), you can buy & sell shares in Ethereum coins on the Coinbase exchange site similar to Bitcoin. Ethereum has different potential to BTC and is tipped by some to one day be bigger than bitcoin due to it’s versatility.
There are hundreds of other smaller cryptocurrencies available, each offering to serve different purposes in the future, using the blockchain technology, these are called altcoins and shares in these can also be bought although this is a more complex procedure involving crypto-exchanges which allow you to trade BTC or ETH for them and vice versa.
• HOW TO BUY YOUR OWN BITCOIN/ETHEREUM CRYPTOCURRENCY
There are various exchanges which allow you to pay in fiat currency (GBP/EUR/USD, etc) and then exchange it for fractions of a bitcoin. One of the largest, and the one I personally use is called Coinbase, a company based in San Franscisco with over 10 million customers worldwide. Coinbase allows you to buy & store Bitcoin (BTC), Ethereum (ETH) and Litecoin (LTC), to open an account just follow this link and you’ll receive a free $10 worth of BTC when you spend your first $100 (£71) on a cryptocurrency with them (in the interests of transparency, I would also receive $10 from Coinbase when my referral code is used).
Setting up a Coinbase account is pretty straightforward (I managed it so it must be!), rather than try to reinvent the wheel this English lady – Louise Elizabeth explains it very clearly here on YouTube (she has lots of great, helpful videos on various aspects of cryptocurrency trading) – be sure to come back here after watching it to use my link to get your free $10 when you open your account!
It’s a simple as setting up a Coinbase account, transferring some money from your bank to your Coinbase Euros wallet and then hitting the BUY button to purchase your Bitcoin. Hey presto – you own some bitcoin! Wasn’t that difficult was it?! You can leave it in for as little or as long as you want and when you decide you’d like to sell your Bitcoin and convert back into Euros just hit the SELL button and then just transfer the Euros back to your bank account.
It’s not a dark art!
• HOW TO BUY ALTCOINS
There are around 1500+ other smaller coins called altcoins (I have added some of the altcoins I have to the footnote of this post). The companies behind them all aim to provide different services utilising the blockchain in different ways from offering security, privacy, faster payments, decentralising various industries and my current favourite – online content protection by a company called Po.et and their coin POE.
To buy altcoins you firstly need to buy some Ethereum on Coinbase and then send those ETH funds to a trading site, I use Binance – one of the biggest trading sites (again, that link uses my referral code so if you’ve found this article useful I’d really appreciate if you use that code when going to Binance as I’ll get a little bonus back!). Once you have opened a Binance account you can use your ETH to trade for the altcoins.
Once again it seems pointless for me to go into all the detail when there is already such great resources available online, here’s one video on how to use Binance.
• DAY TRADING vs LONG-TERM INVESTING
Personally I’m more in favour of long-term trading (aka Holding or HODLing) – buying the currencies and leaving them to grow (hopefully) over months or years. If you want more short-term gains you can try day trading which involves learning how the trading charts work & reading them for signs of when a coin is due to rise or fall. The idea is to buy cheap & then sell when they go up a bit but it’s a much riskier game to play and involves a thorough understanding of the charts & patterns/signals.
• TAKING IT FURTHER – ADVANCED CRYPTOTRADING
AVOIDING FEES – There are slightly convoluted methods to avoid Coinbase & bank transfer fees which involve getting a Revolut account, loading it with GBP, converting to EUR free of charge & then setting up a bank transfer to Coinbase (again free of charge). Once the EUR are in Coinbase you can transfer them to GDAX (owned by Coinbase) and exchange them for BTC/ETH/LTC/BCH again for low/zero fees. This is a fairly fiddly way of going about things when you first start out so I’d probably suggest just setting up a Coinbase account, linking a debit card and transferring some money to get started. If you are feeling adventurous a few weeks down the line, once you’ve got your head round it all, have a look at this method. It could have saved me hundreds if I’d known about it a few weeks back!
WALLETS – While Coinbase & Binance are said to be very secure there is always the threat of hackers getting through their security & stealing the cryptocurrency. If you do find you get into crypto and end up investing more than a few hundred quid then it may be wise to look into storing your coin in more secure means such as MyEtherWallet or even in a hardwallet (a super-secure USB which can hold the private keys for your cryptocoins offline, totally out of the reach of those nasty hackers).
• USEFUL CRYPTO APPS
– Coinbase – the phone version of the main site – handy to keep an eye on how your coins are doing and buying some more while you are out & about if you are that way inclined.
– HODL – named after a term often used in cryptotrading to mean Holding on to your currency over the long-term through dips & troughs, this app is a great one if you have a portfolio of altcoins. You can enter how many of each coin you have and using the real time values it clearly displays how much they are going up or down in value. WARNING: It can get a bit addictive checking the value of your portfolio!
– Google Authenticator – A two step verification app used for an extra level of security when using Coinbase or Binance, etc.
I hope this has been of some use to those of you that wanted to know more about Bitcoin and cryptocurrency trading, like I said it’s very basic but as a starting point hopefully it will educate a few people as to what all the fuss is about. I’m totally hooked on it and have really enjoyed learning all about this new world. I still have lots to learn so don’t expect to see me hanging out on Facebook much in the evenings.
It’s been suggested that I add here which cryptocurrencies I am currently invested in and why, so below I’ll list the ones I’ve selected. I won’t say how many or how much, that’s for me to know but I’ve done a fair bit of reading & research over the last few weeks and made my choices based on Fundamental Analysis (as opposed to Technical Analysis which involves studying the charts to try to predict short-term outcomes). I’ve also taken on-board the postings of some very knowledgeable & experienced cryptotraders and put together a little portfolio of some of my favourites.
I have about half of my invested total split between BTC & ETH as I feel they are the safest bets for a steady growth and in the unlikely event that all the others should fail at least I should be covered for any losses by holding the two big daddies of the crypto world.
The coins I hold are listed below with a brief description of what they are…
BTC – Bitcoin – the #1 biggest cryptocurrency, the daddy of them all. Where BTC goes the others tend to follow.
ETH – Ethereum – the 2nd biggest coin by market cap, an open-source, public, blockchain-based distributed computing platform featuring smart contract (scripting) functionality. Tipped to possibly become bigger than BTC one day.
TRX – Tronix – the company behind this coin (Tron) plan to shake up the entertainment industry using the blockchain for decentralised content in the entertainment industry – allowing entertainment providers, ie. Musicians/Film studios, etc to distribute their content direct to the consumer thereby cutting out the middle-man eg.itunes/Google Play, etc. There’s been a lot of hype around TRX over the last few months. They seem to have a great team behind them so could be one to watch in 2018.
LTC – Litecoin – faster & more abundant than BTC, aims to be used as a form of cash for smaller purchases, eg buying a coffee at Costa!
XRP – Ripple – Specialised for money transfer & real time global payments, aimed, I believe at the online banking industry, currently the third biggest coin by market cap.
XVG – Verge – A currency aimed at secure & anonymous payments, Verge soared 800% in value in just one week in Dec 2017
ADA – Cardano – a technological platform that will be capable of running financial applications currently used every day by individuals, organisations and governments all around the world. A separate computing layer will be built to handle smart contracts, the digital legal agreements that will underpin future commerce and business.
POE – Po.et – This one I’m really excited about – Po.et is a shared universal ledger designed to track the world’s creative works using the blockchain to register, timestamp and verify any creative works put online. I think this one could be huge and has been touted on some blogs to potentially hit 1000x it’s currently value in the next 12-18 months.
KMD – Komodo – Allows developers to build customised, decentralised blockchain technologies – could be the building block of blockchains of the future. Currently a bit of a sleeping dragon but wait till she wakes up & starts blowing fire. One to watch for sure!
For more information on the other altcoins and what purposes their parent companies plan to provide the website Cryptominded provides clear & concise descriptions on a good number of the more popular ones.