Did you know that investing in Bitcoin and Ethereum could make you a millionaire?
Imagine you wake up one day, and you have $886,000 in your bank account. You didn’t put any blood, sweat, and tears to earn them nor did you receive an inheritance from an unknown family member. You’ve just made a small investment that ballooned into a fortune over time.
That’s what happened to a man from Oslo.
Back in 2009, Christopher Koch learned about Bitcoin while working on a thesis paper about encryption. The entire system fascinated him, so he decided to invest $27 for 5,000 Bitcoins.
Koch quickly forgot about the investment until four years later when Bitcoin started popping up in the news. So, he checked his encrypted wallet only to discover that he was sitting on an $886,000 nest egg.
Unfortunately, not all of us are as lucky as Koch. But, that doesn’t mean you can’t possibly become a millionaire by investing in virtual currency. You just need to understand how they work so that you can maximize your profits.
This comprehensive guide will teach you everything you need to know about why you should invest in Bitcoin, Ethereum, and other altcoins and how to do it.
I will be direct and let you know that I am not a financial advisor and invest in cryptocurrencies at your own risk. I myself, have personally invested $10,500 in cryptocurrencies four months ago, and it has grown to be worth about $15,000 in that timespan. This included a $2,500 investment in Ethereum that I sold off after a month and a half, at a value of $5,500. The growth of my portfolio has slowed down the last month or so as Bitcoin deals with scalability issues (Segwit), that I won't address here, as this is a post targeted for beginners.
Let’s dive right in, shall we?
The Hype Around Bitcoin and Ethereum (Ether)
A lot of people scoff at the idea of virtual currency when they first read about it. It almost seems too good to be true. However, after reading more about how it works, most people get sold on the idea. And, here’s why.
Since the first Bitcoin transaction recorded in 2008, the cryptocurrency was proven to be one of the most secure investments one could make. Except for 2014 when the price fell to $30 for a short period, Bitcoin continues to exceed all expectations.
Let’s look at the numbers to understand the hype around it better. Back in 2015, Bitcoin saw an impressive +20% increase. In 2016, however, the gain spiked to 120%, making the price of the cryptocurrency skyrocket from $400 per Bitcoin to $1,200 per Bitcoin.
So, it should come as no surprise that Bitcoin is the world's most high-profile digital currency right now.
What about Ethereum?
Ethereum is rather new. The first mention of this cryptocurrency appeared in 2013 when Vitalik Buterin, a Russian programmer, described the technical details and rationale for Ethereum protocols in a white paper.
The currency was launched in 2015, and although it’s less than two years on the market, it has already become Bitcoin’s top rival. In the last 12 months, this virtual currency has risen from $10 per Ethereum to $20+ per Ethereum, and it’s estimated to run up to 90% this year.
So, the future sounds bright for those who decide to invest in Ethereum.
In fact, both virtual currencies seem to have a lot potential. But to better understand how much potential we’re talking about, let’s find out more about how they work.
What is Bitcoin?
Bitcoin is the first global, decentralized currency that allows you to send money from one person to another without involving a third party broker, such as a bank. You only need your computer to make transactions because Bitcoin is fundamentally software.
As a decentralized currency, Bitcoin isn’t controlled by anyone. It’s open so that anyone can benefit from it.
You might think that the lack of control could mean chaos, but that’s not true at all. That’s because Blockchain, the technology behind Bitcoin is one of the most accurate and secure systems ever created.
How Does Bitcoin Work?
A blockchain is a ledger that keeps records of digital transactions. Instead of having a central administrator, like a bank or the government, blockchain organizes data in batches called blocks. These data batches use cryptographic validation to link themselves together. In other words, each block identifies and references the previous block by a hash value, forming an unbroken chain.
Blockchain solves two of the most challenging problems of digital transactions: controlling the information and avoiding duplication. When a purchase is carried out, the ledger records it and sends it out to the entire network. Computers all over the world then compete to confirm the operation by solving complex math equations. The first to figure out the answer and validate the block receives a reward in Bitcoins (this process is called mining.)
The validated block is timestamped and added to a chain in chronological order. The entire chain is continually updated so that it's always an accurate representation of who owns what at any given time.
Characteristics of Bitcoin
Global
In other words, it has no limits of any kind. You can send it to anyone across the world with no condition. Moreover, you don’t depend on a schedule, as it happens with bank transactions since Bitcoin is available 24/7, 365 days a year.
Irreversible
Unlike bank operations that can be reversed even months after they were initiated, a Bitcoin transaction can’t be turned around by the sender.
Low Fees
No matter the size of the transaction, you only pay between half of a cent and five cents.
Private
You don’t need to provide any personal information when paying with Bitcoin. The only information required is the bitcoin address and the amount you’re sending.
Secure
The Bitcoin network is cryptographic. So, when you make a payment, you don’t risk having your identity stolen since the system doesn’t send any sensitive information to the network.
Open
Bitcoin transactions are public, everyone can see them. So, due to this transparency, operations can’t be manipulated.
What is Ethereum?
Unlike Bitcoin, the primary purpose of Ethereum isn’t to act as a form of currency but to enable “smart contracts” between the parts without forcing them to trust or use a middleman. Smart contracts are computer codes that can facilitate the exchange of money, property, content, or anything of value. Because these contracts run on the blockchain, they run just as they are planned without any possibility of downtime, censorship or fraud.
Ethereum enables developers to build decentralized applications (or Dap.) Because these computer programs are made up of code that runs on a blockchain network, they aren’t controlled by a central entity.
Think of Ethereum as the world's first decentralized virtual supercomputer.
How Does Ethereum Work?
Here’s an example that can help you understand how Ethereum works. When you send a message via Whatsapp, the message goes through the Whatsapp data centers. In other words, the content of your message gets in the hands of one big company. This system is called a centralized network of computers.
When you send a message using a decentralized application, on the other hand, the messages is sent to a network of independent computers all over the world owned by regular people. Every computer does a bit of the work and receives rewards in the form of a digital asset called ETHER.
Bitcoin vs. Ether
Just like Bitcoin, Ethereum is an open-source blockchain network. Although there are some differences between them, the most relevant distinction you must remember is that they have different purposes.
Bitcoin offers just a particular application of the blockchain technology and is designed as a peer-to-peer system that facilitates digital transactions. Ethereum, on the other hand, is a platform for running applications on a distributed network that allows smart contracts between individuals worldwide.
In the Bitcoin blockchain, miners work for bitcoins while in the Ethereum one, miners receive Ether, a digital asset that fuels the network. This currency can also be used to pay for services and transaction fees on the Ethereum network.
So, remember: Bitcoin and Ethereum have different purposes and fulfill different needs. As such, Bitcoin and Ethereum are separate protocols, so you can’t complete a transaction from one to another.
Why Bitcoin and Ethereum Matter?
It has become common today to speak approvingly of blockchain but to dismiss Bitcoin and Ether. Financial magazines write about how banks and investors race to harness the power of blockchain but treat cryptocurrencies with skepticism.
However, they confuse technology with valuable applications.
Here’s why Bitcoin and Ether are worth your attention:
Decentralized Forms of Currency
What makes these two cryptocurrencies interesting is that they work in a decentralized manner. Simply put, there’s no central entity (like banks or governments) that prints money. Instead, the money is being minted by the people (miners).
Because Bitcoin is globally distributed across thousands of nodes with no single point of failure, the system can’t be shut down.
Think about how BitTorrent works to understand the technology behind Bitcoin better. BitTorrent was designed to decentralize information so that data can be sent more quickly and efficiently. The protocol breaks each data into multiple blocks and sends them to different users. The users then share these pieces of data with each other, dramatically reducing the load for the original distributor of the information.
Bitcoin employs the same logic.
Another great thing about Bitcoin is that it’s censorship resistant. Your Bitcoin transactions can’t be blocked, censored or altered by anyone even if they disagree with what you’re doing. Moreover, no one can prevent you from interacting with the bitcoin network.
Unlike other currencies, you own Bitcoin. In other words, you can't wake up one day only to discover that your accounts have been frozen. Bitcoin is the only electronic cash system in which your account is entirely yours.
Take PayPal as an example. If the company decides, for some reason, that your account has been misused, it has the power to freeze all of the assets held in the account without consulting you.
But, because no one else controls your Bitcoin account except you, the platform protects your wealth against third parties. Thus, central governments can’t take it away as it can happen with standard currencies.
Here's the perfect example to illustrate the fragility of the traditional bank system.
The 2012-2013 Cypriot crisis when the government froze and seized assets in response to a bailout deal with the European Union (EU) left many questioning the safety of the banking system. The interest in Bitcoin skyrocketed as soon as Cyprus began discussing tapping deposits as part of the bailout. Investors and regular people alike quickly realized that a decentralized money system is the best way to keep their assets secure.
Bitcoin Is Limited in Supply, Like Gold
Most people still have a difficult time understanding what Bitcoin is or why it has value. A good way to look at it is to compare it to gold.
Just like gold, the cryptocurrency has a limited supply. The total number of Bitcoins that will ever be produced is set at 21,000,000 coins. It might not sound like much, but it’s quite enough.
To date, there are already 11 million Bitcoins, but it’s estimated that it will take more than 100 years before all 21 million coins will be mined out.
Because all Bitcoins are created and handed out in a predictable manner, the risk of inflation is almost nonexistent.
One of the things most people get wrong about Bitcoin is that they assume that since there’s a finite amount of coins that can ever exist, then the currency has limitations. But, that’s not true at all since all transactions can be denominated in smaller sub-units of bitcoin. Think about them as bits. One bitcoin contains 1,000,000 bits.
You can divide a bitcoin up to eight decimal places - that is 0.00000001. You can go even lower than that if there's ever the need.
Borderless and Have Low Transaction Fees
You can send and receive bitcoins anywhere in the world, at any time. There are no border limits, no vacations or schedule restrictions. And, probably the best part about it, there is no bureaucracy.
As I’ve mentioned above, you are in full control of your money. You can even choose your fees since most wallets allow you to control how much it charges you for a transaction. Unlike any other payment system, you don’t have to pay any fees when you receive bitcoins.
Since it’s universal, you can pay with bitcoins from anywhere in the world. That is particularly useful for countries confronted with inflation and payment problems. Latin America is an excellent example of people turning to Bitcoin in response to the recent financial crisis they are facing. Being a universal currency, Bitcoin allowed Latin consumers to shop and send money internationally. Global companies, such as Walmart or Apple that might not accept local payment options from Latin American can now use the cryptocurrency to continue to reach consumers in the region.
Storing Value from Unstable Currencies
Chinese stocks slumped sharply at the beginning of January 2016, sending shockwaves around the world. The index performance for Dow Jones Industrial Average was down 400 points in the first weeks of 2016, causing panic amid Wall Street investors.
In response to the depreciating Yuan, Chinese investors turned to Bitcoin to keep their assets afloat. According to MarketWatch.com trading volume in China surged toward the end of the year with nearly 99% of global trades executed on OKcoin, BTCChina, and Huobi, three of the largest Chinese exchanges. Investors paid as much as $675 for a single Bitcoin.
Why Bitcoin, Ethereum, and Cryptocurrencies Could Make You a Millionaire?
Buying virtual currencies might seem like too much of a risk. But, if you think about it for a second, it’s one of the soundest investments you could make.
Imagine if you had taken the risk and bought $100 worth of Bitcoin in 2011 at $0.33 per Bitcoin. Now it would be worth $399,600 at $1,200 per Bitcoin.
While you can’t turn back time and, just like Christopher Koch, spend a few bucks on Bitcoin and wake up wealthy four years later, you can still make a lot of money investing in cryptocurrencies now.
The Value of the US Dollar Is Depreciating
Have you ever wonder why you just can’t seem to stretch your dollars enough anymore? The explanation is rather simple: the value of the US dollar is declining.
Until 1914 the US dollar had a fixed value. For example, if you saved ten dollars in 1790, you could still buy the same amount of goods with your savings 100 years later. Nowadays, however, money seems to be worth less and less every year.
In 1913, the United States introduced the Federal Reserve Banking system, the first step toward dissolving the gold standard. Until that moment, the dollar was backed by gold. So, for example, you could exchange a $20 bill for $20 worth of gold. The currency supply was tied to the gold supply. Because there was a limited amount of gold, there was a limited sum of money in the system, as well. As a result, the dollar was highly valuable because it had a real, tangible value backing it.
However, starting on 1913, the dollar would only be partially backed by gold. As time went by, the paper money supply expanded faster than the country’s gold supply, and the US dollar quickly lost its value.
The more money printed, the more worthless it became. And this trend continues. As the U.S. persistently destroys the value of the dollar by overprinting, foreign nations are losing confidence in the dollar and its role as a reserve currency.
Global Enterprises Give Bitcoin and Ethereum Stamps of Approval
One of the biggest companies in the world is betting on virtual currencies. IBM has announced a variety of partnerships and initiatives related to the blockchain. According to an IBM study, 15% of the banks surveyed plan to use blockchain by 2017 while 91% of them are already investing in blockchain for deposit-taking.
Finance isn’t the only opportunity IBM sees with blockchain. The company believes that the technology could revolutionize the world.
However, IBM isn’t the only big company interested in blockchain technology. Microsoft doubled down on Ethereum with a new blockchain product, the Ethereum Consortium Blockchain Network, a project that aims at helping industries work together to build increasingly complex consortia that would leverage the network effects of shared, immutable ledgers. Simply put, this consortium will allow groups of companies to deploy a private Ethereum Network with a single click.
Virtual Currencies Could Be Replacements for Gold
It might be hard to believe, but it’s a real possibility, considering that Bitcoin is now worth more than gold. For the first time, the price of one Bitcoin has surpassed the price of one ounce of gold.
Most of the early adopters claimed that Bitcoin would eventually replace gold as the preferred alternative store of value. If it didn’t happen yet, it isn’t because Bitcoin lacks the capability to become the new “gold standard” but because it’s still rather complicated to invest in the cryptocurrency. Its volatile price is another factor that made it hard for Bitcoin to become a reliable alternative asset.
But, now that one Bitcoin is worth more than one ounce of gold, it could be a sign that it could rival gold as a safe-haven.
How to Start Investing in Bitcoin, Ethereum, and Other Cryptocurrencies
There are multiple ways to invest in virtual currencies, and it all depends on what you want. Here are the basics of buying and investing in Bitcoin, Ethereum and other alternative cryptocurrencies (altcoins).
Coinbase
If you’re new to cryptocurrencies, then Coinbase is the best way to get started.
Coinbase is an online exchange platform for transferring, buying, selling, and storing cryptocurrency. Its creators wanted to develop an open system that would allow people to convert digital currency into their local currency. In 2013, Coinbase became the top-funded Bitcoin startup, raising over $25 million.
If you look at some of its advantages, it's easy to understand why Coinbase gained so much traction in such a short period.
- It makes it incredibly easy to buy and sell digital currency.
- You don’t have to worry about security or backups.
- One simple interface covers everything you need, from wallet and exchange to merchant tools.
How does it work?
So, how does Coinbase work? Let’s take a look at the steps you need to take to create an account and start using it:Create an Account
Head over to coinbase.com and set up your account. Once you confirm your email address, you can visit the Buy/Sell Bitcoin Section. But, before you can purchase any Bitcoins, you’ll need to take a few more steps.Verify Your Bank Account
You’ll be asked to link a bank account to Coinbase. With this account, you can convert US dollars to Bitcoins. Don’t worry, Coinbase will verify your bank account to make sure everything is safe.Confirm Your Phone Number
When you log into your Coinbase account, you will be required to enter a password and a security token you’ll receive on your phone. Thus, no one else besides you will be able to access your account. Coinbase will also verify your phone number for additional security.Purchase Your First Bitcoins
Now that everything is in place, you can open the Buy Bitcoin Page and enter the amount you want to buy. If you want to sell Bitcoins, then you should go to the Sells page, enter the quantity, select a wallet you wish to sell from and then choose the account you want to deposit the coins. Once ready, all you need to do is confirm the order.If you signup for Coinbase using this link, and buy or sell $100 of digital currency or more, both you and I can earn $10 of free bitcoin!
GDAX and Gemini
If you’ve already tested the waters and decided that Bitcoin is something worth investing in, then you need to learn how to use GDAX and Gemini. Just like Coinbase, they are exchange trading platforms that allow you to buy, sell, and store cryptocurrencies. However, these systems are more complex than Coinbase and perfect for day trading. Moreover, they have lower transaction fees than Coinbase.
Let’s take a look at both of them to understand how they work.
GDAX
GDAX (Global Digital Asset Exchange) is a service provided by Coinbase that offers a secure and easy way for traders of all levels to buy and sell digital assets online and instantly, across six trading pairs:
- BTC (Bitcoin) to USD
- BTC to EUR
- BTC to GBP
- ETH (Ether) to USD
- ETH to BTC
How to Create an Account
Go to GDAX.com and select "Create Account." Add all the necessary information and click the"Create" button once you’re ready. If you already have a Coinbase account, GDAX will have you sign in with the same account, as they both are owned and operated by the same company, Coinbase.Verify your email address and provide a valid phone number. Next, you’ll need to choose between an 'Individual' and 'Institutional' account. Based on the account type selected, you will need to provide more information about yourself or the institution.
You can link your bank account so that you can fund your trading account with USD, EUR or GBP. You can skip this step if you only wish to deposit bitcoins or Ether.
How to Make Deposits
GDAX allows you to deposit or withdraw digital currencies. To make a deposit, all you need to do is send bitcoins to your account from a wallet provider or another exchange platform. Here's how:
Open GDAX.com/trade and select the currency you want to deposit from the "Select Product" menu. For example, if you want to make a down payment of bitcoins, choose BTC/USD or BTC/ETH. Hit the Deposit button at the top left and then the address tabs. Copy the account address you see in the tab. This address will be permanently associated with your GDAX account. Open the wallet you want to deposit currency from and send the amount you wish to the GDAX account address provided.
How to Withdraw Digital Currency
If you want to withdraw Bitcoins or Ether to another exchange or wallet, you'll first need to get a destination address from that service.
Here’s how.
Open gdax.com/trade and choose a trading pair with the currency you wish to withdraw. Enter the address for the external service and the amount you want to withdraw from your account.
How to Buy and Sell Using GDAX
Besides depositing or withdrawing funds, you also have the option to buy and sell digital currencies. To place a market order, you need to select the “Market” tab above the buy/sell buttons. Then Choose "Buy" or "Sell" and enter the size of your order.
If for example, you select "Buy," enter 500 as the amount and set the units to US dollars, you will buy five hundred dollars worth of the cryptocurrency you have selected.
GDAX Allows You to Control Your Losses
One of the main benefits of GDAX is that it provides more control over the transaction process. In fact, the platform even allows you to control your losses. All you have to do is select the 'Stop' button.
For instance, let’s imagine that you’ve purchased one bitcoin for $600 and you plan to sell it when the price goes up. The price, however, begins to drop, so you place a sell stop order at $590. The price drops 10% to $550, but because you set a stop at $590, your loss is limited to less than 2%. The same rule applies when you sell bitcoins and want to limit your losses if things don't go as planned.
Gemini
Gemini is another cryptocurrency exchange that has seen a massive expansion in the last years. As a world-class digital asset exchange, it provides an electronic trading platform to both individual and institutional customers.
The process of registering and using Gemini is similar to GDAX. However, there are a few notable differences.
For starters, Gemini allows you only to deposit and withdraw US Dollars, Bitcoins, and Ether. Unlike GDAX where you have six trading pairs, Gemini provides only four: USD to BTC, USD to ETH, BTC to ETH, and ETH to BTC.
On the other hand, with Gemini, you can make a deposit and then use the funds within a matter of seconds. So, you don’t have to wait a few days for the transaction to be completed as it happens with GDAX. However, with Gemini, you can only trade Bitcoin and Ether, while with GDAX you can also trade Litecoin;
I personally use GDAX to purchase my Bitcoin or Ether and then transfer it Poloniex, where I do my investing and trading.
Poloniex and Bittrex
Let's say the gold rush for making a ton of money on Bitcoin and Ethereum is over, what can one do?
No need to worry, there are numerous small virtual currencies, less well-known, that are actually growing faster than Bitcoin and Ethereum. In general, Bitcoin is the 800-pound gorilla in the room and all other non-Bitcoin currencies are referred to as Altcoins.
If you head over to Coin Market Cap, you can see a list of 100 cryptocurrencies. Including Bitcoin, they all total up to a whopping $28 billion dollar market cap. In other words, a lot of people are taking their chances at these currencies.
Where to Invest in Altcoins?
There are numerous other smaller exchanges to invest in altcoins. I personally, use Poloniex and Bittrex to exchange bitcoin into other altcoins.
One thing to note is that Poloniex and Bitttrex are cryptocurrency exchanges. You can ONLY exchange cryptocurrencies for other cryptocurrencies. You cannot purchase fiat currencies on Poloniex, you will have to do that at a different site like GDAX or Gemini. In other words, you cannot buy currencies on there using the dollar, euro, yen, etc. You can only make purchases (to exchange a currency) with bitcoin, ethereum, and a few others; bitcoin is the universal cryptocurrency for exchanging to other currencies.
My current process looks something like this.
I purchase Bitcoin (BTC) on GDAX, as opposed to Coinbase since GDAX has lower fees.
I then transfer my Bitcoin to Poloniex and exchange my BTC for other cryptocurrencies like Ripple (XRP), Stratis (STRAT), Dash (DASH), etc.
If I need to cash out, I can do so by selling the currency and getting Bitcoin back, which I can then send back to GDAX and withdraw into my bank account as US dollars.
Somewhat complex and tedious, but no barrier of entry will stop me from making money.
Useful Resources to Learn More About Bitcoin, Ethereum, and Cryptocurrencies
This guide is a great starting point if you are new to the world of cryptocurrencies. By the time you reach this point, you know what Bitcoin and Ethereum are, how they evolved and how they work. Most importantly, you understand why they are good investment opportunities. However, you can never learn enough, especially since virtual currencies are volatile and sensitive to what happens in the world.
We live in one of the most complex and challenging business environments the world has ever seen. New and competitive markets continually emerge while old ones slowly succumb. The best way to keep pace with the rapid changes is to be informed. Information means power in this day and age.
So, I encourage you to go beyond this guide and learn more about Bitcoin and Ethereum so that when you are ready to invest, you can make the best decisions.
Here is a list of some of the best resources about cryptocurrencies:
Digital Gold
This book written by Nathaniel Popper describes the rise of the Bitcoin technology through the eyes of interesting characters, including the Bitcoin’s mysterious creator, Satoshi Nakamoto.
The Cointelegraph
The Cointelegraph covers Fintech, Blockchain, and Bitcoin bringing you the latest news and analyses on the future of money.
Conclusion
With people losing faith in the traditional banking system, virtual currencies are beginning to become a more appealing option for both consumers and companies. So, it should come as no surprise that Bitcoin is increasing in value and is even considered a reliable alternative to the gold standard.
Ethereum, another open-source, blockchain-based platform is gaining traction too. Newer than Bitcoin, Ethereum focuses on something new: it’s not only about payments in electronic cash, it’s also about the creation of smart contracts. So, while Bitcoin is a digital currency, Ethereum is a platform for running applications on a distributed network.
The reason there’s such a big hype around Bitcoin and Ethereum is simple. People are tired of entrusting their valuable information, whether we’re talking about currency or data, to a single big company. Unlike traditional systems, both Bitcoin and Ethereum are decentralized, meaning that you can use them without involving an intermediate. You have control over the entire process. There is barely any time or border limit since these platforms and the currencies they are using are universal.
Bitcoin and Ethereum can provide significant advantages, especially in today’s socioeconomic realities. However, keep in mind that this guide isn’t by any mean intended to be used as financial advice. I am not a financial advisor. I am just an active participant who has Bitcoin and cryptocurrencies in my investment portfolio with a bullish outlook on its future. And I want to share this with you because I believe it’s the kind of information we can all benefit from one day.
Although I am not a financial adviser, one thing is very clear to me: Bitcoin, Ethereum, and cryptocurrencies are the new gold rush. So, don’t get left behind! Now is your chance to become a millionaire.
If after reading this guide and other expert resources you decided to invest in virtual currencies, I recommend you start with Coinbase. As I already explained, it’s easy to use, safe, and free.
So, sign up with this link here, and we both get $10 free. Then let me know how your investment is doing.