Understanding Cryptocurrency
Let’s quickly look at the word “cryptocurrency”. The first part, crypto-, is short for “cryptography”. Cryptography is the computer technology used for securing and hiding information.
The second part, currency, is a common word and just means the money currently in use.
Cryptocurrency is an electronic money with technology, not governments, controlling its creation and protecting its value and users.
Instead of trusting a bank to receive, store, and send your money, users work directly with each other.
Instead of trusting a bank to verify a transaction, thousands of people simultaneously and publicly do that.
Instead of paying a bank every time you ask them to send your money, a few pennies are given to the many thousands who record your transaction.
The digital recording of all crypto transactions is called a blockchain. The blockchain is a public, permanent, secure database. Anyone can access it. Anything can be recorded into it.
The openness and security of the blockchain pass on to the cryptocurrency it manages. Compare those unique features with the dollars and euros we are used to.
Step 2 – How You Can Buy Your First Crypto
For most people, the easiest crypto to buy is bitcoin. To buy your first crypto:
I usually suggest exchanges that accept credit cards like Coinbase, Bitpanda, or Coinmama.
Wire transfers or direct deposits (also known as Automated Clearing House, ACH for short) are a slower more affordable way to buy crypto.
GDAX is owned by Coinbase and they offer direct deposits.
Kraken accepts wire transfers.
Gemini accepts wire transfers and direct deposits.
One of the best ways is to ask a trusted friend to help you. They can walk you through the process, sell you some crypto, and help you secure your investment.
You should use the easiest route available to you.
Step 3 – Securing Your Crypto
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Crypto security is an all too important subject and one not discussed enough. If you do a Google search for “bitcoin theft” or “stolen bitcoin” you will find dozens of articles where people claim to have lost many thousands of dollars worth of bitcoin.
Lost or stolen cryptocurrencies cannot be recovered.
Bitcoin itself has never been hacked. Weak user or business security was the problem.
You are responsible for your own crypto. You are responsible for safely storing your access keys to your crypto. You are also responsible for the security of your email, phone, and computer.
I’ve discovered 9 simple security actions anyone can take to reduce their chances of theft and increase their protection:
Keep your information private. Don’t go shouting all across Facebook, Twitter or your blog that you bought bitcoin or ethereum. That will make you a public target for hacks and attacks.
One of the more recent types of attacks are hackers stealing your phone number and hacking into your email then using both your email and phone to steal your online identity and your crypto. The following steps will tell you how to greatly reduce your chances of becoming a victim to this kind of attack.
Use a brand new, secure email for all of your accounts. Protonmail is a must when it comes to your crypto accounts. They have an incredibly secure free plan that is greatly superior to Gmail, Yahoo or any of the other typical email providers. I highly suggest you visit their website and check them out.
Use strong passwords. That means 21 characters or more. Don’t include words personal to you like names, birthdays, or addresses.computerhacker
Use Lastpass to store your complex passwords. They use the same cryptographic security as bitcoin and other cryptocurrencies. While Lastpass has been attacked by hackers, there are no reports of information ever being exposed. They also have a really handy password generator you can use for the earlier step.
Use 2 Factor Authentication (2FA) for all of your accounts including email and Lastpass. While Google Authenticator is the common suggestion, I actually prefer Authy. I did some serious digging and found Authy was leagues ahead of Google Authenticator. Authy offers a much more user-friendly experience, better security and good customer service. I have more information about them in my free PDF, 8 Steps to Protecting Your Crypto.
Use strong antivirus software with a good reputation. There are computer viruses that can allow a hacker to see your private information and steal your cryptocurrency, so make sure your computer itself remains safe.
Avoid fake websites and emails that pretend to be legit. This is known as phishing. For example, a phishing website might make themselves look exactly like Coinbase and have a domain that is spelled “Colnbase” with an “l” replacing the “i”. The simplest way to avoid phishing is to save the correct website with Lastpass or a bookmark and only access it that way.
Spread out your cryptocurrency. This is known as decentralization. By keeping all of your crypto in one location, any weakness in your security means a hacker who gets lucky can take all of your money. Wallets that are not connected to the Internet are the most secure. I have more information in my free PDF, 8 Steps to Protecting Your Crypto.
Tell a trusted family member about your crypto and how to access it. There are stories of unfortunate people who passed away before their time and never told their family how to get access to their small fortune in crypto. By sharing information about your crypto with a trusted family member, you can be sure your wealth will last past your lifetime.
Step 4 – Diversifying into Alternatives to Bitcoin
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Excluding bitcoin, there are close to 1,400 cryptocurrencies available. These are known as “altcoins”, which is a contraction of “alternatives to bitcoin”.
Most altcoins were developed with a unique perspective, purpose, and value for their audience. Every altcoin trades at a different price.
I’m often asked if it’s too late to get into the crypto game. Both Matthew and I think there is both plenty of time and opportunities.
Ethereum is one of the most popular altcoins. Ethereum is not only a cryptocurrency, but a technology that allows other cryptocurrencies to be built with it. I recently read a great comparison on Reddit: if you were to imagine bitcoin as an app, Ethereum is an app store.
Litecoin is the silver to bitcoin’s incredible, and expensive, gold. Litecoin is swift in adopting the latest technology to improve transaction time, security, and other advantages. Litecoin offers lower transaction fees and faster transaction time than bitcoin.
Ripple is a cryptocurrency specializing in payment technology not only for individuals, but also institutions and banks. They have already established a network with many big banks such as American Express and Santander.
Those are just 3 of the many cryptocurrencies available. All will have their rises and falls. There are even a few that are really revolutionary.
On the other side of the coin (pun intended), there are many cryptocurrency scams. You must always DYOR, or Do Your Own Research.
To get altcoins, you must use an exchange with more options than Coinbase. Popular exchanges include Bittrex, Poloniex, Kraken, and Binance. There are many more, and with any of those, you can swap your bitcoin or ethereum many other altcoins.
CoinMarketCap.com is a great website with many tools. One tool is a list of exchanges that a cryptocurrency is available on. Click on any cryptocurrency and select the [Markets] tab. On the left hand side you will see what exchanges are trading that crypto.
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Step 5 – Checking Out Initial Coin Offerings
Initial Coin Offerings, or ICOs, are a marketing event created by the founders of new cryptocurrencies. In an ICO, the public is allowed to invest in a cryptocurrency before it has become publicly tradable. Sometimes ICOs happen before any code has even been written.
Unfortunately, ICOs are a breeding ground for scams. Recently, the SEC went after an ICO scam by the name of Plexcoins. Apparently, Plexcoins was a very shameless scam where they promised investors a 13X profit in less than a month. They managed to get over $15 million from thousands of investors.
The important thing with researching ICOs is to:
Study their website and team for professional appearance and experience.
Study their less non-technical writings, known as a light paper (if available).
Study their technical writings, known as a white paper. You can learn more with my free PDF, How to Become a Wizard with White Papers.
Search for them in reddit to see what people are saying about them.
Study their github, which is a website where you can review their code and updates.
Study their announcement (ANN for short) in bitcointalk.
By the end of that process, you should have a very good idea of the team behind the ICO, how likely it is that they hit their goals, how unique and valuable their cryptocurrency can become, and whether they have a good marketing plan.
Anything that is unclear or missing is a red flag.
Step 6 – Trading Crypto
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For the more adventurous cryptomaniac, buying crypto at a low price and selling it at a high price might be interesting. This is known as “trading”.
There is massive risk in trading crypto because you can lose your entire investment if your timing is bad.
Recently, I pulled out my initial investment of over $2,000 in crypto. Less than a week later, I found that if I hadn’t have pulled my money out, it would have nearly doubled!
The emotion involved in seeing a big miss like that can be crippling. Trading is not for the faint of heart.
Step 7 – Keep Learning
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Cryptocurrencies are the most rapidly evolving tech I have ever seen.
The potential of blockchain technology has only been used in a handful of industries.
Here are some very popular resources both I use to stay up to date in crypto.
Reddit.com – Reddit is a meetingplace for humans. You can find groups discussing anything, including crypto. A few popular groups, known as “subreddits” include:
https://www.reddit.com/r/Bitcoin/
https://www.reddit.com/r/CryptoCurrency/
https://www.reddit.com/r/ethereum/
https://www.reddit.com/r/altcoin/
Coinmarketcap – Another very popular website for crypto-fans, where you can find most of the crypto, what price they are trading at, where you can trade them and more.
Telegram – This is a chatting app for iPhones and Android devices that is most similar to Whatsapp. However, Telegram is very popular with cryptomaniacs and in it you’ll find groups for every cryptocurrency, and sometimes the founders of cryptos.
CoinDesk – A popular news website.
CoinTelegraph Another popular news website.
SmithandCrown – A quick resource on ICOs with a very helpful section outlining past and present ICOs.
The Bitcoin Problem
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The biggest, underlying problem with bitcoin is not that we might be in a bubble, the increasing costs of transactions, or the delay in transactions.
Bitcoin’s biggest problem is the uncertainty.
People are uncertain about whether bitcoin will continue to exist. People are uncertain of bitcoin’s value. People are uncertain of its benefits.
The quickest way is to establish confidence in bitcoin is to distribute it to people. Once they have crypto, they will see how easy it is to own. That will trigger their interest and desire for more.
This problem affects all cryptocurrencies, bitcoin is just the face of this business.
It is our duty, as cryptomaniacs and as educators, to make sure people understand how simple, easy, and real crypto is.