Hello,
I put together an email to introduce a circle of friends and family to cryptocurrencies and provide them a path to investing in them. I decided to adapt it for Steemit. Many of you already know all of this stuff. But, this is intended for newbies. It is simply my own ideas about a conservative approach to beginning investing in this space. It is not professional investing advice, please use your own due diligence.
I have been slowly investing and learning about cryptocurrencies like bitcoin for about a year and a half. I am very confident that this technology (the underlying "block chain" software and networks) is a massive game changer that even now is still in the very beginning. I think it has real possibility to replace fiat currencies and disrupt banking, remittance (wire transfer) companies, escrow, real estate transactions, government registration record keeping, etc. This is like investing in the internet in 1994.
I have had some nice returns although in the last few weeks have been giving some of them back as there is big market correction occurring. But, this means opportunity as it is providing a nice time to start, and continue, investing. The cool thing about cryptos is that you can invest in very small amounts and easily dollar cost average into them over time to build holdings. A related important point that some people misunderstand. If you see that bitcoin is worth $3000/USD does not mean you have to buy a whole "coin". That is simply the valuation. You can buy it fractionally down to 8 decimals or so.
Advantages?
- decentralized - the government and banks do not and cannot control these
- limited amount (depending on coin) - govt can't just keep printing and inflating - bitcoin can never have more than 21,000,000 "coins"
- you control and hold your money - not a bank (can't be seized overnight by the govt like Greece and Cyprus did - with others to follow)
- privacy, liberty
- moves assets outside USD system (the US is approx $65 trillion in debt and ever nearer to collapse)
Disadvantages?
- currency use is still very limited - some places do accept bitcoin - but mostly none of these coins are ready for use as a daily currency - just think of them as savings/investments to accumulate for now (however, you can fund fiat prepaid cards from certain BTC accounts)
- you must be responsible to properly secure and hold your currencies, no one is "protecting" you
- still a bit clunky to use and transfer - this makes it still a little scary to get started and represents a barrier to entry for folks a bit afraid of technology, but this also can ultimately be an advantage as an investment if you are in before it is made easier and encourages mass adoption
- much of mainstream press does not understand any of this and typically is negative
I have nothing to gain by telling you any of this. I am simply hoping to inspire and educate you to investigate and start buying and saving the right coins as soon as you can. You can and should do so in a safe dollar cost averaging method using small amounts that you "can afford to lose". Don't put your life savings in this - yet. Small amounts building to larger amounts will be enough to produce life changing gains in the future. It is a play on the overall growth of the market and eventual mass acceptance of these currencies and assets as companies and people start using them. (I keep saying "assets" because some of the "coins" are really intended more to be a software platform to allow electronic smart contracts and allow other functional apps to run on top of them - you can learn about this later)
This year the total market capitalization of cryptocurrencies began the year at about $18 billion and reached an all time high at about $115 billion. As of today it has fallen back to about $73 billion. Apple alone is worth $777 billion. So, these are still a very very small market and therefore is very volatile. This makes it risky and is the reason why dollar cost averaging and using small amounts is the way to go. However, it is mostly risky if you want to try to trade in and out or invest in coins that are less likely to survive 5 or 10 years out. A conservative approach is warranted as is adopting an interest to continue learning about the technology and markets, maintaining a long term outlook, and remaining calm and steady.
The bottom line is to hold a share of this market as it grows from today's $73 billion into a mature and large asset market. See article below. All the gold in the world is an $8 trillion asset. All the US money is $13.5 trillion. So, imagine if even 5% of US people start using cryptocurrency instead of USD - that is $675 billion, which is a 9X increase from here and doesn't even include the rest of the world or investments from corporations which have only just begun. In fact, Japan and India have just now begun to legalize BTC as a currency. Russia has begun talking about this also.
https://techcrunch.com/2017/06/07/what-the-hell-is-happening-to-cryptocurrency-valuations/
So, how does a newbie get started? I think the following steps are the simplest and most conservative path.
Step One: How do I even get cryptocurrencies anyway?
The first step is to open an account at an exchange and set up ACH transfer with your bank(s). There are really two kinds of exchanges at the moment. There are a few exchanges that mostly just exchange fiat currencies into a few cryptos like bitcoin, ethereum, and litecoin. To get access to the many other currencies you must take another step and transfer your bitcoin (BTC) onto these more comprehensive trading exchanges. For now, you only need the first step. I recommend opening accounts at both of the following exchanges.
Coinbase - I would say this is the simplest to use and feels like Paypal or similar. They currently only trade BTC, Ethereum (ETC), and Litecoin (LTC). On Coinbase you purchase the crypto at the moment you make the transfer at the quoted price.
https://www.coinbase.com/
(here is my reference link for Coinbase. If you use it and deposit $100, we will each get $10 free.)
https://www.coinbase.com/join/56ca50a3d820bd7309000080
Gemini - just as good as Coinbase, perhaps not as simplistic. They currently only trade BTC and ETC. On Gemini you deposit USD and then you can set up limit order trades to purchase BTC or ETH at the price you choose (if the market comes down to your price).
https://gemini.com/
If interested in looking, the second step trading exchanges I use are below. You could go ahead and sign up, sometimes lately there has been a wait. However, this step is completely unnecessary. You can invest in a good number of the top currencies without it.
Bittrex
https://www.bittrex.com/
Poloniex
https://www.poloniex.com/
Step Two: How do I hold and protect my currencies?
Once you buy coins on the exchanges you should move them off and into your own wallet after they become available for withdrawal. So, now you need to get a wallet. Yes, there are electronic wallets for your electronic money. In fact, there are a variety of types, some safer than others.
What does a wallet do? You need to think of a wallet as being similar to a browser looking at the internet. Just as a browser gives you access to see internet and interact with content, a wallet effectively lets you see and interact with the cryptocurrency blockchain software. In reality, your "coins" are never really stored on your wallet. They are recorded in the blockchain ledger. Your wallet holds your private key which proves your ownership of the coins and allows you to send and receive coins. IT IS IMPERATIVE THAT YOU CAREFULLY SAVE YOUR PRIVATE KEYS IN MULTIPLE SAFE PLACES. If you lose the keys you lose all your money on that blockchain. As long as you have the keys you can lose and restore the wallet itself.
So what are the types of wallets from least to most safe?
- online web wallets - these are the exchanges themselves (you can let your coins sit in your account at the exchange) or other website based wallets. Usually with these, you don't really have the private keys. These are most prone to hacking or other problems, like an exchange going bankrupt and closing down.
- desktop/laptop wallets - these are a little bit safer because they reside on your computer and you hold the private keys. However, your computer is always connected to the internet. So, these could still be hacked. Keep your security software up to date. But, I use these and am ok with it. There is another subdivision between "light" wallets and "heavy" wallets you can learn about later. In summary, heavy wallets download the entire blockchain to your computer and are generally more complicated.
- hardware and paper wallets - Hardware wallets are USB connected devices that hold your private keys and do not expose your keys or permissions to the internet even when connected to your computer. I have one of these and use it and love it. Paper wallets are a method to print out your private keys onto paper (preferably using a computer and printer not connected to internet) and allows you to save physical copies in safes and deposit boxes. I have not yet tried paper wallets.
So, what to do? I recommend the following products just based on my opinion and research.
Desktop wallets (light)
Exodus - this is my favorite light desktop wallet. It is clean, simple, attractive. It also allows limited trading of coins within the wallet which is very handy and simple. It still has a limited number of coins it can store but more than the entry exchanges like Coinbase. This allows a nice bit of diversification without getting overwhelmed. So, download the wallet and set it up. You will need to save the pass phrase (this is your private key after it gets encrypted) and password. Again, this is the private key security already discussed. Write these down, save them somewhere secure where you will remember. I also save them in Dashlane, my password manager which I love. Finally, I also use Proton email (fully encrypted) to mail them to myself where I save them in a folder at Proton email (in Switzerland).
https://www.exodus.io/
Jaxx - I also use this wallet a little. It is also very nice like Exodus. It also has the wallet coin exchange functionality and currently has a few more coins available than Exodus. It is an extension in Chrome browser and also offers a mobile phone app. I feel like these are nice but also make it a bit less secure. Again, you will need to safely secure private pass phrase and password.
https://jaxx.io/
Hardware wallets
Due to growing popularity all of these have been hard to get and are on back order. Go ahead and order one or two as soon as possible and use desktop wallet in the interim. These might seem expensive ($75 - $100) but consider you might be someday using it to securely store thousands of dollars worth of currencies. Again, in each of these, during initial set up you will be asked to securely save a passphrase and password or pin. Save these in multiple secure places.
Trezor - this is the one I use. I like it a lot. I intend to order one or both of the others below also.
https://trezor.io/
Ledger Nano S - this one is also very popular like the Trezor and well reviewed. I think it holds a few more coins than the Trezor at the moment.
https://www.ledgerwallet.com/products/ledger-nano-s
Keepkey - I am very interested in this one but have not ordered it yet. It seems less popular than the two above but it is well reviewed on youtube.
https://www.keepkey.com/
Step 3: Buying coins.
Again, I want to stress dollar cost averaging. This simply means choosing an amount to deposit on a regular basis and keep at it whether the coin is up or down. It will "average" your cost basis and build harmlessly over time. Choose an amount that you can "afford to lose" to deposit on a weekly or monthly basis. Can you spare $10 a week instead of another beer or two or another Happy Meal? Yes.
So, pick something. Five bucks a week, $25 a month, $100 a month, something that works for you. If you start getting more into it you can always add extra deposits here or there based on the market or cash availability, but keep the regularity going. Although, one thing to note, Coinbase charges $2.99 per deposit. Gemini is free to deposit USD and then you pay to trade into crypto currencies. Overall, I think Gemini is cheaper but a bit more involved.
At the moment, I recommend you start with Coinbase and invest into Litecoin and/or Ethereum. The bitcoin network is currently experiencing some uncertainty around some proposed software upgrades. Just avoid it until after August or so.
So, let's say you invest $100 in Litecoin. It will take a week or so until the transaction is fully complete on Coinbase and the LTC is available for withdrawal. This is because the fiat banking system is slow to settle transactions - unlike crypto.
After you are able to withdraw coins you will need to copy the Litecoin receiving address in your Exodus wallet and paste it into the Coinbase sending address box. Check these against each other - and then check again. Make sure it is correct. Press send. Ok, so at first this is the most scary part - waiting for your coin to show up in the wallet. Sometimes this takes a few seconds, sometimes it can take an hour or so. It depends on network traffic but it will show up. Relax.
Once the LTC is in your Exodus wallet, you are done. It is in your "personal bank account" now. You can just let them stay there or you can do a few other things. If you decide to diversify, you could exchange some LTC into Dash or a few other currencies in that wallet. Dash is another of my favorite coins. Or, after you get a hardware wallet you can send the coins to that for more secure holding. Actually, you can go directly to hardware wallet from Coinbase also. I am simply assuming it will take a while before you can get a hold of a hardware wallet right now.
Coins I recommend for newbies. These are large market capitalization coins that have a lot of liquidity in their trading markets and, in my opinion, have very high probability of surviving the next 5 or 10 years into maturity and mass adoption.
Bitcoin - wait until after August and we will see - there is a possibility it will split into two coins. But, this is the original coin and still sort of the gold standard of coins.
Ethereum - this is a software platform more than it is a currency - but has huge promise because of that
Litecoin - currently a better version of the Bitcoin blockchain software based on speed of transactions and transaction cost
Dash - another revision of the Bitcoin blockchain. Dash also features completely private transactions and "instant" transactions. They are developing a user friendly and safe wallet aimed at mass adoption by "regular" people. They are pairing that development with cultivating merchants to accept Dash coins and marketing. I believe they are leading the way toward an easily usable coin for everyday use.
NOTE: OK, YA'LL ALREADY KNOW ABOUT STEEM. THIS WAS AIMED AT MY EMAIL CIRCLE, BUT I LEFT IT IN HERE FOR COMPLETENESS.
Another coin that is interesting is Steem. This is associated with a fully functioning social network that is sort of a mix of Reddit and Facebook, called Steemit.com. If you sign up and participate you can earn Steem coins for writing posts, commenting on other people's posts, upvoting posts. This is a real cryptocurrency that can be traded on the exchanges for others or back to fiat currency. You will see some people who are earning quite a lot of money on there. You should not expect to earn a lot until you build a large set of followers and posting interesting content. But, earning $0.05 for a comment is more than Facebook pays you. Again, this is a currency and when you sign up you need to securely save your passphrase and password. This network is growing its user base very rapidly and this could make Steem the currency grow strongly also. Although, this is an inflationary currency, not limited. You can also "reinvest" your earned Steem by "powering it up" to SteemPower. This acts sort of like a CD, which you cannot withdraw instantly. It has to stay in for a while and can only be withdrawn over a number of weeks. But, the more SteemPower you have, the more you can earn posting. Also, it acts basically like an investment into the growth of the platform overall. Possibly an intriguing investment if it can ultimately challenge youtube and facebook as content platform.
www.steemit.com
There are many many other coins. Many are shit, many have real growth possibilities. They are more speculative and/or more difficult to invest in and store than those above. You can learn about all that later if interested.
Step 4: Keeping Track
Ugh, taxes. Currently, the US government really has no way to track any of your cryptocurrency transactions. It does not like this and are on the attack trying to figure out how to regulate them. Even though I hate our government and taxes, I hate jail also. I intend to record, track, and pay taxes as required. I highly recommend Cointracking to help do so. This site is free for your first 200 transactions. Afterwards you need to subscribe. But, this is a nice site that you can track your transactions and gains. It will also create and print US tax documents.
https://cointracking.info/
Earlier, I also mentioned Dashlane. This is an encrypted password manager that I use - and love. I am not sure how I functioned without it in the past. It creates and saves highly difficult passwords so that you never need to make them up or remember them, and helps prevent you reusing the same password over and over, which is dangerous. I highly recommend it even if you never buy any cryptocurrencies. It is free if you use in on only one computer. If you subscribe and pay, it will stay synced on all your devices. It also can save Secure Notes, which is one of the places where I save crypto passphrases and passwords securely.
www.dashlane.com
Also, fully end to end encrypted email system. As mentioned, I use it as one of my stores of encrypted passphrases, passwords, wallet backups.
https://protonmail.com/
Step 5: Keep Learning
www.Coinmarketcap.com
The best website to check everyday is Coinmarketcap. This website consolidates the entire cryptocoin sphere into one place. At the top you can see the total market capitialization and trading volumes as well as graphs of those (linked). It lists all the coins sorted by market cap and shows a 7 day price chart for each. If you click on a currency you can find a more comprehensive graph, link to their own website to learn more, which markets it trades on, etc. Similar sites:
https://www.worldcoinindex.com/
https://www.cryptocompare.com/coins/#/btc
Youtube - there is a never ending and always growing amount of videos available. Many are "how to" that show how to use exchanges, wallets, etc. There are also many that discuss the market or individual coins, trading methods, etc. Be careful with these. There are shysters that are simply trying to pump up certain coins.
General crypto news sites (in no order)
http://www.coindesk.com/
https://cointelegraph.com/
https://cryptoinsider.com/
https://www.cryptocoinsnews.com/
https://www.crypto-news.net/
https://themerkle.com/
https://blog.coinbase.com/
Step 6: Back to the Beginning - Hey, what the heck is a blockchain anyway? Why does it matter?
NOTE: I DID NOT MAKE ANY OF THESE VIDEOS. I PICKED THEM FOR GOOD NEWBIE CONTENT. CREDIT GOES TO THEIR MAKERS AS SEEN ON YOUTUBE. WATCH THEM THERE AND LIKE AND SUBSCRIBE TO THEIR CHANNELS.
https://londonreal.tv/andreas-antonopoulos-the-death-of-money/ (this video is long but incredibly important to watch)
https://www.youtube.com/user/aantonop/videos
This is an incredibly quickly evolving technology so all of the above is subject to change in the near future. That is why it is important to stay involved and aware and keep learning about it.
This is US centric written. If you are in another country you may have to find different exchanges.