Blockchain Basics: What Are You Investing In?
For those that don’t know, the blockchain is a revolutionary ledger technology, with a dizzying array of potential industries and fields of application-- smart contracts, real estate ownership, healthcare, insurance, lending, personal data protection, cryptocurrency. This is why:The blockchain is, most simply, a digital, decentralized and inalterable ledger. What does this mean, exactly?A ledger is a database technology used to record transaction histories and ownership; it is a definitive account of who has given what to who, and who owns what. Most ledger technologies are physical and they’re centralized -- they’re controlled by a central bank. This means that they are subject to the discretion and power of individuals, and are alterable and impermanent. This gives those ledger recording entities a tremendous amount of power over an individual’s financial transactions; it also means the ledger is vulnerable to manipulation.A digital ledger addresses most of these concerns, and pretty effectively. In a 2015 article, “The trust machine”, the Economist wrote that a blockchain is, “a public ledger that everyone can inspect, but which no single user controls.”Each block in the blockchain contains data on transaction history. The codes for the blocks are broken by miners. This adds the block to the blockchain, thereby rendering that data permanent and inalterable. As for the miners, they’re are a network of individuals (or, and more often, collectives), working to break the codes for each block of data being added to the blockchain. They are rewarded, in the cryptocurrency produced by the particular blockchain they are working on.This is where you come in -- potential buyer and investor. These cryptocurrencies can be very valuable, and are valued at increasing heights, the more successful a particular blockchain and cryptocurrency is.
How Can You Invest in Bitcoin (Crypto)
So, this is a step-by-step guide for how to buy and invest in cryptocurrency, and Blockchain ventures more broadly.
Coinbase
If you are just getting acquainted with cryptocurrencies and the Blockchain, I would suggest starting with a site like Coinbase.If you want to trade in cryptocurrencies, you’re going to need a platform on which to trade them, and an intermediary to communicate within the network of traders. Most of us lack the technological inclination or means to mine Bitcoin directly, or communicate and trade with miners directly, or store our digital currencies and assets. That’s where Coinbase comes in.Coinbase is a global digital asset exchange company (GDAX), providing a marketplace for digital currencies, and then sending information about the transactions that happen in its marketplace to the appropriate blockchain network, so that those transactions can be recorded in the blockchain. Coinbase serves as a digital wallet, too, where you can store the digital currencies you purchase on the platform. The currencies available on Coinbase? Bitcoin, Bitcoin Cash, Litecoin and Ether.Essentially, if you are interested in trading digital currencies but don’t want to get bogged down in navigating the complexities of its underlying technology, platforms like Coinbase, and Coinbase in particular, are a simple, secure way into the world of crypto.
Buying and Selling on Coinbase
In order to buy and sell cryptocurrencies on the platform, you will have to link an bank account, or debit card to your Coinbase account. (Wire transfers are also accepted on the platform, but only under specific conditions). Using a bank account or debit card offer different upsides and downsides.Transactions made with funds in a bank account can take a while on Coinbase - generally about 4-5 days business days. And using an account allows users to buy and sell crypto, to deposit money in, and and withdraw money from their Coinbase account. Bank accounts are generally recommended if you are dealing with larger investments and purchases - at the time of writing, using a bank account allows for users to spend as much as $11,250/week.Debit cards, on the other hand, allow you to buy cryptocurrencies available on the platform pretty much instantaneously. Simply by transferring funds from that card to the platform, you can purchase cryptocurrency in an instant. However, debit cards cannot be used to sell crypto, to deposit money in one’s account, or to withdraw money from one’s Coinbase account. On Coinbase, debit cards can be used exclusively to purchase crypto, and even then, only in smaller amounts. With a debit card, the limit is much lower than with a bank account ($1,125). It should be noted, though, that limits are, or can be, increased by purchasing cryptocurrency and spending a particular amount of money in doing so, either from a bank account or a debit card.Coinbase has gone to extensive lengths to simplify and streamline the the process of buying and investing in crypto. Essentially, Coinbase’s platform makes buying and selling crypto feel as familiar as buying and selling stocks.The homepage shows each of the cryptocurrencies they sell, their current price, and their price, and the ways it has fluctuated over time horizons as specific as the last hour, and as zoomed out as a year, or the crypto’s entire existence. Take a look, here, courtesy of Coinbase:
And this gif shows you how simple it is to use the platform, also courtesy of the platform:
There are transaction fees to use site for purchase and sale. In the United States, the base rate is 4%, with different percentages added on for different transaction methods (for more info: look here).
Coinbase Pro (Formerly GDAX)
If you feel comfortable on Coinbase, and are looking for something a bit more advanced, with more investment options and opportunities, it might be worth switching over from Coinbase to Coinbase Pro.Formerly known as Coinbase’s GDAX (Global Digital Asset Exchange), Coinbase Pro is for more advanced and active crypto traders. Switching over from Coinbase to Coinbase Pro, or moving assets from Coinbase to Coinbase Pro is simple enough. On the homepage, just click on the option in the upper left corner: Deposit. Look here, courtesy of The Coinbase Blog, :From there, you pick the currency you would like to deposit in your Coinbase Pro account, and select the source of that deposit, whether it’s from a bank account, or a private crypto wallet (we’ll get to these later), or one of your Coinbase wallets (you have a different wallet for each cryptocurrency you trade in).Coinbase Pro offers you options. Coinbase let’s you buy a cryptocurrency with USD, and sell a cryptocurrency and receive USD.Coinbase Pro expands on these basic capabilities. Coinbase Pro offers options to make market orders, limit orders and stop orders, to buy and sell. Instead of trading exclusively from USD to a given crypto, Coinbase Pro allows users to trade between cryptocurrencies (so, selling Ethereum for Bitcoin, for instance), and in different currencies (USD, EUR, GBP). Like Coinbase, the cryptocurrencies available for trading on Coinbase Pro are Bitcoin, Bitcoin Cash, Litecoin and Ether.Additionally, Coinbase Pro offers far more in depth analysis of price movements in each of these markets, giving users access to an up to the minute order book and record of trade history.Coinbase Pro and Coinbase work together pretty seamlessly, so storage of these assets should be generally work in Coinbase Pro as they work in Coinbase.
Other Exchange Platforms (Binance, Bittrex)
If you feel comfortable with Coinbase and Coinbase Pro, you’re are probably ready to move on to trading in a wider variety of cryptocurrencies. If you’re looking to trade in anything beyond Bitcoin, Bitcoin Cash, Litecoin, or Ether, like Stellar, Ripple, Cardano, NEO, Dash or TRON (for example), you’ll need to add another crypto trading platform to your rounds. A site like Bittrex, Binance, Bitfinex, or Poloniex.While these are all crypto trading platforms, each one offers something slightly different. In order to ensure that you are signing up for the platform that is right for you, read up on a given platform’s reputation, security, fees, modes of payment, cryptocurrencies offered, and rates of exchange. If you like the idea of trading and investing in bitcoin, or other cryptocurrencies, but for whatever reason are not interested in learning the intricacies of the market, there are other, longer term, and perhaps easier to use options.If you are interested in trading on the crypto market at-large, or in hedging risk that is inherent in trading crypto, a Bitcoin ETF or Future might be right for you. Investing in cryptocurrencies and Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns no cryptocurrencies.