As I write this the crypto-market is experiencing a massive slump. This is in contrast to the end of 2017 when the hype and interest surrounding crypto was off the scale. Back then, the market cap was around $800 billion, the price of Bitcoin was $20,000, and a day didn’t pass without mainstream news coverage.
How things have changed. During this bear market, I’ve lost about 80% of the fiat value of my crypto holdings. This should act as a reminder to think carefully about whether cryptocurrency investing is suitable for you. I don’t give financial advice, I’m only sharing my experiences.
What Is Bitcoin?
The number one cryptocurrency by far is Bitcoin. This is because:
- It was first to market
- It is the highest valued coin
- It has the largest market cap
- It is the most traded & most paired coin
Bitcoin is a form of electronic money that operates through a blockchain that is managed via a peer to peer network.
A blockchain is a growing list of records (or blocks), that are linked together by cryptography.
Cryptography is a computer program, based on maths, that must be “solved” before changes to a block can be made. This is secure because once recorded, the data in a given block cannot be retrospectively changed without changing all the subsequent blocks. Such an action would require the agreement of the network majority.
Bitcoin is revolutionary because there will only ever be 21 million coins in existence, meaning it’s anti-inflationary. Also, transactions can be conducted without the need for a 3rd party intermediary, so holders have full sovereignty over their cryptocurrency.
Is speculation defeating the purpose of Bitcoin?
The purpose of Bitcoin is to break the status quo by offering an alternative to the current monetary system.
The current system is criticized for being unsustainable as it’s built on debt that can never be paid back. Typical solutions, such as printing more money and lowering interest rates only ever patch the problems temporarily.
At the same time, the altruistic nature of cryptocurrency aims to bring about a more equitable and sustainable future, but you should know that as things stand, the buzz is all about making insane percentage gains. That being so, at present, speculation is the primary driver of growth, and not some hippy ideal of people coming together.
Whether this will change through mass adoption is hard to say. All I know is that most early adopters want to become rich first, and humanitarians second.
I’ve come across some thought-provoking reports during the course of learning about cryptocurrency. Below are some of the more bizarre accounts, along with my opinion.
In the early days, Bitcoin was the primary method to conduct transactions on the dark web. Bitcoin enabled people to buy and sell drugs, and other illegal items, with more anonymity than with traditional fiat. From this comes the claim that Bitcoin is evil.
As something that’s inanimate, Bitcoin cannot be evil, nor good for that matter. In fact, a similar point could be made about the US Dollar, given the number of crimes connected with it, but to suggest the US Dollar is evil is a ridiculous thing to say.
When it comes to modern-day secrets, none are more mysterious than the founder of Bitcoin, Satoshi Nakamoto. No-one knows who he is, in fact, many believe Satoshi Nakamoto is not a person, but an organization with links to the secret service. Whether that’s CIA, NSA, M15, a combination of them, who knows?
However, what is known is that Bitcoin uses the cryptographic hash function SHA-256, which was designed by the NSA. What’s weird is that Reddit threads making this link were mysteriously deleted.
Given the trail of coincidences, some observers believe Bitcoin was created, on the orders of the US Government, to bring about a cashless society over which they would have full control.
Taking a step back for a moment. Whilst this is plausible, for me, the biggest counter argument lies in the Bitcoin blockchain running on a peer to peer network, meaning no single entity can control it. But then again, given the power of Bitcoin mining groups, there is a claim that Bitcoin is not as decentralized as people think.
Mark of the Beast
In 2014, a story emerged about a man called Martijn Wismeijer, also known as ‘Mr Bitcoin’. He is a bio-hacker who went to the trouble of having two NFC (near-field communication) chips injected into the back of his hand. Ever since then, religious observers have drawn parallels with biblical prophecies that talk about demonic enslavement.
For those who don’t know, Revelation 13:16-17 states:
16 And he causeth all, both small and great, rich and poor, free and bond, to receive a mark in their right hand, or in their foreheads:
17 And that no man might buy or sell, save he that had the mark, or the name of the beast, or the number of his name.
When it comes to matters of spirituality and religion, there are no objective proofs. But just like the NSA conspiracy, the Mark of the Beast story comes down to control. And given the confusing to and fro of argument and counterclaim, it’s impossible to know whether Bitcoin and crypto currencies will free us, or doom us even further.
During 2017 Bitcoin grew by over 1300%, growth of this level has never been seen before. The hype surrounding this massive bull run prompted many investors to jump on board.
Some didn’t know what they were buying and used money they couldn’t afford to lose. Unfortunately, when the market crashed they were left in a difficult position.
We may well be entering a crypto winter, which as the name suggests is an extended period of down markets. But then again, there’s much talk at present of institutional money stimulating the market, it’s anyone’s guess as to what will happen.
The key takeaway here is to ignore the hype. Instead, it’s much better to conduct your own research and make investment decisions based on belief in the fundamentals of a project.
Cryptocurrency exchanges are where people buy and sell cryptocurrency.
There are many options including, Kraken, Binance, Bittrex, Coinbase, Gemini, Bitfinex.
In the early days, the most problematic part of getting into cryptocurrency was converting fiat into crypto. But as the crypto market has matured, this process has become a whole lot easier, with some exchanges offering this service directly from their platform.
It pays to pick an exchange that suits your needs. You should think about:
- Liquidity – how easy is it to buy & sell?
- Spread – are there large differences between the buy and sell prices?
- Fees – what %age fee do they charge?
- Limits – what are the purchase and withdrawal limits?
- Trading volumes – is there a lot of activity on their markets?
- Security – do they offer 2-factor authentification & IP address whitelists?
- User interface – is it easy to navigate and use their platform?
To meet money laundering regulations, you’ll need to scan and send copies of ID documents. It’s best to do this as soon as you can so that account restrictions can be lifted.
Another factor in selecting an exchange is the coins you want to buy and your level of patience. If you’re only interested in buying lots of major coins, and quickly, then any major exchange will have sufficient liquidity.
On the other hand, if you want to buy small quantities or are interested in smaller cap coins, and you’re not in a hurry, then smaller exchanges may suit you.
You can find a list of all the crypto exchanges here.
Exchanges have online wallets where you can keep your newly purchased cryptocurrency.
However, one thing to bear in mind is what happened to Mt. Gox. It used to be the largest crypto exchange, handling about 70% of worldwide Bitcoin transactions. But in 2014, it suffered a hack where 850,000 Bitcoins held in customer’s online exchange wallets were stolen. They filed for liquidation a few months after.
If you want to protect yourself from an exchange hack and have full control over your cryptocurrencies, you have several options. You can transfer your coins to:
- Online wallet
- Paper wallet
- Hardware wallet
They each have their advantages and disadvantages, which I expand upon in my post How To Store Your Cryptocurrencies.
What’s important is being responsible for the security and safe-keeping of your own coins. Have backups, get a cold storage solution, take precautions with the sites you visit and things you say. If the worst case scenario happens, the likelihood of getting your coins back is slim.
Up until late 2016 Bitcoin had a market dominance of about 90%. Today, Bitcoin is still the most dominant coin, but its share of the crypto market has fallen to around 50%. Some people predicted this would happen as a result of the growing popularity of Ethereum, as well as the on-going disputes within the Bitcoin community.
A good place to start looking at other coins is coincap.io, here you can see each coin’s market cap (value of all tokens). It’s not a perfect measure, but it’s probably the best one to gauge the value of a cryptocurrency.
If you want to balance risk with safety, a possible way to achieve this would be splitting your portfolio 50% top ten coins, the rest in smaller cap up-and-coming coins. But always do your research and select projects based on belief in their fundamentals.
For example, some coins focus on privacy, like Dash, Monero, Zcash. Then there are those who target smart contracts, such as Ethereum and Ethereum Classic. Whilst other coins, including Nem & Ripple, are more centralized.
Questions To Ask
So how do we choose a winner, and how do we avoid a shitcoin?
There is no magic answer, however, there are questions to ask before picking a coin:
- What’s the reputation of the development team? Our first priority should always be to protect our money. When it comes to the people behind a coin, can you trust them with your money? You should check the names haven’t previously been involved in scams, and find out what people in forums say about the team.
- Is there a long-term plan? Have a go at reading the white paper, what does it mention there? What are the team trying to achieve? Note their timelines and see if they have missed roadmap development deadlines. If so, that should act as a warning sign.
- Is it all talk and no substance? Too often we see slick websites and fancy promo videos, but are the team able to deliver? Look beyond the marketing to the core product and check whether the project offers some sort of value.
- Is there a use for this coin? The long-term success of any cryptocurrency depends heavily on its real-world use case. If the coin you’re looking at is able to solve a problem, then it’s likely that demand for that coin will continue to rise.
Day trading involves speculating on the price of cryptocurrencies and then buying and selling them within the course of a day (or so) to make a profit.
Once you become familiarized with crypto, you may consider day trading coins in the hope of increasing profits.
Profits can be made, but equally, money can also be lost. Cryptos tend to be extremely volatile, and unless you have some advantage over the market, such as inside knowledge, you are effectively gambling by day trading.
However, if you are set on day trading, the only other thing to mention is that not every coin is available on every exchange. More obscure coins won’t be found on the bigger exchanges.
Day trading isn’t for everyone, so for those who are looking for alternative ways of profiting, perhaps mining is for you.
The process involves setting up a rig of GPUs/CPUs for the purpose of creating new blocks within the blockchain of a coin. Whoever appends the block gets rewarded with some of that cryptocurrency.
Mining Bitcoin isn’t a good choice for those working with a small rig setup. Instead, other coins, including Monero, Litecoin, and Dogecoin, offer a better cost-benefit ratio for beginners who are restricted by the size of their setup.
Are Cryptocurrencies For You?
For now, the crypto market is in a state of uncertainty. This is despite increasing recognition from financial authorities worldwide, and further achievements in the roadmap of major coins.
Regardless of the uncertainty, there are still reasons to invest. First, cryptocurrencies hedge your net worth against a fall in fiat currency, which will happen sooner or later given rising national debts, secondly, many coins support the idea of a fairer society, and finally, the technology has the potential to improve lives.
Equally, there are reasons not to invest, given their volatile nature, the lack of regulation, and the exposure to scams.
I guess it comes down to whether you think cryptos are here to stay.