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Cryptocurrency:UltimateBeginnersGuide
Thisbookscontains3Manuscripts:
BitcoinBeginnersBible
CryptocurrencyBeginnersBible
BlockchainBeginnersBible
ByStephenSatoshi
TableofContents
BitcoinBeginnersBible
Introduction
Bitcoin-ABriefHistory
BasicsofBlockchainTechnology
HowdoesBitcoinWork?
BitcoinasaStoreofWealth
8CommonBitcoinMythsDebunked
LatestBitcoinInnovations:SegWit,LightningNetwork
SowhatisBitcoinCashthen?
HowtoBuyBitcoin
HowToSafelyStoreYourBitcoin
PaperWallets
StepbyStepGuideonHowtoCreatea100%SecurePaperWallet
HardwareWallets
HowtoTradeBitcoin
WhatDeterminesthePriceofBitcoin?
BitcoinforBusiness:HowYourBusinesscanBenefitfromAcceptingBitcoinPayments
CanIStillMakeMoneywithBitcoinin2017?
TheBitcoinInvestingMindsetandHowtoMinimizeYourRisk
DollarCostAveraging
FOMO&FUD
InvestingyourBitcoin-ICOs
WhyIDon’tRecommendYouMineBitcoin
IsthereaBitcoinETForMutualFundIcaninvestin?
TheTenCommandmentsofBitcoin
Conclusion
Cryptocurrency:BeginnersBible
WhatisCryptocurrency?
AnExtremelyBriefHistoryofCryptocurrency
Cryptocurrencyvs.TraditionalCurrency
UnderstandingBlockchainTechnology
BitcoinandCryptocurrencyDrawbacks
HowtoBuyCryptocurrency
CryptocurrencyGuide
Bitcoin(BTC)
BitcoinCash(BCH/BCC)
Ethereum
Ripple(XRP)
Dash(DASH)
Monero(XMR)
Litecoin(LTC)
Factom(FCT)
Neo(NEO)
Golem(GNT)
STEEM(STEEM)
IOTA(MIOTA)
Dogecoin(DOGE)
Wheretostoreyourcryptocurrency-Wallets&ColdStorage
PaperWallets:
HardwareWallets
CryptocurrencyInvestingMindset
FOMO&FUD-2TermstobeCautiousof
Shorttermgainvs.Longterminvestment
Paperprofitsvs.Actualprofits
TheChaincoinPumpandDumpScheme-WhyYouShouldAlwaysResearchaCoinBeforeBuying
Conclusion
BlockchainBeginnersBible:
Chapter1:WhatisBlockchainTechnology?
Historylesson
Chapter2:PracticalApplicationofBlockchainTechnology
Businessuses
DaytoDayLife
BeyondCryptocurrency
Governmentandlawmakers
Thefutureofblockchain
Chapter3:CryptocurrencyandBlockchainInteractions
Pros
Cons
Tradingcryptocurrency
Findingyourexchange
Well-knownexchanges
Initialcoinofferings(ICOs)
Tipsforinvestingsuccessfully
Conclusion
Copyright2017byStephenSatoshi-Allrightsreserved.
ThefollowingeBookisreproducedbelowwiththegoalofprovidinginformationthatisasaccurateandreliableaspossible.Regardless,purchasingthiseBookcanbeseenasconsenttothefactthatboththepublisherandtheauthorofthisbookareinnowayexpertsonthetopicsdiscussedwithinandthatanyrecommendationsorsuggestionsthataremadehereinareforentertainmentpurposesonly.Professionalsshouldbeconsultedasneededpriortoundertakinganyoftheactionendorsedherein.
ThisdeclarationisdeemedfairandvalidbyboththeAmericanBarAssociationandtheCommitteeofPublishersAssociationandislegallybindingthroughouttheUnitedStates.
Furthermore,thetransmission,duplicationorreproductionofanyofthefollowingworkincludingspecificinformationwillbeconsideredanillegalactirrespectiveofifitisdoneelectronicallyorinprint.ThisextendstocreatingasecondaryortertiarycopyoftheworkorarecordedcopyandisonlyallowedwithexpresswrittenconsentfromthePublisher.Alladditionalrightreserved.
Theinformationinthefollowingpagesisbroadlyconsideredtobeatruthfulandaccurateaccountoffactsandassuchanyinattention,useormisuseoftheinformationinquestionbythereaderwillrenderanyresultingactionssolelyundertheirpurview.Therearenoscenariosinwhichthepublisherortheoriginalauthorofthisworkcanbeinanyfashiondeemedliableforanyhardshipordamagesthatmaybefallthemafterundertakinginformationdescribedherein.
Additionally,theinformationinthefollowingpagesisintendedonlyforinformationalpurposesandshouldthusbethoughtofasuniversal.Asbefittingitsnature,itispresentedwithoutassuranceregardingitsprolongedvalidityorinterimquality.Trademarksthatarementionedaredonewithoutwrittenconsentandcaninnowaybeconsideredanendorsementfromthetrademarkholder.
FinancialDisclaimer:
Iamnotafinancialadvisor,thisisnotfinancialadvice.Thisisnotaninvestmentguidenorinvestmentadvice.Iamnotrecommendingyoubuyanyofthecoinslistedhere.Anyformofinvestmentortradingisliabletoloseyoumoney.
Thereisnosingle“best”investmenttobemade,incryptocurrenciesorotherwise.Anyonetellingyousoisdeceivingyou.
Thereisno“surefirecoin”-oneagain,anyonetellingyousoisdeceivingyou.
Withmanycoins,especiallythesmallerones,themarketisliabletothespreadofmisinformation.
Neverinvestmorethanyouarewillingtolose.Cryptocurrencyisnotagetrichquickscheme.
BitcoinBeginnersBible
HowYouCanProfitfromTradingandInvestinginBitcoin
ByStephenSatoshi
IntroductionThisisnormallythepartwiththedrierthantheSaharaDesertexplanationof“youaregoingtolearnblahblah…”thatsendsyoustraighttosleep.
Instead,IthoughtI’ddosomethingabitdifferentandgiveyouaquickoverviewofmyownexperiencewithBitcoin.IfirstheardofBitcoinin2011,duringthefirstveryfirstbubble,whenIreadanewsreportaboutthis“internetmoney”thingthatwasworth$30apiece.DidIinvestthen?Iwish-Iwasn’tnearlyinformedenough.Ihonestlydidn’tunderstandhowthetechnologyworkedorifBitcoinwasworthanythingatall.Afterall,ifacurrencyisn’tbackedbyagovernment,howcanitbeworthanything?Ohtobethatnaiveonceagain.
BythetimeIfinallyunderstoodBitcoinenoughtobeconfidentinbuyingsome,thepricehadrisenahellofalotmore.But,nowIbelieveinitasmorethanjustacommoditytobetradedorinvestedin.Ibelieveinthetechnologyatitscore,andthepotentiallygamechangingramificationsforsocietyatlarge.InthatliesthetruevalueofBitcoin.IwishIhadaresourcelikethiswhenIstartedout,somethingthatexplainedthecoreconceptsofBitcoinandblockchaintechnologywithoutreadinglikeanastrophysicsphDthesis.That’spreciselywhyIwrotethisbook.
Happyreading,andIhopeyounotonlymakealotofmoneywithBitcoin-Ihopeithasatrulyprofoundandpositiveeffectonyourlife.Finally,ifyouenjoyedthisbook-I’dappreciateyoutakingjust2minutesofyourbusydaytoleavethebookareviewonAmazon.
Thanks,
Stephen
Bitcoin-ABriefHistoryBitcoinisthefirstcryptocurrencythathaslastedformorethan7yearsandreceivedanysortofmassadoption,butittooksometimetogettothispoint.BeforeBitcoin,therewereanumberofcryptocurrenciesthatreachedsomelevelofpopularity.Itallstartedbackin1980whencryptographerDavidChaumfirstdevelopedtheideaofacurrencybackedbyaproof-of-workcomputeralgorithmasopposedtoacentralbank.ChaumlaterwentontofoundDigiCashwhichhadabrieflysuccessfulyetultimatelyfailedrunatbecomingtheworld’sfirstmassadoptedcryptocurrency.USbasede-goldwaspossiblythemostnotableofthePre-Bitcoincryptocurrencies,althoughtechnologicallyitwassignificantlydifferentfromBitcoinduetoacentralizedownerandnon-fixedsupply.
InAugust2008,NealKin,VladimirOksmanandCharlesBryfiledapatentapplicationforanencryptiontechnology.ThedomainnameBitcoin.orgwasalsoregisteredinthesamemonthusinganonymousspeech.comwhichallowedforanonymousdomainnameregistrations.
ThebigdaycameonOctober31st2008,SatoshiNakamoto(apseudonymwiththetrueidentitystillunconfirmed)publishedawhitepapernamed“Bitcoin:APeer-to-PeerElectronicCashSystem”.Thepaperoutlinedvarioususesforthecoininadditiontoprovidinginformationaboutblockchaintechnologyandhowthecoinwouldbeminedusingcomputeralgorithms.TheoriginalwhitepaperusedBitcoinasanexampleofadeflationarycurrencyandonethatgovernmentsorothercentrallenderscouldnotartificiallyincreasethemoneysupplyof,thereforedevaluingacertaincurrency.Thewhitepaperalsooutlinedissueswithbanksastrustedlenders,andhowtheblockchain’sirreversibletransactiondesigncouldreduceriskoffraudformerchants.
FromJanuary2009onwards,activistsbeganminingthecoinandthefirstBitcoinblockswerecreated.NakamotoandothercryptographyenthusiastsbeganexchangingthecoinforserviceswithoneanotherandinOctober2009,thefirstofficialexchangeratewasestablishedforthecoinofUS$1=1,309.03BTC.Theoriginalexchangeratewasbasedonhowmuchelectricityitwouldcosttomine1Bitcoin.
ThefirstrealworldtransactiontookplaceinMay2010whenenthusiastLaszloHanyeczboughttwopizzasinJacksonville,Floridafor10,000BTC.Today10,000BTCisworthover$40million.AfewmonthslaterinAugust,thefirstmajorBitcoinhackingincidentoccured,thehackerexploitedavulnerabilityintheBitcoinverificationsystemandgenerated184billionBitcoins.ThisledtothefirstmajordipinthevalueofBitcoinasacurrency.ThisthenledtogovernmentinvestigationsofpotentialmoneylaunderingusingBitcoin.Theearlyscaresdidn’tlastlongthoughandInNovember2010,Bitcoinreachedamarketcapitalizationof$1millionforthefirsttime.
InJanuary2011,Bitcoinreceivedareasonableamountofmainstreamcoverageforthefirsttime.SilkRoad,anundergrounddarknetwebsitedealinginillicitgoodssuchasillegaldrugsandstolencreditcardswaslaunchedonthebackofsendingandreceivingpaymentsinBitcoin.Atitspeak,itwasestimatedthatupto50%ofBitcointransactionswereonesthatoccuredonSilkRoad.TheperceivedanonymityofBitcoin
madeitafavoriteamongSilkRoadusers.InFebruary,Bitcoinreachesamarketpriceof$1forthefirsttimeandbyJulythecoinhadjumpedtoavalueof$31.
2012wassomewhatofanuneventfulyear,althoughrealworldadoptioncontinuedwithhostingplatformWordpressacceptingthecoininNovemberofthatyear.ByMarch2013,themarketcapitalizationhadreached$1billionandBitcoinexchangeCoinbasereportedover$1millionofBitcointransactionsinasinglemonth.InJune,theDEAreported11.02Bitcoinsasanassetduringadrugseizure,thefirsttimeagovernmentagencyrecognizedBitcoinashavinginherentvalue.DrugscontinuedtomakeheadlinesasSilkRoadownerRossWilliamAlbrichtwasarrestedinOctober,theFBIseized26,000BitcoinsfromSilkRoadserversduringthearrest.Brighternewscamethenextmonthwhentheworld’sfirstBitcoinATMopenedinVancouverandChinaarrivedonthescenewhenChinesemarketactivityovertooktheUSforthefirsttime.ByNovemberof2013,thepriceof1Bitcoinreached$1,000forthefirsttime.
Decemberof2013camewithChina’scentralbankrulingthatBitcoinwasnotacurrencyandbarredfinancialinstitutionfromacceptingBitcoinsasaformofpayment.InFebruary2014,JapanesebasedexchangeMt.GoxsuspendedBitcoinwithdrawals,citingtechnicalissues.Withinjustafewweeks,theexchangehadfiledforbankruptcyamidclaimsofpoormanagementandlackofsecurityprotocols.Roughly$740millionworthofBitcoin,or7%oftheoverallamountincirculationwaslostintheincident.ThisissueledtothevalueofBitcoindropping36%overthecourseofthemonth.
InJune,TeraExchangeLLCreceivedapprovalfromtheU.S.CommodityFuturesTradingCommission.ThismarkedthefirsttimethataU.S.agencyapprovedaBitcoinexchange.ComputermanufacturerDellbeganacceptingBitcoinasameansofpaymentatthistime,thelargestcompanytodosouptothatpoint.AirBalticalsobecametheworld’sfirstairlinetoacceptBitcoinpayments.InDecember,techgiantMicrosoftbeganacceptingpaymentsinBitcoin.
Coinbase,nowoneofthelargestcryptocurrencyexchangeplatformsreceived$75millioninafundinground,withtheNewYorkStockExchangebeingaminorinvestor.FurtherrealworldscalingcontinuedandbyAugust2015,over160,000companieswereacceptingBitcoinasameansofpayment.DecemberbroughtnewsofthepotentialidentityofthenotoriousSatoshiNakamotofigure.WiredmagazineclaimedtheAustralianCraigWrightwasindeedNakamoto.ThisledtoaseriesofeventsthateventuallyresultedinaconfirmationthatWrightwasindeedNOTNakamoto.
July2016markedthesecond“halvingday”inBitcoin’shistory,wheretherewardformining1blockwashalvedto12.5Bitcoinsperblock.ThiswaspartofBitcoin’soriginaldesigntograduallydecreasethesupplyofnewcoinsavailable.Thenexthalvingisduetooccurin2020,withthetotalsupplyavailabletothemarketaroundtheyear2140.
Atthetimeofwriting,Bitcointradesforaround$4,000percoinonexchanges.
BasicsofBlockchainTechnology
Whilewecouldspendanentirebookonblockchainandthetechnologybehinditalone,itisimportanttounderstandthefundamentalsifyou’replanningtoinvestinBitcoin,oranyothercryptocurrency.
Blockchainisadecentralizedledger,meaningitisarecordthatispubliclyaccessibleandcanbeverifiedbyanyone.Thisisimportantforanynon-tangiblegoodastheunliketangiblegoodslikesocksorcandy,weneedarecordofatransactionhappeningincasesomethinggoeswrong.Forexample,weneedproofthatStevepaidJohnforthepairofsocksthatJohnsoldhim.TheblockchainwillhavearecordofatransactionfromSteve’saccounttoJohn’saccount,andnooneelse’s.
Previously,wewouldhavetheuseathirdparty,likeabank,toverifythetransactiondidindeedtakeplace.Thebankwouldthentaketheir%ofthetotaltransaction.Asthebankinformationisnotpubliclyaccessible,wewouldalsohavetotrustthatthebankdidtheirjob.Byusingblockchaintechnology,wehavea100%infalliblerecordofthetransactiontakingplace,andanyonecanseethis.There’salsononeedtopayalargeadditionalfeetoamiddleman.Theonlyfeeinvolvedisthecostofrunningtheblockchainitself.
Ifweonlyuseblockchainforfinancialpurposes,thisisextremelyusefulincountriesthatdonothaveatrustworthybankingsector.Eachtransactionisrecordedasablock,withadateandtimestamp.Theseblockscannotbealteredwithouteveryoneseeing.Theproblemthissolvesisknownasthe“double-spendingproblem”,wheredigitalassets(likecryptocurrency)havethepotentialtobespentmorethanonce.WhattheblockchainallowsustodoisseethatStevehasalreadyusedhismoneytopayJohn,sohecan’tthenusethatsamemoneytotryandpaySally.Theblockchaincreatestrustamongallparties,andtrustisparamountwhendealingwithmonetarytransactions.
Blockchain’susesarenotstrictlyfinancial.Wecanalsousethetechnologytostoreotherinformationthatwewouldneedinapubliclyavailable,transparentform.Thisrangesfromanythinglikevotingrecordsinanelection,toaself-executingcontractbetweentwopartiesthatfulfillswhenbothpartieshavecompletedtheirobligations.Blockchaineliminatestheneedforamiddleman,orindependentauditorinthesesituation,asthetechnologyitselfactsbothasanauditor,andasanindependent.Intheory,thetechnologyhasthepowertoreplaceaccountants,lawyersandmuchofthefinancialservicesindustry.Beforewegetaheadofourselvesthough,muchofthenon-financialusesofblockchaintechnologyarestillstrictly,intheory.
HowdoesBitcoinWork?
Bitcoinfunctionsasadigitalcurrency,byfollowingthesamethreerulesthattraditional,orfiatcurrenciesfollow.
1. Theyneedtobedifficulttoproduce(cash)orfind(goldorotherpreciousmetals)
2. Theyneedhavealimitedsupply3. Theyneedtoberecognizedbyotherhumansashavingvalue
WhenweexamineBitcoin,ittickstheboxesofallthreeofthesecharacteristics:
1. Bitcoinusescomplexcomputeralgorithmsinitsproductionwhichtakealotofcomputationalpowerandproof-of-work,soitcannotbereplicatedeasilyoratadiscount
2. ThereareafinitesupplyofBitcoins-21Milliontobeexact.Asof2015,roughly2/3ofthisnumberhadbeenmined
3. TherearehundredsofBitcoinexchangesandBitcoinisacceptedaspaymenteverywherefromSubwaytoOKCupid
BitcoinminershaveincentivetomineastheyreceiveBitcoinasarewardfortheircomputer’sendeavors.Bitcoinwasdesignedtobeadeflationarycurrency,sounlikefiatcurrencies,thesupplyofmoneyisfixed.This,combinedwiththedecentralizationprincipleensurethatnosinglepersonorgovernmentcansimplycreateadditionalcoinsoncethesupplyismined.Onceallthecoinsaremined,thevalueofthecurrencywillintheory,continuetorise.
Bitcointransactionsarerecordedonadigitalledger(orrecord)knownastheblockchain.ThecoreconceptthatupholdsBitcoin’susefulnessisdecentralization.Withdecentralization,theblockchainisnotownedbyonesinglepersonorentity.Infact,everyonehasaccesstoit.Thereforetransactionsarepubliclybroadcastedacrossthenetwork,whichensuresthatbothparties
haveupheldtheirendoftheagreement.Thecodeisopensource(likeLinuxorAndroidOperatingSystems)soanyonecanviewit,thisensurestransparencyamongallparties.
Decentralizationallowstheblockchaintobesecuredbymultiplepointsofentryandbackedupbymultiplepointsoffailure.Thisisturnpreventsincidentslikehackingortheft.Forexample,ifsomeoneoffersyou1Bitcoin,youcanchecktheblockchainrecordstomakesurethatBitcoinisvalidandhasn’talreadybeenspent.Thissystemmeanswedonotneedthirdpartiestovalidatethetransactions.Theonlytransactionscostscomefromtheelectricityorminingpowerneededtoruntheblockchainitself.
Thishastremendousrealworldapplication,fromallowingcheaperinternationalpayments(sinceBitcoinhasnonationality)toloweringtheoverallpriceofcertaingoods.
BitcoinasaStoreofWealthBitcoin’sstatusasadeflationarycurrencymakesitincrediblyusefulintimeswherefiatcurrencyisundergoinggrosslevelsofinflation.Likegoldhasbeentraditionallyusedintimesofeconomichardship,Bitcoinhasthepotentialtodothesame.Tobeusedasastoreofvalueorwealth,Bitcoinhasafulfillafewcriteria.
1. Ithastonotbeperishable2. Ithastonotdepreciateovertime
Thesecondcriteriaissomewhatdebatable,ascriticsarguethatBitcoincoulddepreciateduetobettertechnologysurpassingit.However,Bitcoinhasnowreachedacertainmarketpointwheretheideaitselfhasanintrinsicvalue,likesayemailorFacebook.Emailisn’tparticularlyusefulifyou’retheonlyonewithanaddresstosendmailto,butthemorepeopleusethetechnology,theeasier,andmorevaluableitis.Venezuelaiscurrentlyundergoingtheworstcashcrisisofthedecade.Inflationhasreachedalevelwherepeople’smoneyisnigh-onworthlessagainsttheUSdollar,andmuchofthecountrycannotaffordbasicnecessities.Thatis,exceptforthosewhoholdBitcoins,whosevalueagainsttheUSdollarcontinuestoincrease.
Chinaisdoingthesamething,albeitfordifferentreasons.TraditionalinvestmentsinChineseassetshavereturnedlessthanpreviousyearsduetothegovernment’sdevaluationoftheYuan.Convertingmoneytogoldandsilverisheavilyregulatedandoftenincurslargetransactioncosts.Bitcoindoesnotsufferfromanyoftheseissues,andoftenistheonlyalternativeforthosewhoarelookingtosecuretheirwealthinboththeshortandlongterm.Goldhaslongbeenthetraditionalbackupplan,or“hedge”againstuncertainfinancialmarkets.Intimesofwar,orfinancialcrisis,goldpricestendtorise
whenfinancialmarketsarefalling.However,inrecenttimesthishasnotbeenthecase.Atthetimeofwriting,gold’s12monthperformanceisstagnant,whereasBitcoinhasrisenbynearly1000%.GrowingtensionsinNorthKoreaarejustonefactorthathasspurnedBitcoin’sgrowthintimesofuncertainty.TensionsintheregionhaveledtoincreasedbuysfromtheChinese,JapaneseandSouthKoreanmarkets.
8CommonBitcoinMythsDebunked
Likealltechnologicalinnovations,thereareanumberofpointsthatuninformedplayersdonotunderstand.Assuch,misinformationspreadswhichcausesfear,uncertaintyanddoubt-whichonlyhurtsthetechnologygoingforward.
1. BitcoinisillegalLet’sdealwiththebigoneoffthebatshallwe?Justbecauseacurrencyisnotbackedbyagovernment,doesnotmakeitillegal.Foryou,theuser,byoperatingasavirtualcurrency,Bitcoinislegal,solongasyouareusingitforlegalmeans.
2. MinersordeveloperscanchangetheamountofBitcoinsavailabletobenefit
themselves
ThewaytheBitcoinalgorithmworksensurestherearenoshortcutsinobtainingone.IfacounterfeitBitcoindoesnotsatisfyalltheconditionsrequired,anytransactionsmadeusingitwillberejected.Thisissimilartohowbanksrejectcounterfeitbanknotes.3. Bitcoinisn’tworthanythingbecauseitisn’tbackedbyacentralgovernment
Withallcurrencies,theyareonlyworthwhatsomeoneiswillingtoexchangeforthem.InthesamewaythatgoldorUSdollarshavenoinherentvalue,Bitcoinisjustameansofexchange.4. Bitcoin’smainuseisforcriminalsandthegovernmentwillshutitdown
Yes,atonetimeasignificant%ofBitcoinusagewasusedforillegalactivity.MuchofthisactivitywasfacilitatedontheundergroundblackmarketwebsiteSilkRoad.However,thisisnolongerthecase.Bitcoinisnowacceptedbyover
160,000merchantsworldwideandadoptioncontinuestogrow.Thetechnologicaluseslikeminimizedtransactionsfeeshavefarmoreuseforlargefinancialinstitutionsthantheydoforsomebasementdwelling20yeartryingtobuyLSDfromaguyinanothercountry.It’sworthnotingthatfiatcurrenciesarealsousedforcriminalactivity.
ThisonealsoreliesonthemyththatBitcoiniscompletelyanonymous.Yes,therearenonamedBitcoinaccounts,buteachBitcoinaddressisuniqueandeverytransactionisrecordedonapublicledger(theblockchain).Thereforewithalittlelegwork,itispossibletodeterminewhoisbehindaBitcointransaction.
Asfarasapotentialgovernmentshutdowndoes,that’salittletrickier.GovernmentsdohavethepowertomakelifedifficultforcitizensdealingstrictlyinBitcoin,butthisdifficultyonlygoesasfarastaxationonBitcoin.
5. 21MillionBitcoinsistoosmallofatotalnumberforeffectivedailyuseWherethisonefallsshortisthatitfailstocomputethatBitcoinisdivisibletoeightdecimalplaces.0.00000001BTCisactuallythesmallestunitavailable,thisisalsoknownas1Satoshi.Therearereally2,099,999,997,690,000(justover2quadrillion)maximumpossibleunitsorSatoshiintheBitcoinsystem.When1Bitcoinbecomestoolargeforday-to-daytransactions,wewillsimplymoveontosmallerunitsforconvenience,similartohowweusepenniesnowforsmalltransactions.
6. HackerscansimplystealalltheBitcoins
It’simportanttodifferentiatebetweenexchangesorwebsitesbeinghacked,andtheblockchainitselfbeinghacked.Exchangehacksexploitsecurityweaknessesofprivatecompanies,whereastheblockchainisnotcentralizedsothereisnosingleweaknessforhackerstoexploit.ThesameargumentcanbeappliedtotheUSdollar,justbecauseastoreisrobbeddoesnotmeantheUSdollarasacurrencyhasbeenstolenfromthesource.Thatsaid,youshouldtakeappropriatesecurityprecautionswhenstoringyourBitcoinsuchascreatingasafe,offlinewallet.7. Bitcoinisapyramidscheme/Ponzischeme
Mypersonalfavorite.Pyramidschemesareazerosumgame.Thefoundersandearlyadoptersprofitfromthemoneyputintotheschemebylateadopters.WithBitcoineveryonecanprofit,nomatterwhentheyfirstmadetheirinitialinvestment.TheotherillusionhereisthatthereisonecentralfounderofBitcoin.Bitcoinisdecentralizedandthereisno“CEO”orpersonatthetopofthe
pyramid.
8. Bitcoinisdead/ThereisnopointinvestinginBitcoinnowIhavewitnessedatleast20“Bitcoindeaths”inthepast5yearsalone.FromhackingincidentstoSilkRoadFounderRossWilliamAlbricht’sarrest,detractorshaveusedtheseasfuelforBitcoin’sobtituary.Thenumbersdon’tliethough,andBitcoinisinastrongerpositionthaneverbothintermsofmarketcapitalizationandrealworldadoption.
Asearlyas2012,youcanfindcommentatorssayingitwas“toolate”toinvestinBitcoin.Yet,realworldadoptioncontinuestogrow,andthepricekeepsonrising.Isthattosaytherewon’tbeissuesinthefuture?I’msuretherewillbe.However,ifBitcointransactionskeepincreasing,thecurrencyshowsnosignsofslowingdownanytimesoon.
LatestBitcoinInnovations:SegWit,LightningNetworkThenumberonetechnicalissueBitcoinfacesinitslifetimeistheissueofscalability.Orinrealworldterms,Bitcoin’sabilitytohandleagrowingnumberoftransactions.Currently,eachBlockontheBitcoinnetworkis1MB,representing10minutespertransaction,whichincreasesduringperiodsofheavyuse.Thisisbeneficialforbanksandlargefinancialinstitutionsas10minutesisafarquickerprocessingtimethanthatofsaySWIFTorotherpaymentnetworks.However,intermsofsmallerbusinesses,likesayacoffeeshop,10minutesisanincrediblylongandnon-practicalpaymenttime.
Foryears,therehasbeenaconstantdisagreementaboutthebestwaytoupgradeBitcoin’sblocksizes.Thelongertheseargumentscontinue,thesloweranyproposedsolutionsaredeveloped.Therearetwomaincamps,thosewhofavorahardfork,whichloosensuptherulesoftheprotocolandthosewhofavorasoftfork,whichtightenstherulesofthecurrentprotocol.Withoutgoingintoadvancedtechnicaldetails,userswhofavorasoftforkarecurrentlyproposingasolutionknownasSegregatedWitnessorSegWit.ThecruxofSegWitisthatthesignature(orwitness)ofatransactioncanbekeptonaseparateblockfromthetransactionitself,thisfreesupblockspaceforadditionaltransactions.Thewitnessdataisencryptedandcannotbemodified,sothereisnoabilitytochangetheinformationofthepaymentsender.Thishasgreatrealworldusageintermsofloweringtheabilitytohackatransaction.
Aswithanypotentialchange,thereisacertainamountofunpredictabilityinvolved.Inpracticalterms,SegWitactivationwillaffectthepriceofBitcoinonewayoranotherintheshortterm,howeveratthetimeofwriting,SegWithasonlybeenactivatedforlessthan72hours,andthepricehasheldstablethusfar.
TheactivationofSegWitcouldwellpavewayforthelightningnetwork,atechnologythatwillenableinstantBitcointransactions.Instanttransactionsas
previouslystated,willhelpmicroandnanotransactionsimmensely,andallowsmallbusinessestoutilizethebenefitsofacceptingpaymentsinBitcoinatpointofsaleterminals.Thiswillbeespeciallyusefulincountrieswithlow-valuefiatcurrencies.OnecurrentexampleofthisisVenezuela,wheretheVenezuelanBolivarhaslostaround90%ofitsvalueagainsttheUSdollarinunderayear.Bitcointransactionsarehelpingasmall,butsignificantportionofVenezuelanpublicholdvalueinthemoneytheydohave.
SowhatisBitcoinCashthen?BitcoinCash(BCHorBCConexchanges)isaspin-offcryptocurrencythatwastheresultoftheAugust1sthardforkbyasmall,yetsignificantproportionoftheBitcoinminingcommunity.Theforkinvolvesincreasedblocksizesandfastertransactiontimeswhichinturnwillleadtolowertransactionfees.Theblocksizehasincreasedto8MB,fromtheoriginal1MBthatBitcoinuses.ThisforkwasdesignedtosolvethescalabilityproblemsthatBitcoincurrentlyfaces.
SoifBitcoinCashistechnologicallysuperiortoBitcoin,whydon’tIinvestinthatinstead?It’satoughquestiontoanswerbecausequitefrankly,thesearestillveryearlydays.Atthetimeofwritingtheforkisonly1montholdandBitcoinCashhashadhighpricefluctuations.LiquidityismuchlowerthanBitcoin(meaningitisdifficulttoselllargeamounts)andrealworldadoptioneffectsremaintobedetermined.Ifyou’reanewinvestor,BitcoinCashiscertainlysomethingtobemonitored.However,thenetworkeffectsofBitcoinarestilltoostrongtoignore,anditisstillverymuchthenumberonecryptocurrency.
Intermsofmarketprice,theBitcoinCashsplitonAugust1stinitiallyledtoafallinthepriceofBitcoin,beforeitonceagainrosetoanall-time-highinlateAugust.BitcoinCashvalueinitiallyplummetedbeforeaboomandthenaresettoitscurrentpriceofaround$550.IfyoupurchasedBitcoinafterAugust1st,BitcoinCashshouldbetreatedasacompletelyseparatecurrency.AnyBitcointransactionwillnotbereplicatedinBitcoinCashorviceversa.IfyouwishtopurchaseBitcoin,lookforthesymbolBTConexchanges.IfyoupurchasedBitcoinbeforeAugust1styoumaywellbeabletoreceivethesameamountinBitcoinCash-providingyouhelditinawalletthatwasnotlinkedtoanyexchange.
Forminers,orthoseinterestedinmining,atthetimeofwritingBitcoinCash
offersgreaterminingrewardswhencomparedtoBitcoin,duetoadecreaseddifficultyinitsproof-of-workalgorithm.
HowtoBuyBitcoin
GonearethedayswhenbuyingBitcoinwasatimeconsumingandsomewhatuncomfortableendeavor.NowadaysbuyingBitcoinisasimilarprocesstoexchangingcurrencywhenyougoonvacation.
TherearetwowaystobuyBitcoin,thefirstistousefiatcurrency(USD,EUR,GBPetc.)topurchasecryptocurrencyviaanexchange.Theseexchangesfunctionthesamewayasregularforeigncurrencyexchangesdo.Thepricesfluctuateonadailybasis,andlikeregularcurrencyexchangemarkets-theyareopen24/7.Theseexchangesmaketheirmoneyfromchargingasmallfeeforeachtransaction.Somechargebothbuyersandsellers,someonlychargeafeeforbuying.Forsecurityreasons,mostoftheseexchangeswillrequireyoutoverifyyourIDbeforeallowingyoutopurchasecryptocurrency.
Itisalsoimportanttonotethetypeofpaymentseachexchangesupports.Someallowfordebit/creditcardpaymentswhereasotheronlyacceptPayPalorbankwiretransfers.BelowarethethreebiggestandreputablecurrencyexchangesforpurchasingBitcoin,EthereumandotheraltcoinswithfiatcurrencylikeUSdollars,EurosorBritishPounds.
CoinbaseCurrentlylargestcurrencyexchangeintheworld,Coinbaseallowsuserstobuy,sellandstorecryptocurrency.Coinbaseisundoubtedlythemostbeginnerfriendlyexchangeforanyonelookingtogetinvolvedinthecryptocurrencymarket.TheycurrentlyallowtradingofBitcoin,aswellas,EthereumandLiteCoinusingfiatcurrencyasabase.Knownfortheirstellarsecurityproceduresandinsurancepoliciesregardingstoredcurrency.TheexchangealsohasafullyfunctioningiPhoneandAndroidappforbuyingandsellingonthego,veryusefulifyouarelookingtotrade.
OnceyouaresignedupandcompletetheidentityverificationproceduresyoucanbuyBitcoinwithyourcreditordebitcardinstantly.
IfyousignupforCoinbaseusingthislink,youwillreceive$10worthoffreeBitcoinafteryourfirstpurchaseofmorethan$100worthofcryptocurrency.http://bit.ly/10dollarbtc
Kraken
BasedinCanada,andcurrentlythelargestexchangeintermsofvolumeofbuysinEuros,Krakenhastheadvantageofmorecoinsupport(theyalsoallowthepurchaseofMonero,EthereumClassicandDogecoin)thanCoinbase.Itallowsmargintrading,whichwhilebeyondthescopeofabeginner,willbeofinteresttomoreexperiencedtradersForotheraltcoins,youwillneedaccesstoanexchangethatfacilitatescryptocurrencytocryptocurrencytrading.ThebestoneoftheseisPoloniex.
Poloniex
Withmorethan100differentcryptocurrenciesavailableanddataanalysisforadvancedtraders,Poloniexisthemostcomprehensiveexchangeonthemarket.Lowtradingfeesareanotherplus,thisisagreatplacetotradeyourBitcoinintoothercryptocurrencies.IfyouhaveneverpurchasedBitcoinbefore,youwillnobeabletodosoasPoloniexdoesnotallowfiatcurrencydeposits.Therefore,youwillhavetomakeyourinitialBitcoinpurchasesonCoinbaseorKraken.BuyingLocally
ThesecondwaytobuyBitcoinsinexchangeforfiatcurrencyistolocallypurchasetheminperson.Theadvantageofthisisthatyoumaybeabletogetamarginallybetterpricethanbyusinganexchange.Theotheradvantageisthatuserslivingincountriesthatdon’thaveeasyaccesstoonlineexchangescanstillbuycoinsinperson.AlltransactionsareprotectedbyEscrowtopreventeitherpartybeingscammed.Websitehttp://localbitcoins.comisthecurrentmarketleaderforlocalbitcointransactionswithsellersinover15,000citiesaroundtheworld.
HowToSafelyStoreYourBitcoinCongratulationsonpurchasingyourfirstBitcoins!Nowthatyou’veboughtyourBitcoin,you’llneedtokeepitsecure.YoucandothisbytransferringitofftheexchangeandintowhatisknownasaBitcoinwallet.Thenamewalletimpliesthatyoucandoallthesamethingsyoucanwitharegularwallet.YoucanseehowmuchBitcoinyouhave,anduseittospendyourBitcoin.AnimportantdistinctiontomakeisthatbecauseBitcoinisdecentralizedandstoredontheBlockchain,thesewalletsdonot“store”yourBitcoinpersay.
WhileexchangeslikeCoinbasedoprovideyouwithyourownwallet,unlessyouareday-trading,it’sadvisabletoremoveyourcoinsfromtheexchangeinordertopreventagainstissueslikehacking-whichunfortunatelydoeshappenIn2011,TokyobasedBitcoinexchangeMt.Goxsufferedlossesofover$27.2millionand80,000userslostatotalofover$460millionworthofBitcoinaftertheexchangewashacked.Mt.Goxwasn’tsomeflybynightoperationeither,infactatthetimeitwasthelargestcryptocurrencyexchangeonEarth.Yetpoorsecurityprotocolsandmismanagementallowedtheattackstooccur.Thecompanyeventuallyfiledforbankruptcyamidallegationsoffraud,andmuchoftheuserbase’sstolencoinshavenotbeenrecoveredtothisday.Thisiswhyit’sparamountthatifyouwanttoholdyourcoinsforthelong-term,youstorethemsafely.
Theunderstandwallets,wemustfirstunderstandjusthowtheywork.Bitcointransactionsneedbothaprivatekey(fromthesender)andapublickey(fromthereceiver)inordertoprocesscorrectlyontheblockchain.Apublickeyisaseriesofbetween26and35alphanumericcharacterse.g.1Co5CmEZNz35Am59EcFhKGRdNfLrzppGkJ
Ifyoucanthisaddresstosomeone,theycansendfundstoyourwallet.Itisperfectlysafeforyoutogiveyourpublickey,alsoknownasyourwalletaddress,toanyone,astheycanonlydepositintoyouraccountwiththisinformation.In2013,acollegestudentreceived22Bitcoins(thenwortharound$24,000)byholdingupasignwithhispublickeyintheformofaQRcodeonaneditionofESPN’sCollegeGameday.
Yourprivatekeyontheotherhandshouldbeheldbyyou,andyoualone.Nevergiveyourprivatekeytoanyone.
Therearenumeroustypesofwalletsyoucanuse,hereisabreakdownofeachone.
DesktopWalletsAdesktopwalletareaconvenientmediumbetweenmovingyourBitcoinsoffanexchange,whilenothavingtocarryaroundadditionalinformationlikewithapaperorhardwarewallet.YoucanthinkoftheselikeaBitcoinbankaccountonyourcomputer.Mostdesktopwalletswillencryptyourprivatekeysforyoutoaddanextralayerofsecurity.Hereisarun-downofsomeofthemorepopulardesktopBitcoinwallets.Allthewalletslistedbelowarefree,youshouldneverpayforadesktopwallet.
Electrum-https://electrum.org
Whileit’sdesignmaynotwinanyawards,Electrumdoesthejobit’ssupposedto.Thecodeisopensource,whichmeansthere’samuchlowerpossibilityofthedevelopmentteamslippinginsomethingmalicious.ElectrumallowsyoutostoreandspendyourBitcoinswithrelativeease.Ithastheadvantageofstoringyourprivatekeysoffline,andtogoonlinein“watchingonly”mode,soifyourcomputergetshackedduringtheprocess,hackerswon’tbeabletospendanycoins.Italsohassupportforvarioushardwarewallets.Exodus-https://www.exodus.io/
UnlikeElectrum,Exodusisnotopensource.However,ExodusdoeshavetheadvantageofbeingcapableofstoringothercoinslikeEthereum,LitecoinandDogecoininadditiontoBitcoin.Theinterfaceisalsomoreuser-friendlythanElectrum.Itshouldbenoted,thatasdesktopwalletsrequireyourcomputertobeconnectedtotheinternet,theycanneverbe100%secure.
CoPay-https://copay.io
CoPayoperatesonbothdesktopandmobileplatforms,soit’sgreatifyou’relookingtospendorreceiveBitcoinsonthego.Itrequiresmultiplesignatures(waysofaccountverification)tospendcoins,whichisanaddedsecurityfeature.There’samultipleuseroptionaswell,whichisusefulforgroupsandfamilies.Thesoftware’scodebeingopensourceisalwaysaplus.
PaperWallets
Paperwalletsaresimplynotesofyourprivatekeythatarewrittendownonpaper.TheywilloftenfeatureQRcodessothesendercanquicklyscanthemtosendcryptocurrency.
Pros:
●Cheap●Yourprivatekeysarenotstoreddigitally,andarethereforenotsubjecttocyber-attacksorhardwarefailures.
Cons:
●Lossofpaperduetohumanerror
●Paperisfragileandcandegradequicklyincertainenvironments●Noteasytospendcryptocurrencyquicklyifnecessary-notusefulforeverydaytransactions
Youcanusesiteslikebitaddress.orgtocreatenon-securepaperwalletsonline.Theseareknownasnon-secureasyouhavetobeconnectedtotheinternetinordertousethem.Ifthesiteishacked,thenhackerscanaccessinformationregardingallprivatekeysthathaveeverbeencreated.
StepbyStepGuideonHowtoCreatea100%SecurePaperWalletRequiredMaterial:
●Offlinedownloadofbitaddress-http://bit.ly/offlinebitaddress●LiliLiveUSB-http://www.linuxliveusb.com/en/download●UbuntuOperatingSystem-http://www.ubuntu.com/download/desktop●USBFlashDrive-eitherabrandneworoneyouarewillingtoformattheexistingdatafrom
●AprinterInstallingUbuntuonyourflashdrive
1. Downloadtheaboveprograms2. OpenLiLiandinsertyourUSBflashdriveintoyourcomputer3. InLilichooseasource-select“ISO/IMG/Zip”option
4. InLiliOptions-select“FormatthekeyinFAT32”5. Unziptheofflinebitaddressfileandcopyitintoyourflashdrive
Thendisconnectyourcomputerfromtheinternet-thisissothereisnowayanyonecanaccessyourcomputerwhileyouarecreatingaprivatekey.
BootingUbuntufromyourflashdrive
Rebootyourcomputer,andpressF12beforewindowsorOSXloads.SelectUSBHDDfromthebootmenu.ThenruntheUbuntuoperatingsystemfromyourflashdrive.Afterithasloaded,clickon“TryUbuntu”OnceUbuntuhasloaded,clickonsystemsettingsthenprintersandaddyourprinter.Printout1pagetotestithasconnected.
Creatingyourwallet
6. ClickontheFirefoxicononUbuntuandopentheprivatebrowsingwindow7. Typeinthefollowingintheaddressbar:file:///cdrom/bitaddress.org-master/
8. Clickon“BitAddress.org.html”
9. Moveyourcursorarounduntilthetimerreaches0(thisistoensurethatyouarearealperson)
10. ChoosePaperWallet11. Followthestepstoprintoutyourpaperwallet12. DepositBTCusingthepublicaddressonthelefthandsideofthewallet
(representedbyaQRcode)
AdditionalRecommendationsItisrecommendedyoustoreyourpaperwalletinasealedplasticbagtoprotectagainstwaterordampconditions.Makemultiplecopiesforextrasecurityandifyouareholdingcryptocurrencyforthelong-term,storethepaperinsideasafe.
HardwareWallets
Hardwarewalletsrefertophysicalstorageitemsthatcontainyourprivatekey.ThemostcommonformoftheseareencryptedUSBsticks.Thesearesimilartoonesyoucanmakeyourself,exceptsomeoneelsehasalreadysetupthesecurityprotocolsforyou.Thisisidealforthosewhoarenon-techsavvy.Manyofthemalsohavebuilt-inbackupsoftwareincaseyouloseyourkeys.
Thesewalletsusetwofactorauthenticationor2FAtoensurethatonlythewalletownercanaccessthedata.Forexample,onefactoristhephysicalUSBstickpluggedintoyourcomputer,andtheotherwouldbea4digitpincode-muchlikehowyouuseadebitcardtowithdrawmoneyfromanATM.Pros:
●Nearimpossibletohack-asofthetimeofwriting,therehavebeenZEROinstancesofhackedhardwarewallets●Evenifyourcomputerisinfectedwithavirusormalware,thewalletcannotbeaccesseddueto2FA●Theprivatekeyneverleavesyourdeviceortransferstoacomputer,soonceagain,malwareorinfectedcomputersarenotanissue
●Canbecarriedwithyoueasilyifyouneedtospendyourcryptocurrency●Transactionsareeasierthanwithpaperwallets●Canstoremultipleaddressesononedevice-goodifyouplanonhavingmultipleBitcoinaccounts●Forthegadgetloversamongyou-theylookalotcoolerthanafoldedpieceofpaper
Cons:
●Moreexpensivethanpaperwallets-startingataround$60
●Susceptibletohardwaredamage,degradationandchangesin
technology●Differentwalletssupportdifferentcryptocurrencies
●Trustingtheprovidertodeliveranunusedwallet.Usingasecondhandwalletisabigsecuritybreach.Onlypurchasehardwarewalletsfromofficialsources.
ThemostpopularofthesearetheTrezorandLedgerwallets.BothoftheseprovideaneasytouseexperienceinadditiontobeingaportableandsecurewaytostoreyourBitcoin.
HowtoTradeBitcoinWhileyoumaywanttoholdBitcoinforthelongterm,youmayalsowishtotradethemforothercryptocurrenciesorfiatcurrency.ThisisthefastestwaytomakemoneywithBitcoin,butalsotheriskiest.Totradeforfiatcurrency,youcansimplysellthematthecurrentexchangerateonthesameexchangeyouboughtthemat,likeCoinbaseorKraken.
Ifyouwanttotradethemforothercryptocurrencieshowever,it’sbesttomovethemtoPoloniexoranotherlargeexchangelikeBittrex.OnceonhereyouwillseetheexchangeratebetweenBitcoinandothercurrencies.Itshouldbenotedthatthismaydifferfromtheexchangerateforthecryptocurrencytofiatpairing.Forexample,theexchangerateforBTCtoLitecoin(LTC)maydifferfromtherateforBTC/USDandLTC/USD.Feesareusuallylowforcrypto-to-cryptotrades,themaximumfeeonPoloniexforexampleis0.25%.Anotherelementyoushouldexamineistheliquidityforcertainpairings.Forexample,youdon’twantatradetobedelayedbecausesomeoneontheexchangeisnotsellingthevolumeofthecoinyouarebuying.Tocheckliquidityofcertaincoinpairingsgotohttp://coinmarketcap.com
Theseexchangesalsoalongyoutoviewthehistoricalpricechartsforthevariouspairingsaswellastheliquidity(easeofmakingatrade)foreachmarket.
Aswithanyspeculativemarket,tradingBitcoinisriskyandyouareliabletolosemoney.Thisisespeciallytrueifyoutradeonemotion,andnotrationality.Itisadvisabletoproceedwithcautionanddoyourhomeworkbeforeyoudoanytradingforreal.Youcanpracticewithvirtualmoney(knownaspapertrading)onsiteslikehttps://www.whaleclub.co/Needlesstosaythough,youwillmakemistakesatfirst.You’lllearnfromthesemistakes,butit’simportantthatyoumakethemwithmoneyyoucanaffordtolose.
Ifyouaregoingtotrade,takeintermediateprofitsforyourself.Thiswayanygainsyouhavemadeareinyourbankaccount,andnotjustonpaper.Dollarcostaveragingalsoappliestotradinginadditiontoinvesting.
WhatDeterminesthePriceofBitcoin?Ifyou’regoingtoinvestinBitcoin,oranycryptocurrencyforthatmatter,it’simportanttounderstandthemarketfactorsthatdrivethepriceonewayoranother.Thereareanumberofthese,whichofteninteractwithoneanother,butforsimplicitypurposes,wewillexaminethemonebyone.
ChinaNocountryhasmoreofaneffectonthepriceofBitcointhanChina.MorefiattoBitcointradesfromChinathananyothercountry,andsomeofthelargestexchangesintheworldarebasedthere.Approximately70%oftheworld’sBitcointradesoccurintheChinesemarket.
GoodnewsfromChinaequalsgoodnewsforthemarketingeneral.ADecember2013announcementfromthePeople’sBankofChinadecreeingthatBitcoinwasnotacurrencytankedthemarketby35%inunderanhour.Conversely,newsofBitcoinbeingadoptedbyChinesebusinessoftenleadstotheBitcoinpricerising.
OnemajorfactorthatmakesChinasuchadrivingforceintheBitcoinmarketistheChinesegovernment’sstrictfinancialregulationofassetsheldinChineseYuan.BothwealthyandmiddleclassChinesecitizensarelookingforawaytosecuretheirfinancialfuturewithouttyingittothevalueoftheYuan,whichhasbeendevaluedinrecentyears.Bitcoinrepresentstheperfectwayforthemtodothis.FurtherYuandevaluationwillonlyleadtoincreasedBitcoingrowthinthefuture.Russia
LikeChina,Russiaisalsosufferingfromissueswithitsfiatcurrency,theruble.TherublehascontinuedtofallagainsttheUSdollaryear-on-yearforthepast3
years.Asitdoesso,RussiansliketoprotecttheirwealthbymovingtheirrublesintoBitcoin.
AdoptionisRussiaisalsoamajorplayerinBitcoinshort-termpricemovements.AnannouncementinMay2017thatUlmart,thelargestonlineretailerinRussia,wouldbeginacceptingBitcoinpayments,tookthemarkettoathenalltimehighof$1800.GovernmentRegulation
GovernmentsupportforBitcoinwillalsoplayapartinthepriceofitasacommodity.AlthoughBitcoinisnottiedtoanyonenation,formassadoptiontooccur-itneedsthesupportofgovernment.ThemaincontentionforgovernmentsrightnowisBitcoin’sperceived“completeanonymity”andhowitrelatestocrime,especiallytaxevasion.Oncemeasuresareinplacetoeliminatetheanonymityelement(regardlessofyourmoralstandpointonthis),governmentsupportwillrise,andsowillthepriceofBitcoin.Conversely,anytimethereisnewsofagovernmentcrackdownonBitcoineitherasadigitalcurrency,oronatechnologylevel-thepricedecreases
TechnologicalInnovationAdvancesintheBitcoinnetworkarevitalifitistocontinueincreasinginvalue.Aspreviouslymentioned,newdevelopmentslikeSegWitandthelightingnetwork,whichwilleasescalabilityissues,areimportantinthedevelopmentofthecoinonatechnologicalfront.
Thecoin’sabilitytohandlemicropayments(transactionsofsmallmonetaryvalue)isonekeyareathatwashaveabigeffectonthefuturevalue.Currentlytheeffectivenessofthesystemformicropaymentsislimitedbythe1MBblocksize,whichleadstominimumtransactionamountsanddelaysinpaymentprocessingifyousendtoomanytransactionstooquickly.Withthe
implementationoflightningnetwork,theteamhopestoeasetheseissuesandfurtherincreaseBitcoin’srealworldviability.
MassMediaDespitewhatwe’dliketobelieve,thevastmajorityofsocietystillgettheirnewsfromjust1or2sources.Toputitbluntly,themainstreammediadoesn’tunderstandBitcoinoneiota.Duetothelackofpropercryptocurrencyorcryptoassetjournalistsworkingformajoroutlets,theywouldrathergiveairtimetogoodsoundbiteslike“Bitcoincouldreach$100,000within5years”orinversely“Bitcoinisthebiggestbubblesincethedotcomcraze”thanexamineitatatechnologicallevel,orfocusonanyinnovationsthathavebeenmade.PositivenewsforBitcoininthemedialeadstonewinvestors,andnegativenewsleadstoadecreaseinprice.
TheothersideofthisisthatsomeBitcoincommentatorshavealreadymadeuptheirmindwithoutevenexaminingthetechnology.Ifyouseeanarticlein2017talkingaboutBitcoinasafrontfor“drugdealing”or“moneylaundering”,thenyoucansafelydisregardit.Foryourownpersonalnewssource,Irecommenddedicatedsiteslikehttp://coindesk.comforlegitimate,non-biasedoroverhypednewsregardingBitcoinandcryptocurrency.
FundingforBlockchainCompanies
Asblockchaincompaniescontinuetoreceivemorefundingandinvestment,thecurrencyreceivesmorelegitimization.ManyblockchainrelatedstartupsnowacceptinvestmentsinBitcoinandothercryptocurrencieslikeEthereum.TheMiddleClassInvestor
Anoftenoverlookedfactor.WhileBitcoinmaybeincreasinginpopularityamongyoungerinvestorsandsomelargerinstitutions,itisstillverymuchofftheradaroftheAmericanmiddleclass.InotherwordsthinkaboutTom,aged55,fromMaryland.He’smarriedandhasalow6figureincomefromhisuppermanagementjob.Hisportfoliocurrentlyconsistsmainlyofbluechipstocksandlow-costindexfunds.He’snottryingtohitanyhomeruns,he’sjusttryingtoshoreuphisretirementassets.OnceBitcoincementsitsreputationasaformof“digitalgold”andmoreofasolidlong-terminvestmentratherthanthespeculativeplaythingitisseenasbysomemajorinstitutions,it’svaluewillcontinuetorise.Inotherwords,weneedmorepeoplelikeTomasourtargetBitcoinbuyerforthevaluetocontinueincreasing.
TechnicalAnalysisItshouldbenotedthattraditionaltechnicalanalysisorchartanalysislikeonewoulddoonstocksistough,asthecryptocurrencymarketisa)only8yearsoldsolackscomprehensivedataandb)unlikeanythingwe’veeverseenbefore.However,chartingdoeshaveitsplaceintheBitcoinuniverseandIwouldrecommendyoustudystocktechnicalanalysisbooksifyouareplanningtotradeBitcoinonaseriouslevel,withcandlestickchartingbeingthemostusefulforthecryptocurrencymarket.
MassAdoption
AsmoremerchantsacceptBitcoinasameansofpayment,themoreitlegitimizesthecurrency.Bitcoin’sscalabilityissueswillbethemaindeterminantofthis.Adoptionshowsnosignofslowingdownandthetotalnumberofbusinessesacceptingthecurrencycontinuestogrow.IfcorporategiantssuchasAmazonandApplebegantoacceptBitcoinpayments,thenthepriceislikelytoincreaseonceagain.
BitcoinforBusiness:HowYourBusinesscanBenefitfromAcceptingBitcoinPaymentsIfyou’renotasmallbusinessowner,youcanskipthissection,butifyouare,Iadviseyoutopaycloseattention.
Firstandforemost,acceptingBitcoinpaymentscansaveyoumoney.Whiletraditionalcreditcardpaymentprocessingarearound2-3%.UsingBitcoinpaymentplatformssuchasBitPaycanreducethesefeestoaround1%.Evenasmallpercentagechangelikethiscanrepresentbigsavingsinthelongrun.Ifyou’reaninternetsellertiredofbank’schargingyouextortionatefeesforcurrencyconversions,orsimplywanttomakeyourproductorserviceaccessibleworldwide-Bitcoinmaybeyoursolution.Bitcoindoesn’tdiscriminateacrossborders,andpaymentsfromanycountriesaresubjecttothesametransactioncosts.
TherearemillionsofBitcoinuserslookingforplacestospendtheircoins,addingyourbusinesstotheequationcanonlybegoodforthenetworkasawhole.Bitcoinusersarealsoanenthusiasticbunch,andenjoysupportingbusinessesthatacceptit.Cryptocurrencyasawholeisagrowingmarket,andmakingyourbusinessanearlyadopterisachancetobecomeaplayerinyourindustryviaincreasedbrandawareness.
There’salsoprotectionagainstchargebackfraud.AsBitcoinpaymentsareirreversible,you,themerchantisnolongerresponsibleforthecostsoffraud.Fornon-profits,Bitcoindonationshavesoaredyear-on-yearsinceitsinception.
TheJamaicanBobsledteamfundedtheirtriptothe2014WinterOlympicsentirelyfromcryptocurrencydonations.There’salsothebenefitsofcustomersseeingthetotaldonationamountandwhereitisspentinasectorwheretransparencyisking.
Ifyou’reworriedaboutthefluctuationofBitcoin’svalue,thenserviceslikeBitPayhaveyoucoveredwithdailybanktransfersinyourlocalcurrency.
CanIStillMakeMoneywithBitcoinin2017?Shortanswer:Yes
Longanswer:Bitcoincontinuestogrow,bothasadigitalassetandasacurrencywithrealworldapplications.IncreasedglobalizationandtheneedtotransfermoneyacrossborderswillonlyleadtoariseinadoptionofBitcoin.Theamountofcrossbordermoneytransferscontinuestogrowyear-on-yearandnowrepresentalmost1%oftheworld’sGDP.Bitcoin’stotalmarketcapnowstandsat$71billion,morethantheGDPofcountrieslikeCostaRicaandBulgaria.Thenear(butnottotal)anonymouselementofBitcoinisanotherfactorthatcontinuestodrivegrowth.Thisisparticularlyimportantincountrieswheregovernment’sheavilyregulatethefiatcurrencylikeChina.
Bitcoinhasnowbecomeabrandinandofitself.Thecurrencyissynonymouswithadigitalstoreofvalue.Thisissomethingthatnoothercryptocurrencycantouch.Thinkofitlikebuyingaproperty.Wouldyouratherbuyoneina“namebrand”citylikeLondonorNewYork,wherethedemandforpropertieslikeyourswillalwaysbehigh,regardlessofthegeneralstateofthemarket.OroneforthesamepriceinsayOklahomaCitywhereyoumaybeabletobuyabiggerhouse-butwillyoubeabletosellduringamarketdownturn?
WhetheryouwanttouseBitcoinasatoolfortrading,exchangingforothercryptocurrenciesorasalongtermstoreofvalue,therehasneverbeenabettertimetoinvestincryptocurrencythan2017.It’salsoneverbeeneasiertoinvestwithsiteslikeCoinbaseandKraken.Justrememberthough,everyonefeelslikeageniusoraheadofthecurvewhenthemarketisgoingup.Therewillbedownperiods,andit’simportanttomanageyourriskcorrectlysothatyoucanrideoutthebadtimesandcontinuetoprofit
duringthegoodones.Rememberthis-eventhebestinthebusinessgetitwrongsometimes
TheBitcoinInvestingMindsetandHowtoMinimizeYourRiskInamarketasvolatileascryptocurrency,it’simportanttominimizeyourriskasmuchaspossible.Withpotentialmarketchangesof10%onadailybasis,it’simportantforyourportfolio,aswellas,yourpeaceofmind.
Firstoff,neverinvestmorethanyoucanaffordtolose.Itmaybetemptingtotryandhitahomerun,butindoingsoyouwillcauseyourselfsleeplessnightsandanxietyriddendays.Secondly,unlessyouaredaytrading,don’tcheckcryptopricechartseveryfewhours.Doingsowillonlygiveadditionalanxiety.Thepriceisliableisswingbylargepercentagemarginsonadailybasis,that’sjustthewayoftheBitcoinmarket,justrememberthatsofar,overthelongrun,thepricehascontinuedtoincrease.
DollarCostAveragingOneofthebestwaystominimizeyourriskinavolatilemarketistousewhatisknownas‘dollarcostaveraging’.ThissimplymeansdividingupyourtotalplannedinvestmentandbuyingBitcoinatregularintervalsinsteadofallatonce.
Withdollarcostaveraging,youaresimplybuyinglessofanasset(inthiscase,Bitcoin)whenthepriceishigh,andmorewhenthepriceislow.Yourtotalexposureislessbecauseyouareonlyexposedtopartofanydeclineinthemarket,asopposedtoallofitwithalumpsuminvestment.Youraveragecostpercoinisthereforelikelytobelower.
Let’suseanexample,bothAlanandJohnhave$1200toinvestinBitcoinatthestartof2015.Alandecidestoinvestall$1200onJanuary1st,Johnontheotherhandisgoingtousedollarcostaveraging.Hewillinvest$100onthe1stofeachmonth,foratotalof$1200.ThepricesusedinthisexamplearetheactualBitcointradingpricesasofthosedates.
January1st2015-$305.32February1st2015-$237.18March1st2015-$263.57
April1st2015-$255.23May1st2015-$226.45June1st2015-$233.44
July1st2015-$260.73August1st2015-$283.04September1st2015-$229.00October1st2015-$240.10
November1st2015-$325.28December1st2015-$375.95
Alan’stotalinvestmentinBTC=3.93(1200/305.32)John’stotalinvestmentinBTC=4.55(1200/269.60)PriceonJanuary1st2016-$433.57
Alan’sPortfolioValue=3.93*433.57=$1704.02John’sPortfolioValue=4.55*433.57=$1974.37
Alan’sROI=42%
John’sROI=64.5%
Sobyusingdollarcostaveraging,John’saverageBTCpurchasepricewas$269.60,whereasAlanboughtalumpsumat$305.32.Byhavingaloweraveragepurchaseprice,John’sROIishigherovertime.Alanboughthercoinsatthepeakofthemarketbeforeaprolongeddownturn,whereasJohnutilizedthisdownturntohisadvantage.Remember,timeinthemarketbeatstimingthemarket.Generallyspeaking,thelongeryouareinvestedinsomething,thebetter.
FOMO&FUDThesearetwotermsyoushouldbecomefamiliarwithifyouaregoingtobeinvestingandtradinginBitcoin,oranycryptocurrencyforthatmatter.
FOMO-FearOfMissingOutThisismostcommonlymanifestedwhenyouseenewsreportsof<inserthotshinynewaltcoinhere>increasingbyridiculousnumberslike100+%inaday.Itmaybetemptingtotradeaproportionorevenall(terribleidea)yourBitcoininforthelatestcoolcryptocurrencyobject,butit’sincrediblyrisky.Manysmalleraltcoinsarebackedupbypurelytheoreticaltechnology,andhavenorealworldadoptionforwhateverproductorservicetheyarebacking.Remembertodoyourduediligenceregardingcoinnews.Justbecausetheheadlinemightread“AmazingAltcoinlinkedtoAmazondeal”,doesn’tnecessarilymeanthedealisanywhereclose,orifthereevenisadealinthefirstplace.Checkyourfactsbeforeinvesting.
ItisimportanttounderstandthatBitcoinhasnowreachedapointwheretherearerealworlduses,anditisbyfarthemostadoptedoutofanycryptocurrency.Therefore,Bitcoinhasgreatermarketsaturationandthusisunlikelytoskyrocketinvaluelikesmallercoins.Theoppositeisalsotruethoughandwithgreatrewardscomesgreatrisk.Manysmallercoinscan,anddoloseupto80%oftheirvalueinjustafewdays(forfurtherreadingcheckouttheChaincoinpumpanddumpschemeofJuly2017),whereasBitcoincontinuestoholdstrong.Ifyouareplanningtobuyandholdasinglecoinforthelongterm,Bitcoinshouldbeyouronlyplay.
FUD-Fear,Uncertainty&DoubtFUDisthespreadingofmisinformationbyuninformedsources.Manyofthesesourceshavetheirownnefariousreasonsfordoingso.Itmaybetopromotean
alternativecoin,ortheymayhaveshorted(betonthepricedecreasing)Bitcoin.Ofcourse,legitimatecriticismofBitcoinasatechnologyisfine,andshouldbeencouragedifthetechnologyistoadvance.FUDhoweverismostlyslanderandbaselessaccusationsaboutBitcoinasatechnology,thepeoplebehinditorthepeopleinvestedinit.
HowcanyouavoidFUD?SimplybyobtainingyourBitcoinandothercryptocurrencynewsfromreliablesources,whodon’thaveavestedinterestonewayoranother.Itisimportanttousemultiplesourcestogetawellroundedviewofthesituation.
InvestingyourBitcoin-ICOsAnICOorInitialCoinOffering,isanalternativeformofcrowdfundingthatmanyblockchainstartupshavebeenutilizingasoflate.InsteadofdonatinginUSDollarsinreturnforsharesofthecompany,patronscandonateinBitcoinorothercryptocurrenciesinexchangefornewtokensofthecompany.
ThemostfamousICOthusfarwastheEthereumICOofJuly2014.Ethereumisanewblockchainbasedplatformthatallowsapplicationsandautomaticallyexecutedcontracts,knownas“smartcontracts”tobebuiltonit.Duringthefundingphase,Ethereumreceivedroughly31,500Bitcoin,equivalentto$18.4millionatthetime.Inreturn,atotalof60millionEthereumtokensweredistributedtothosewhowerepartofthefunding.Theprojecthasbeenextremelysuccessfulintheshorttermandtoday,60millionEthereumisworthapproximately$24billion.ICOsrepresentawayforcompaniestofundtheirblockchainprojects,inadditiontoprovidingreturnsforinvestors.Usuallytheofferingslastforaperiodofafewweeks,andthecompanyissuingthenewtokenswillhaveagoalamountthattheyaimtoraise.ICOshaverapidlyincreasedinpopularityinthepast18months,and2017isontracktobethefirstyearthatblockchaincompaniesraisemoremoneyfromICOsthantheydofromtraditionalventurecapitalists.Foraninvestmentpurpose,ICOsrepresentawayforsavvyinvestorstogetinonthegroundfloorofanexcitingnewproject.
Thedownsideofthisofcourse,isthatwithsomanynewICOspoppingup,someofthemhavefarlesslegitimacythanothers.IfyouareplanningtoinvestinanICO,dosobasedontheunderliningusefulnessoftheproject,andnotanyfancymarketingbuzzwordsthatthecompanyusesintheirsalescopy.Justbecausesomethingisbasedonablockchainplatform,doesnotalwaysmeanthereisarealworlddemandfortheproductorservice.Anotherareatoexamineistheteamofdevelopersbehindtheproject,andtheirtrackrecordofsuccessfullydevelopingblockchainapplications.
Likeanytraditionalstartupventure,moreICOswillfailthansucceed,andraisingmoneyisonlypartofasuccessfulproject.OnesuchexampleofanICOwithproblemsisBancor,anICObasedoftheideaofcreatingamarket-making(generatinganautomaticbuyandsellprice)productthatprovidedliquidityfordigitalassets.Theprojectraisedastaggering$153minjust3hours,over50%higherthantheinitialtarget.
Howevertheprojecthadproblemswithinvestor’stransactionsbeingacceptedinadditiontotheBancorteamissuingextratokenafterthefundingperiodwascomplete.Thisultimatelymeansalowerreturnsforinvestors.Likeanyinvestment,isimportanttodoyourduediligencebeforebecominginvolved,andneverinvestmorethanyoucanaffordtolose.Onefinalword,likeanythingintheBitcoinorcryptocurrencyspace,ICOsarenotagetrichquickscheme.LatelytheICObuzzhasbeensointensethatthereareevenICOsutilizingFacebookAdsandcelebrityendorsementsinanattempttogaininvestment.It’sworthaskingyourselfifyouwouldinvestinanon-blockchaincompanybasedonaFacebookadvertisement,andIthinkyoualreadyknowtheanswer.Ifacompany’smainsellingpointis“amazingreturns”,ratherthantechnologicalinnovation,thenit’slikelytobeasub-parinvestmentratherthanasolidone.
Theotherareathatisvitaltounderstand,isthatyouARENOTbuyingstockinthesecompaniesduringtheICOphase.Youdon’townanyofthecompany,yousimplyownwhatevertokentheydenominizewhichwillfluctuateinvalueduetoexternalfactorsthatgobehindthecompany’sownperformance.
WhyIDon ’ tRecommendYouMineBitcoin
WheneverBitcoin’spriceisrising(andthat’smostofthetime!),theminingquestionalwayspopsup.Usuallyfromthosewhoareinexperiencedorwanta“free”waytogetapieceofthepie.
Itallstartswithavariantofthisquestion“WhybuyBitcoinat$100/$1,000/$4,000whenyoucanjustuseyourcomputertominesomeforfree?”
Unfortunately,likeeverythingelse-thereisnosuchthingasfreeBitcoin.
Aspreviouslydiscussed,thewayBitcoinsarecreatedor“mined”isbyusingacomputertosolveanofincreasinglycomplexseriesofalgorithms.UsersarethenrewardedforsolvingthesealgorithmsbyreceivingBitcoin.Thereisnomanpowerinvolved,youyourselfdon’thavetosolvethealgorithm,youjusthavetolinkyourcomputeruptotheBitcoinnetworkandthecomputerdoestherest.Therearealsonoshortcutsorbreakthroughmoments,theonlywayBitcoincanbeobtainedquickeriswithmorecomputerpower.Howmuchcomputationalpoweryousupplydeterminesthesizeofyourreward.Themorepoweryousupply,themoreBitcoinsyoureceive.NowhereiswhyminingisgenerallyaterribleinvestmentfortheaverageJoe.
1. ElectricityCosts-Theelectricitycostsinvolvedwithrunningyourcomputer24/7(whichisnecessaryformining)byfaroutweightheamountofBitcoinsyoureceiveforcompletingthetask.Yourequireaccesstoindustrialelectricityratesofaround$0.02perkWhinorderfortheventuretobeprofitableonasmallscale.
2. RequiringSpecialistHardware-Nowadays,themostefficientmining
processesrequirespecialhardwareknownasApplication-specificintegratedcircuits(ASIC).ASICscanbedescribedasasupercomputerthatcanonlyeverperformonetask.SpecialistBitcoinASICminersavailableforconsumerpurchasestillstartataround$1000andoftenrunaround$2000-$2500.
3. Equipmentmaintenance-Tomaintainallthiscomputingpowerisan
additionalcost.Thecostofcoolingaloneisalargecostthathastobefactoredintolongtermprofits.Hardwarerunning24/7burnsoutfasterandreplacementminingequipmentwillbeneededinduecourse.
4. TheincreasingsizeoftheBitcoinnetwork-Thenetworkpaysoutafixed
amountofBitcoin,regardlessofhowmanyminersareusingthenetwork.Thecurrentrateisaround1800BTCperday,whichsoundslikeahugenumber,untilyourealisejusthowmanyminersthereareonthenetwork.Thecurrentminingpowerisequivalentto17.6BILLIONdesktopcomputers.Thereforetheaveragepayoutfortheenduserrunning1desktopcomputerfulltimeisaroundapproximately$0.000107perday.Orroughly2centsayear’sworthofBTC.Toputitlightly,youhavemorechanceofwinningthelotterythanyoudomakingaprofitfromminingBitcoinyourstandardhomecomputer.
Miningin2017isamuchdifferentpropositionfromminingin2010oreven2012.TherearesomeopportunitieswhichinvolvedinvestinginBitcoinfarmsorgrouppurchasingprocessingpowerofASICatadiscount.Thisisknownasa“miningpool”.Duetocheaperpowercosts,currentlyaround80%oftheworld’sminingpoolsarebasedinChina,withIcelandpossessingthesecondlargestnumber.JoiningaminingpoolrequiresalowerupfrontinvestmentbutstillrequirescheapelectricityratesandhavedebatableROIpotential.
Itshouldalsobeworthnotingthatmanyofthosewhopromotegroupminingorcloudminingdosounderanaffiliateprogramwithwhatevercompanythatarepromoting,meaningtheygetacommission%everytimesomeonesignsup.
However,fortheaverageJoewithoutahugeamountofmoneytoinvest-Iwouldstronglyrecommendbuyingcoinsinsteadofminingthem.Youaremorelikelytogethigherreturnsinboththeshortandlongrun.
IsthereaBitcoinETForMutualFundIcaninvestin?ExchangeTradedFunds(ETFs)andmutualfundshaverepresentedsomeofthesafestinvestmentsoverthepastfewdecades.Insteadofinvestinginindividualcompanies,youarebuyinganaggregateshareofmanycompanies.Byallowingforthislevelofdiversification,thisrepresentsalowriskuseofyourfunds,andformanyyearsinvestorshavebeenclamoringforaBitcoinorcryptocurrencyfundlikethisduetothepricevolatilityofindividualcryptocurrencies.
UnfortunatelyattemptsforaBitcoinETFhavebeenthwartedbyregulatorybodiesthusfar.In2017,twoBitcoinETFapplicationswererejectedbytheSEC.Thereasoningfromthegovernmentbodywasthelackofregulationandmarketsurveillanceinthecryptocurrencyspace.TheclosestthingtoaBitcoinmutualfundtodayisadiversifiedfundofferedbyhttp://thetoken.iobasedoutofRussia-thefundisacombinationof16differentcryptocurrencytokens,withEthereum(22%)andBitcoin(17%)representingthelargestportionsofthefund.InvestmentscanbemadewithbothBTCandETHandfundsarestoredinEthereumbackedwallets.However,fiatcurrencyinvestmentsarenotcurrentlysupported.ThefundisbackedbyasmartcontractontheEthereumplatformtoensurethelegitimacyofthetokensoffered.
However,themaindrawbackofthesiteisthatitisnotavailabletothosebasedintheUSorSingapore,althoughthismaychangeinthefuturebasedontheregulatorystatusofBitcoinandothercryptocurrencies.Onceagain,likeanyinvestmentsyouareliabletolosemoneyinamarketdownturn,soonlyinvestmoneyyouarecomfortablelosing.
TheTenCommandmentsofBitcoinIfyougetnothingelsefromthisbook,atleastfollowtheserulesandyou’llbeinabetterpositiontomakemoneythanothernewinvestors.
1. ThoushaltbelieveinBitcoinatatechnologicallevel2. Thoushaltnevergivesone’sprivatekeytoanyoneelse3. ThoushaltalwaysstayinformedwithBitcoinnewsfrom
reputablesources4. Thoushaltneverpanicsellduringadownturn5. Thoushaltalwaystakeintermediateprofitsforoneself6. Thoushaltalwaysstorecryptocurrencysafely7. Thoushaltnotspendeveryhourcheckingcryptocurrency
markets8. ThoushaltnevermineBitcoinontheirregulardesktop
computer9. Thoushaltnotinvestmorethanyoucanaffordtolose10. Thoushaltalwayshelpotherswithlessknowledgethan
yourself
ConclusionBitcoinhaschangedthewaywelookatmoneyandfinance.Ourpreviousrelianceonbanksandotherfinancialinstitutionshasbeenputintoquestion.Theselongstandingfinancialinstitutionsnowfaceunprecedenteddisruptionfromthisgroundbreakingtechnology.Forusers,crossborderpaymentsatanear-instanttransactiontimeandfarlowertransactionsfeesaremakingtheglobaleconomysmaller.Formerchants,protectingthemselvesfromfraudhasneverbeeneasierwiththeriseofBitcoin.Evennon-profitscanbenefithugelyfromBitcoinasapaymentmethod.Blockchaintechnologyhasanadditionallaundrylistofbenefitsrangingfromtransparencyinelectionstoeasilyaccessiblemedicalrecordsbetweenparties.
Asacommodity,Bitcoinhasproducedunrivaledreturnsforinvestorsoverthepast7years.Nootherfinancialasset,inthecryptocurrencyspaceorotherwisehasmademorepeoplemoneysinceitsinceptionin2010.ForthosewhobelieveinBitcoin,longmaythesereturnscontinue.Ihopeyou’veenjoyedthisbookandthatyou’renowalittlebitmoreinformedabouthowBitcoinworks,andmoreimportantly,howitcanworkforyou.Whetheryou’replanningoninvestingforthelong-term,orhopingtomakeshort-termgainsbytrading-Iwishyouthebestofluck.
Remember,traderationallyandnotemotionally.Neverinvestmorethanyoucanaffordtolose,andfortheloveofGod-don’tcheckthecharts15timesaday.Ifyou’rereadytomakethenextstepandgetinvolvedinthemarket.Ihaveasmallgiftforyou.
IfyousignupforCoinbaseusingthislink,youwillreceive$10worthoffreeBitcoinafteryourfirstpurchaseofmorethan$100worthofcryptocurrency.http://bit.ly/10dollarbtc
Finally,ifyou’veenjoyedthisbookI’dreallyappreciateitifyouleftareviewonAmazon.
Cryptocurrency:BeginnersBible-HowYouCanMakeMoneyTradingand
InvestinginCryptocurrency
ByStephenSatoshi
Copyright2017byStephenSatoshi-Allrightsreserved.
ThefollowingeBookisreproducedbelowwiththegoalofprovidinginformationthatisasaccurateandreliableaspossible.Regardless,purchasingthiseBookcanbeseenasconsenttothefactthatboththepublisherandtheauthorofthisbookareinnowayexpertsonthetopicsdiscussedwithinandthatanyrecommendationsorsuggestionsthataremadehereinareforentertainmentpurposesonly.Professionalsshouldbeconsultedasneededpriortoundertakinganyoftheactionendorsedherein.
ThisdeclarationisdeemedfairandvalidbyboththeAmericanBarAssociationandtheCommitteeofPublishersAssociationandislegallybindingthroughouttheUnitedStates.
Furthermore,thetransmission,duplicationorreproductionofanyofthefollowingworkincludingspecificinformationwillbeconsideredanillegalactirrespectiveofifitisdoneelectronicallyorinprint.ThisextendstocreatingasecondaryortertiarycopyoftheworkorarecordedcopyandisonlyallowedwithexpresswrittenconsentfromthePublisher.Alladditionalrightreserved.
Theinformationinthefollowingpagesisbroadlyconsideredtobeatruthfulandaccurateaccountoffactsandassuchanyinattention,useormisuseoftheinformationinquestionbythereaderwillrenderanyresultingactionssolelyundertheirpurview.Therearenoscenariosinwhichthepublisherortheoriginalauthorofthisworkcanbeinanyfashiondeemedliableforanyhardshipordamagesthatmaybefallthemafterundertakinginformationdescribedherein.
Additionally,theinformationinthefollowingpagesisintendedonlyforinformationalpurposesandshouldthusbethoughtofasuniversal.Asbefittingitsnature,itispresentedwithoutassuranceregardingitsprolongedvalidityorinterimquality.Trademarksthatarementionedaredonewithoutwrittenconsentandcaninnowaybeconsideredanendorsementfromthetrademarkholder.
FinancialDisclaimer:
Iamnotafinancialadvisor,thisisnotfinancialadvice.Thisisnotaninvestmentguidenorinvestmentadvice.Iamnotrecommendingyoubuyanyofthecoinslistedhere.Anyformofinvestmentortradingisliabletoloseyoumoney.
Thereisnosingle“best”investmenttobemade,incryptocurrenciesorotherwise.Anyonetellingyousoisdeceivingyou.
Thereisno“surefirecoin”-oneagain,anyonetellingyousoisdeceivingyou.
Withmanycoins,especiallythesmallerones,themarketisliabletothespreadofmisinformation.
Neverinvestmorethanyouarewillingtolose.Cryptocurrencyisnotagetrichquickscheme.
“Theoneswhoarecrazyenoughtothinktheycanchangetheworldaretheoneswhodo”.-SteveJobs
“Thestockmarketisavehicletotransferwealthfromtheimpatienttothepatient"-WarrenBuffett
TotalCryptocurrencyMarketCapitalizationonAugust20th2017
Source:Coinmarketcap.com
Introduction
Injust7shortyears,thevalueofBitcoinhasincreasedfrom$0.08toover$4000[1]
Injustasingleyear,Ethereum’spricerosefrom$11to$395andbackdownto$295atthetimeofwriting.Thecurrentcryptocurrencymarketiswortharound$130billion,morethanthetotalGDPofcountrieslikeHungaryandKuwait.
Theseinvestmentreturnsarecompletelyunprecedentedfromanytraditionalstockorindexfundusingfiatcurrency-whichispreciselywhythecryptocurrencyuniverseisexploding
Wehavedailynewsarticlesperpetrating“Bitcoinvaluecouldreach$5000by2018”andyet2resultsfurtherdownonaGooglesearchwehaveacontraryarticlewiththeheadline“BitcoinvaluehaspeakedsaysBillionaire.”InthemonthofJulyalonewesawpredictionsofEthereumbeingat$1000bytheendof2017,andothercommentatorsspeculatingthatthevaluewouldplummettojust$50inthesametimeperiod.
It’ssafetosay-there’sawholelotofhypeoutthereThisbookisdesignedtoseparatefactfromfiction,wewanttotakeastepbackfromthehypeandlookatthefundamentalsofsomeofthemoreprominentcryptocurrenciestoexaminetheirviabilityasbothastechnologicalentityandasatrading/investingvehicle.Thisistogiveyouawellroundedviewonwhetherthesecoinshavepotentialforyoutomakemoney-whichmanyofthemdo
Forreferencepurposes,IwillrefermostlytoBitcoinwhentalkingaboutgeneralcryptocurrencytechnologyandusingcryptocurrencyasameansofexchange.Further,in-depthexplanationonEthereumandotheraltcoinscanbefoundlaterinthebook.
Finally-ifyouenjoythisbook,I’dreallyappreciateitifyoutookjust2minutesofyourtimetoleaveitareviewonAmazon.
WhatisCryptocurrency?
Dependingonwhoyouask,definingcryptocurrencywillelicitanswersfrom“themoneyofthefuture”allthewaydownto“thebiggestbubblesincetheDOTCOMbubble”.USsenatorThomasCarpersummeditupbestinlaymensterms.
“Virtualcurrencies,perhapsmostnotablyBitcoin,havecapturedtheimaginationofsome,struckfearamongothers,andconfusedtheheckoutoftherestofus.”Foramoreaccuratedefinition,cryptocurrenciesaresimplycurrenciesthatdonothaveacentralizedlenderlikeacountry’scentralbank.Theyarecreatedusingcomputerencryptiontechniquesthatlimittheamountofmonetaryunits(orcoins)createdandthenverifyanytransferofthefundsaftertheircreation.
Thiscreationtechniqueisknownas“mining”duetoitstheoreticalsimilaritytomininggoldorotherpreciousmetals.Tominecryptocurrency,oneneedstosolveanincreasinglycomplexalgorithmorpuzzle.Solvingthesealgorithmstakealotofcomputerprocessingpower.Inotherwords,itcostsmoneytominethem,sowecan’tjustcreatevalueoutofthinair.Thereforethesecurrenciesandtheirvaluearesecuredbythelawsofmathematicsasopposedtoanycentralgovernmentorbank.
Ascryptocurrencyadoptionincreases,sodoesthenumberofrealworlduses.Everythingfromphysicalgoods,giftcards,ticketstosportsgamesandevenhotelbookingscanbepurchasedusingcryptocurrency.Certainbarsandrestaurantshavenowalsostartedacceptingitasameansofpayment.AnumberofNGOsnowacceptdonationsinBitcoinandothercryptocurrenciesaswell.Therearealsomoreillicituses,withthecasesofundergroundonlinemarketplacesdealinginillegalgoods,suchasSilkRoadandAlphaBay.Thesecurrencieshaveahugenumberofadvantagesversusthecurrenciesthat
weknowandusetoday.Thisiswhatmakesthemsoattractivetobothlongterminvestorsandshorttermspeculators.Ofcourse,likeanyinvestment,cryptocurrenciesdoindeedhavesomedrawbackstothem-andwewillexaminetheselateroninthisbook.
AnExtremelyBriefHistoryofCryptocurrency
Whilethepracticalapplicationsofcryptocurrenciesdatebackamere7years,thetechnicalaspectsactuallydatebackafurther30yearstothe1980s.
CryptographerDavidChaumwasthefirsttotheorizeacryptocurrencywhenheinventedanencryptedcomputeralgorithmthatallowedsecure,unalterableexchangesbetweentwoparties.ChaumlaterfoundedDigiCash,oneofthefirstcompaniestoproduceunitsofcurrencybasedofhisalgorithm.It’simportanttonotethatonlytheDigiCashcompany,couldproducethecurrency,whichisamodelunlikeBitcoinandothercryptocurrencieswhereanyonecanminethecurrency(providingtheyhavethenecessarycomputingpower).AfterrunningintolegalproblemsandrejectingapartnershipwithMicrosoftthatwouldhaveseenDigiCashpairedwitheveryhomeWindowsoperatingsystem,thecompanywentbankruptinthelate1990s.
ChinesesoftwareengineerWeiDaipublishedawhitepaperon“b-money”,whichlaidthefoundationsforthearchitecturebehindthecryptocurrenciesthatweknowtoday.Thepaperincludedinformationoncomplexalgorithms,anonymityforpurchasersanddecentralization.Howeverthecurrencyitselfnevercametofruition.
USbasedE-Goldwasanotherfailedattemptatcreatingacryptocurrencyinthe1990s.TheFloridabasedcompanygavecustomerse-gold“tokens”inexchangefortheirjewelry,oldtrinketsandcoins.ThesetokenscouldthenbeexchangedforUSdollars.Thewebsitewasinitiallysuccessfulandtherewereover1millionactiveaccountsbythemid-2000s.OneofE-Gold’spioneeringstrategieswasthatanyonecouldopenanaccount.However,thisledtoanumberofscamsbeingrunthroughthewebsite.Inaddition,poorsecurityprotocolsledtolargehackingincidentsandthecompanywentoutofbusinessin2009.
ThemoderncryptocurrenciesthatweknowtodaybeganwithBitcoin,whichwasfirstoutlinedbyanonymousentity(theidentityhasneverbeenconfirmedasasinglepersonorgroup)SatoshiNakamoto.Bitcoinwasreleasedtothepublicinearly2009andalargegroupofenthusiastsbeganmining,investingin,andexchangingthecurrency.ThefirstBitcoinmarketwasestablishedinFebruary2010.
Inlate2012HostingandwebsitedevelopmentplatformWordpressbecamethefirstmajorretailertosupportpaymentinBitcoin.Thisstepwaskeyasitgavethecurrencyrealworldcredibilityandshowedthatlargecorporationshadconfidenceinitasacurrency.
Cryptocurrencyvs.TraditionalCurrency
Currency101:Thevalueofanycurrencyisdeterminedbywhatsomeonewillgiveyouinexchangeforsaidcurrency.
Currencies,cryptoorotherwiseneedtofollowthreebasicrules:4. Theyneedtobedifficulttoproduce(cash)orfind(goldorotherprecious
metals)5. Theyneedhavealimitedsupply
6. TheyneedtoberecognizedbyotherhumansashavingvalueUsingonlyBitcoin(BTC)asanexample,ittickstheboxesofallthreeofthesecharacteristics:
4. Bitcoinusescomplexcomputeralgorithmsinitsproductionwhichtakealotofcomputationalpower,soitcannotbereplicatedeasilyoratadiscount
5. ThereareafinitesupplyofBitcoins-21Milliontobeexact[2].Asof2015,roughly2/3ofthisnumberhadbeenmined
6. TherearehundredsofBitcoinexchangesandBitcoinisacceptedeverywherefromSubwaytoOKCupid
Wherecryptocurrenciesdifferfromtraditionalcurrencies(alsoknownasFiatcurrencies)isthattheyarenottiedtoanyonecountry,nationorinstitution(inmostcases).TherearenoUSABitcoins,noJapaneseLitecoinsoranythinglikethat.Theyaredecentralized.Bitcoinwasdesignedasa“deflationarycurrency”-meaningovertimeitsvaluewill,intheory,inherentlyincrease.Unlikefiatcurrencieswhichareinflationaryandwhosevaluewilleventuallydecrease.Afterall,in1917,$1wasworththeequivalentof$20.17today.SotheUSDollarisworth20timesLESSthan100yearsago.Inotherwords,ifyoucontinuetohold$1overthecourseof100
years,youwillbeabletobuyprogressivelyfewerandfeweritemsinexchangeforit,whereaswithBitcoin,theoppositewillhappen.
Asanotherrealworldexample.On22May2010,LaszloHanyeczmadethefirstreal-worldcryptocurrencytransactionbybuyingtwopizzasinJacksonville,Floridafor10,000BTC.Today10,000BTCisworthover$40million.Bitcoinwasdesignedthiswaysothatnosingleperson(orgovernment)couldincreasethesupplyofmoney,loweringthevalueofthemoneyalreadyinthemarket.
Wealsohavetorememberthatfiatcurrenciesthatweknowandlovewerenotalwaysthemainplayersinthecurrencyworld.Forcenturies,Goldandotherpreciousmetalswereseenasthemostdesirablecurrenciesfordaytodayusage.Itwasnotuntilgovernmentscouldstandardizeandverifythemetalliccontentofcoins(andlaterpaperbills)thattheybecamethegotochoiceforcitizens.[3]
LegendaryEconomistJohnMaynardKeyneshadthistosayaboutinflationandinflationarycurrencies.
”Byacontinuingprocessofinflation,governmentscanconfiscate,secretlyandunobserved,animportantpartofthewealthoftheircitizens.Bythismethodtheynotonlyconfiscate,buttheyconfiscatearbitrarily;and,whiletheprocessimpoverishesmany,itactuallyenrichessome.Thesightofthisarbitraryrearrangementofrichesstrikesnotonlyatsecurity,butatconfidenceintheequityoftheexistingdistributionofwealth.“WhileBitcoinhasanairofuncertaintyaboutitbasedonthedecentralizationprinciple-wheretherealpotentialliesisinseeingitfromtheoppositeperspective.Withnosinglebodybeingresponsibleforthesupplyofmoney,itforcesallplayers(government,businessesandconsumers)tobetransparentabouttheirprocesses,loweringtheriskoffraudortampering.Thetransparencyisensuredbyrewardingminersfortheirefforts(intheformofcoin).Thissingledominatingfactoriswhysomanyinvestorsareconfidentaboutthelongtermviabilityofthecurrency.
OnecommonargumentmadebyBitcoindetractorsisthatasthereisnogovernmentbackingthecurrency,itcouldtotallycollapseintheory.However,wehaveseenthesehappennumeroustimeswithfiatcurrencyunderscenariosofhyperinflationwheregovernmentscannolongerensurethevalueoftheirmoneyandassuchhavetocreateanentirelynewcurrency.CommonexamplesincludetheGermanWeimarRepublicinthe1920s,wherethecurrencylostsomuchofitsvalue,banknoteswereusedaswallpaper.Currently,theVenezuelaneconomyisontracktoexperienceover1000%inflationfortheyear,leavingmanycitizensunabletoafforddailynecessitieslikebread.Bitcoinenthusiastsseethecryptocurrencyasrecession-proof.
Thecostofinternationaltransactionsisanotherareawherecryptocurrenciesmaintainahugeadvantageovertraditionalones.Anyonewhohaseverhadtosendmoneyoverseaswillknowthatthecostofprocessingthesetransactioncanreachridiculouslevels.Therearetimeswhenthesefeescantop10%.As
cryptocurrenciesdonotviewinternationaltransactions(asthereareno“nations”involved)anydifferentlyfromlocalones,thereareminimalfeesforsendingmoneytoanypartoftheworld.Thespeedoftransactionsacrossbordersisalsomuchfasterthanregularfiatcurrencies,aBitcointransactiontakesaround10minutestoregisterasopposedtodaysforinternationalbanktransfers,andothercoinsprocesstransactionsevenfaster.
UnderstandingBlockchainTechnology
Sohowisallthismoneyworthanythingatall?Thisanswerisblockchaintechnology.Ifyouplantoinvestanymoneyatallintocryptocurrencies,itisvitalthatyouhaveatleastabasicunderstandingofblockchaintechnologyanditsuses.
Blockchaintechnologyallowsforapermanent,incorruptiblerecordofalltransactionsthathaveevertakenplace,freefromhumanerrorsordataloss.Theimportantthingtorememberisthatthesetransactionsdonotalwayshavetobefinancial,theycanbeintheformoflegalcontracts,auditingconsumergoodsandfilestorage.Blockchainisessentiallyagiantdatabasethatisnotstoredinacentrallocation.Afloatingdatabaseifyouwill.Becauseitisnotstoredinanysinglelocation,transactionsrecordedontheblockchainarepubliclyaccessibleandverifiable.Weagaingobacktotheideaofdecentralization,andnothavingtorelyonasinglepersonorgovernmenttoensureourtransactionswillbesafe.
Inmorepracticalterms,imagineallyourfinancialinformationwasstoredonasinglespreadsheet,notparticularlysaferight?Evenifyouhadonlineandofflinebackups,thesewouldbejust2or3pointsoffailure.Whatblockchainallowsforisthatspreadsheettobesharedacrossthousandsofdatabasesandcontinuouslyrefreshedmeaningthatanychangeswouldberecordedandnohackercouldcorruptitatasinglepointofentry.Asthereisnosinglepointofentry,thereisnownosinglepointoffailureeither.
Blockchaintechnologycouldbeusedtotransfereverythingfromcryptocurrency,totangibleassetssuchaspropertywithouthavingtouseamiddlemansuchasabankorotherfinancialinstitution.Thishaspotentialtosaveconsumersandbusinessesbillionsofdollarsayearthatarespentontransactionfees.WhileBitcoinhasgatheredmoremainstreampresswithregardstoconsumers,blockchaintechnologyreceivesmoreinterestfrombusinesses.
HowdoesBlockchainrelatetoBitcoinandCryptocurrency?
BitcoinisnotblockchainandblockchainisnotBitcoinoranyothercryptocurrency.Bitcoinsorothercryptocurrenciesaretransactedoverapublicnetworkthatrunsonblockchaintechnology.BlockchainistheunderlyingtechnologythatallowsBitcoinandothercryptocurrencytransactions,butaspreviouslymentioned-blockchaintechnologyhasmanymorepotentialuses.Youcanthinkofblockchainasanoperatingsystem,andBitcoinasoneofthehundredsofapplicationsthatrunonthatsystem.
BitcoinandCryptocurrencyDrawbacks
LackofFinancialRegulationandTheAbilitytoFundBlackMarketActivity
Oneofthebiggeststrengthsofcryptocurrenciesisalsoaweaknessinthesystem.Theanonymitytheyprovideallowsthemtobeusedtofacilitatelargescaleblackmarketoperationsandtheirusageforpurposesofmoneylaundering.Forexample,SilkRoad-anundergrounddarknetmarketplaceactedasablackmarketforillegaldrugs.PaymentsweremadeinBitcointoprotecttheanonymityofbuyersandsellers.Thesitewasshutdownin2013afteramassingroughly$1.2billioninrevenue.FounderRossWilliamUlbrichtwasconvictedof8chargesandsentencedtolifeinprison.Anothernefarioususeofcryptocurrencyisinransomware.Ransomwarereferstomalicioussoftwarethathackersinstallonauser’scomputer,thendemandpaymentinBitcointounscramblethesoftwareandallowthevictimtoaccesstheirdataagain.Ransomwareschemesgainedinpopularityasusingcryptocurrencyasameansofpaymentmeansthepeoplebehindtheattackscanseamlesslyreceivetheirransomwithoutrevealingtheiridentity.
Hackers
Theelephantintheroomregardingcryptocurrencies,withanyearlystagetechnology(whichcryptocurrencyverymuchis)thereareboundtobebreachesinsecurity.Hackershavebeenresponsibleforsomeofthelargestdipsinthecryptocurrencymarket.TokyobasedBitcoinexchangeMt.Goxsufferedlossesofover$27.2millionanduserslostover$460millionworthofBitcoinaftertheexchangewashackedin2011.AtthetimeitwasthelargestcryptocurrencyexchangeonEarth.Amidtalkoflazymanagement,andpoorsecurityprotocols,theexchangeendedupgoingbankruptafterthehackingincident.
Bitfinex,aHongKongbasedexchangewashackedin2016anditscustomerslostroughly$72millionworthofBitcoin.
ItisimportanttonotethatanyhackingincidentsregardingBitcoinorothercryptocurrenciesweredoneattheexchangeorwalletlevel-notatthetechnologylevel.Forfurtherinformationonhowtosafelystoreyourcryptocurrency,visitthewalletssectionofthisbook.
DataLossandHumanError
Ifproperlysecured,cryptocurrencieswillfacilitateashiftawayfromphysicalcashwhichcandegenerateanderodeovertime.Asthedataisencryptedandstoredonline,thereisnowayanyone(barhackers)canaccessyourfunds.However,thistheoryassumesperfectaccountabilityfromtheuser.Asyoumayhavefiguredoutbynow,noneofusareperfect.Welosethings.Forexample,wecanloseourprivateencryptionkeysiftheyarestoredonpaper,ordevicescanbecomedamagedorstolenifweareusingphysicalencryptedwallets(likeUSBwallets).
SpeculationandMisinformation
Aspreviouslymentioned,Bitcoin,andcryptocurrenciesingeneralareafrontiertechnology.Assuch,mainstreammediaoutlets,manyofwhomdonotemployexpertsinthefield,areliabletopresentmisinformationregardingthetechnology,andthemarketitself.Blanketstatementssuchas“Bitcoinisbetteratbeinggold,thangold”donothingbutunderminethetechnologyinthelongrun-butdomakegoodsoundbitesformainstreammediaInJune2017,theEthereummarketbrieflycrashedafterunsubstantiatedrumors,perpetratedby4Chan,claimedthatfounderVitalikButerinhaddiedinacarcrash.Thehoaxcausedthemarketvaluetodropbyaround$4billioninunder24hours.Thisdemonstratesthatthevolatilityofthemarketingeneralissubjecttomanipulationbynefariousforces.
Ifyouareplanningontradingcryptocurrencies,youmustbewillingtoexperiencesharpdropsandrisesinthemarket,farlargermovementsthantraditionalstocks.Thisiswherebeingarationaltraderwillhelpyoutremendously.
China
China’srelationshipwithcryptocurrencyisunlikeanyothercountry.NosinglenationhasdonemoreforthesuccessofcryptocurrencythantheMiddleKingdomitself.CryptocurrenciesarepopularamongChineseinvestorsduetothegovernment’sstrictcontrolsontheirfiatcurrency,theYuan.Thebiggestoneofthesebeingtheircurrencydevaluations,whichhurtitsvaluefortradingandinvestingpurposes.Thishasledtomanyprivateindividuals,bothwealthyandnon-wealthy,lookingforalternativewaystogrowtheirwealth.Cryptocurrenciesareviewedbymanyasamorestableassetwhencomparedtotraditionalinvestments.China’slargequantityofcheapenergyhasalsomadeitahotbedforthecryptocurrencyminingscene,whichisnowfinanciallyoutofreachofmostregularWesternEuropeanorAmericans.Around70%oftheglobalcryptocurrencyminingsceneislocatedinChina.
Chinaisalsoliableformassinformationmanipulation.Mistranslations,rumour-mongeringandcoinpumpsareallmoresusceptibleintheChinesemarketduetothelackofavailabilityofforeignmedia-especiallyinthecryptocurrencyspace.InJune2017,thePeople’sBankofChina(PBoC)issuedastatementaddressingfalsereportsthatthecentralbankwasissuingcryptocurrencyitself.Thereportswerethoughtthebepartofapyramidschemetogaininvestorsunderthefalsepretenseofagovernmentbackedcryptocurrency.SurvivorshipBias&Gambler’sFallacy
Contrarytowhatyoumaybeseeingoninternetforums&socialmedia.Therearepeoplewhohavelostmoneyincryptocurrency.It’ssimplyamatterofbuyingandsellingatthewrongtime.It’sthesamereasoncasinoscontinuetodosowellinpart,thewinnersbragtotheirfriendsandfamily,whiletheloserstaysilent.
Remember:Neverinvestmorethanyoucanaffordtolose
ThiscartoonfromXKCDsumsitupperfectly.
HowtoBuyCryptocurrency
Therearetwowaystobuycryptocurrencies,thefirstistousefiatcurrency(USD,EUR,GBPetc.)topurchasecryptocurrencyviaanexchange.Theseexchangesfunctionthesamewayasregularforeigncurrencyexchangesdo.Thepricesfluctuateonadailybasis,andlikeregularcurrencyexchangemarkets-theyareopen24/7.Theseexchangesmaketheirmoneyfromchargingasmallfeeforeachtransaction.
Somechargebothbuyersandsellers,someonlychargeafeeforbuying.Forsecurityreasons,mostoftheseexchangeswillrequireyoutoverifyyourIDbeforeallowingyoutopurchasecryptocurrency.Itisalsoimportanttonotethetypeofpaymentseachexchangesupports.Someallowfordebit/creditcardpaymentswhereasotheronlyacceptPayPalorbankwiretransfers.BelowarethethreebiggestandreputablecurrencyexchangesforpurchasingBitCoin,EthereumandotheraltcoinswithfiatcurrencylikeUSdollars,EurosorBritishPounds.
Coinbase
Currentlylargestcurrencyexchangeintheworld,Coinbaseallowsuserstobuy,sellandstorecryptocurrency.Coinbaseisundoubtedlythemostbeginnerfriendlyexchangeforanyonelookingtogetinvolvedinthecryptocurrencymarket.Usingtheplatform,onceyourIDisverifiedyoucanbuycryptocurrencywithinminutesusingadebitorcreditcard.TheycurrentlyallowtradingofBitCoin,EthereumandLiteCoinusingfiatcurrencyasabase.Knownfortheirstellarsecurityproceduresandinsurancepoliciesregardingstoredcurrency.TheexchangealsohasafullyfunctioningiPhoneandAndroidappforbuyingandsellingonthego,veryusefulifyouarelookingtotrade.IfyousignupforCoinbaseusingthislink,youwillreceive$10worthoffreeBitcoinafteryourfirstpurchaseofmorethan$100worthof
Kraken
BasedinCanada,andcurrentlythelargestexchangeintermsofvolumeofbuysinEuros,Krakenhastheadvantageofmorecoinsupport(theyalsoallowthepurchaseofMonero,EthereumClassicandDogecoin)thanCoinbase.Itallowsmargintrading,whichwhilebeyondthescopeofabeginner,willbeofinteresttomoreexperiencedtradersForothercryptocurrenciessuchasDashandGolem,youwillneedaccesstoanexchangethatfacilitatescryptocurrencytocryptocurrencytrading.ThebestoneoftheseisPoloniex.
Poloniex
Withmorethan100differentcryptocurrenciesavailableanddataanalysisforadvancedtraders,Poloniexisthemostcomprehensiveexchangeonthemarket.Lowtradingfeesareanotherplus,thisisagreatplacetotradeyourBitcoinorEthereumintoothercryptocurrencies.ThebigdrawbackofPoloniexisthatitdoesnotallowfiatcurrencydeposits,soyouwillhavetomakeyourinitialBitcoinorEthereumpurchasesonCoinbaseorKraken.
CryptocurrencyGuide
BeyondBitcoin,thereareavastnumberofcurrenciesemerging.SomewithdifferentcharacteristicsandadvantagesoverBitcoinitself.
Inthissectionwewillexaminemanydifferentcryptocurrenciesandthefundamentalsbehindtheminordertogiveyouthebestpossibleconciseinformationregardingeachone.Thepricesofthesecoinsrangefrom<$1toover$300percoinsothere’ssomethingforeveryonehere.Oneadditionalnotetoremember,isthatcryptocurrenciesaredivisible,unlikeregularstocks.Forexample,youcannotbuylessthan1shareofApplestock(currency$159.30).However,youcanbuyfractionofaBitcoinorothercryptocurrencies.Meaningthatevenifyouonlyhaveasmallamountofcashtoinvestinitially,youcanstillpartakeinthemarket,evenifyoucan’taffordanentirecoin.
ItshouldbenotedthatasofAugust12017,BitcoinandBitcoinCashoperateas2separatecoins.Afurtherin-depthdiscussionofBitcoincashcanbefoundlateroninthisbook.
ForeachcoinIhavetriedtolistallmajorexchangesthatlistthecoinasapurchasableasset.However,exchangescontinuetolistadditionalcoinsallthetime.Forafulluptodatelistofexchangesthatcarryyourcoinvisithttp://coinmarketcap.com
ThingstoConsiderBeforeInvestinginCryptocurrency
It’snotessentialtoknowallthetechnicaldetailsbehindacryptocurrencybeforeinvesting.However,answeringsomebasicquestionswillhelpyoudecidewhetheryoushouldinvestinacoinornot.Herearesomeessentialquestionsyoushouldknowtheanswertobeforedelvingintoacurrency.
●Whatproblemdoesthecoinproposetosolve?
●Howwillthecoinsolvethisproblem?
●Whyisthiscoin’ssolutionthebestsolutionoutthere?Isitthebestsolution?
●Whoistheteambehindthecoin?Whatistheirdevelopmenthistory?Howtransparentistheircode?Isitopensource?
●Isthereapublicfigureheadwhowilltakeaccountabilityforanyissueswithdevelopmentoradoption?
●Doesthiscoinhavecompetitorcoins?Ifso,whatiscoinA’sadvantageversuscoinB?
Bitcoin(BTC)Priceattimeofwriting-$4,070.13Availableon:
Fiat:Coinbase,Poloniex,KrakenThecointhatstarteditallisnowoneoftheworld’spremiereassets.Sittingatamarketcapofover$67billion,thecoinisworthmorethanglobalcompaniessuchasPayPal.We’vealreadydiscussedBitcoinindepthpreviously,sothissectionwilldiscussitforinvestingpurposes.
Withthepricenowsittingatastaggering$4,000percoin,manycommentatorshaveclaimedthatowningBitcoinisoutofreachfortheregularinvestor,butthat’sastanceIdisagreewith.Firstofall,wehavetorememberthatcryptocurrenciesarenotlikeregularstocks,inthattheyaredivisible.SoifyouwantedtoinvestinBitcoin,youdon’thavetopurchaseanentirecoin.Youcanbuyfractionsofthecoinsoevenifyouonlyhave$100,youcanstillgetstartedinthecryptocurrencymarket.
Secondly,Bitcoin’sroleasaformof“digitalgold”continuestomakeittheworld’smostvaluablecryptocurrency.ItalsomakesBitcoinidealtoholdaspartofyourportfolioasmanyothercurrenciespricemovementsarelinkedtoit.
AnotherreasonwhyanyportfolioshouldcontainBitcoinisthatifyouwanttopurchasesomeofthelesserknowncryptocurrencies,youwillhavetodosoviaexchangingthemforBitcoinasopposedtobuyingthemoutrightforfiatcurrency.
BitcoinCash(BCH/BCC)
Priceattimeofwriting-$326.77Exchanges:
Fiat:Bitfinex,Kraken,Bithumb(ROK)ViaBTC(CN),Bter(CN),Huobi(CN),BitcoinIndonesia(INR)BTC:Bittrex,Poloniex,Cryptopia(NZ)
Bitcoincashemergedastheresultofasplitor“hardfork”intheBitcointechnologyonAugust1st2017.Theend-goalofBitcoinCashistofunctionasaglobalcurrency.ThesplitoccuredoutofproblemswithBitcoin’sabilitytoprocesstransactionsatahighspeed.Forexample,theVisanetworkprocessesaround1,700transactionspersecondwhereasBitcoinaveragesaround7.Asthenetworkcontinuestogrow,sodowaitingtimesfortransactions.BCCaimstorunmoretransactions,aswellas,providinglowertransactionsfees.
Oneofthemajorsolutionstothisissueisincreasingthesizeofeachblock,sothatmoredatacanbeprocessedatonce.ThisisinlinewithsolvingtheproblemsofscalabilitythatBitcoinwasfacingpreviously.Thetechnologyitselfworkedintheshort-term,withthefirstBitcoinCashblockregistering7,000transactionscomparedwithBitcoin’s2,500.ThesuccessoffailureofBitcoinCashwilllargelydependonBitcoin’sownadoptionoftheSegWittechnologylaterthisyear,andtheabilitytoprocesstransactionsquickertoacttrulyasacurrency-ratherthanaspeculativeasset.DetractorshavealsoraisedsecurityconcernsaboutBitcoinCash.
BitcoinCashhasbeenwidelyadoptedbymanycryptocurrencyexchanges.At
thetimeofwriting,thereareonlyafewweeksworthofdataavailableandthus,noonehasbeenabletoexecuteanylong-termtrendsortechnicalanalysisofBCHasacommodity.Asfurtheradoptioncontinues,thepricemaywellcontinuetorise.EarlypricerisesforBitcoinCashhavebeenlargelydrivenbydemandfromSouthKorea,withover50%ofthetotaltradevolumebeingseenonSouthKoreanexchanges.
MinershavebeenquicktoadoptthecurrencyaswellduetoitshigherminingROIwhencomparedtoBitcoin.Thedecreaseinminingdifficulty(leadingtogreaterrewardsformining)willcontinuetoseeforminersmovetheirresourcesfromBitcoinintoBitcoinCash.Note:Dependingonyourexchange,BitcoinCashmayusethesymbolBCCorBCH-doublecheckbeforeexecutingatrade
Ethereum(ETH)
Priceattimeofwriting($225.07)Availableon:
NearlyeverymajorexchangewillallowbuyingofEthereumforbothfiatcurrencyandexchangewithBTCIfBitcoindominatedthecryptocurrencyspacefrom2008-2016,2017hasundoubtedlybeenEthereum’syear.Thisrelativelynewcryptocurrencyhasmadeanimmediateimpactuponthespacewithsomeincredibletechnologicalinnovationsthathavethepotentialtobegroundbreaking,andgamechanging.
ItisworthnotingthatEthereumitselfisnotacryptocurrency,itisablockchainbasedplatform.Howevertokensdenominatedas“ether”aretradedonvariousexchanges.ThesetokenscanbeusedformakingpaymentsontheEthereumblockchainorexchangedforothercryptocurrenciesorfiatcash.Manyonlinearticleswillusetheterms“Ethereum”and“Ether”Interchangeably.WhereEthereumshinesiswitharevolutionarytechnologyknownas“smartcontracts”.Dubbedbysomeasatechnologythatcouldpotentiallyreplacelawyersandaccountants,thesecontractsareprogrammablecontractsusingblockchaintechnology,thatcanbesettoexecuteautomaticallyonceacertainsetofconditionsaremet.Forexample,anautomaticdepositof10ethercouldbemadeintopersonA’swallet,oncepersonAcompletesataskforpersonB.PersonBhasnowayofbreakingthiscontractoncetheconditionsaremetastheblockchainwillenforcetheconditionsofsaidcontract.
Thepotentialapplicationsforsmartcontractsarevast.Fromgovernment,tomanagement,tobeingabletosetupaself-executingwill,thisistrulyremarkabletechnology.Anumberoflargeinternationalbankshavealreadysetupthinktanksfortechnologylikethis,andadoptionbyanylargeinstitutionhas
thepotentialtosendEthereum’spriceintothestratosphere.TheBlockchainBankingConsortiumprojectinvolves43internationalbanksandaimstocreateablockchainnetworkthatcanenablelargescaleinternationalfundtransfer.
Theplatformisstillinthedevelopmentstage,andtherearetothisday,fewrealworldexamplesoflargescaleEthereumblockchainimplementation.However,manyinvestorshavefaithinthetechnology,whichplaysabigpartinexplainingthepricerisesoverthecourseof2017.Inlessthan1monthbetweenMay18andJune12,thepricesoaredfrom$96.65toapeakof$395.03.Ethereumalsosufferedfroma$4billionsingledaylossinmarketcapafterahoaxrumorregardingthedeathoffounderVitalikButeringainedtractionafteroriginatingoninternetmessageboard4Chan.Letthisexamplebeanotherwarningthatcryptocurrenciesaremoresusceptibletomarketmanipulationthantraditionalassets.
Ripple(XRP)PriceatTimeofWriting-$0.15Availableon:
Fiat:Bitstamp,GateHubBTC:Poloniex,Bittrex,Kraken,Coincheck(JP),Bitso(MEX),Coinone(ROK)
Thethirdlargestcryptocurrencybymarketcapitalizationisonethatfliesundertheradarofmostinvestorsandnewssources.Launchedin2012andactingasapaymentnetworkandprotocol,Rippleaimstoenable“secure,nearinstantandnearlyfreeglobalfinancialtransactions.”Rippletransactionscurrentlyprocessinanaverageofjust4seconds.Theplatform’sultimategoalistomakeoutdatedpaymentplatformswithslowtransactionstimesandhighfeeslikeSWIFTorWesternUnionobsolete.ManyglobalbankinginstitutionsalreadyuseRipple’spaymentinfrastructure,includinggiantslikeBBVA,BankofAmericaandUBS.Forexample,usingRipple’spaymentplatform,bankscouldconvertcurrenciesseamlessly,evenforobscurecountriesandcurrenciessuchasaconversionofAlbanianLektoVietnameseDong.ThiswouldalsonegatetheneedforintermediarycurrenciessuchasUSdollarsorEuros.AccordingtoRipplethemselves,aswitchtotheplatformcansavebanksanaverageof$3.76.
Withadoptionintheglobalbankingsector,Rippleisofftoastrongstart.Especiallyifyoulookatitlikeyouwouldatraditionalstartup.Ripplealsohasthelargestnumberofcointokens(knownasXRP)availableoutofanycoinat100billion(39billionavailabletothepublic),incontrastBitcoinonlyhas16millionandEthereum94million.
Unlikemanyopensourcecryptocurrencies,Ripple’ssourcecodeisprivatelyowned.The100billioncoinsupplywasalso“instamined”,andintheorytheownerscouldgeneratemoreatanygiventime,whichwouldinstantlydevalueanyoneholdingcoins.Thecentralownershipisalsoataclashwiththosewhobelievethatcryptocurrencyshouldbeusedasaforceagainstonesingleowner.ResearchersatPurdueUniversityalsodeterminedthattheplatformhad“securityconcerns”,althoughasofwriting,therehavebeennomajorincidentswiththeplatform.
Dash(DASH)
Priceattimeofwriting:$194.25Availableon:
Fiat:Bitfinex,xBTCe,Bithumb(ROK),BTC:Poloniex,Bittrex,Kraken
Shortfordigitalcash,Dashfocusesonspeedoftransactionandanonymityasits2mainsellingpoints.PreviouslyknownasDarkcoin,itwasrebrandedinordertodistanceitselffromthe“darkweb”ofundergroundillegalcryptocurrencyactivity.Dashfocusesonprivacy,usabilityandtheconsumermarket.Currentlythecoinfluctuatesbetweenthe5thand8thlargestcryptocurrencybymarketcapitalization.ByspeedinguptransactionspeedsfromBitcoinbyusingitsMasternodenetwork,paymentsarenearinstantversusthe10minutewaitingperiodforBitcointransactions.Toobtainamasternode,usersmustdepositatotalof1,000DASH.ThishadledtosomedebateaboutwhetherDASHistrulyadecentralizedcurrencyornot.
DashislessliquidthanBitcoin,meaningyoumayhaveahardertimeexecutinglargeorders.However,thecurrencycontinuestobeadoptedbymoreexchangeseverymonth.Dash’sgrowthpotentialremainsdeterminedbyitslevelofaccessibilityandadoptionbythemassmarket.OncesuchexampleofthisisBitCart,anIrishbaseddiscountgiftcardwebsitewhichofferscustomersupto20%discountsonAmazonpurchasesforpaymentinDash.AnotherinterestingareainwhichDashisutilizedistherecentVenezuelancurrencycrisis.VenezuelanCryptocurrencyexchangeCryptoBuyerbegansellingDashasanalternativetothelocalBolivarcurrencywhichwas,andstill
is,sufferingfromhyperinflation.Venezuelansareseekingtoprotecttheirsavings,andcryptocurrencieslikeDashallowthemtodothisbyholdingvalueagainsttheUSdollar.
Anotherareatonoteisthattherichest10DASHholderscurrentlyhold10.1%ofthetotalcoinvalue,whichisalmostdoublethatofBitcoinandBitcoinCash.Thiscouldhaveanimpactifoneofthesemajorplayerswantedtoinfluencemarketmovements.
Monero(XMR)
Priceattimeofpublication:$43.22Availableon:
Fiat:Kraken,HitBTC,Bter(CN)BTC:Poloniex,Bitfinex,Bittrex,Bitsquare
MoneroallowsuserstosendandreceivefundsWITHOUTapublictransactionrecordavailableontheblockchain.AllMonerotransactionsareprivatebydefault.Ifyoubelieveinprivacyfirstandforemost,thenMoneroticksalltheboxes.Thecurrencyisdesignedtobefullyanonymousanduntraceable.Thisgoesasfarastheirdevelopmentteam,whichunlikeothercoinshasnopublicCEOorfigurehead.Moneroalsouses“ringsignatures”,aspecialtypeofcryptographytoensureuntraceabletransactions.Thisallowsuserstoreceivemoney,withoutbeingabletolinktheaddresstothesender.Thiscouldbelookedatasbothapositiveornegativedependingonyourviewpointregardinganonymity.Theringsignaturesalsoconcealthetransactionamount,inadditiontotheidentityofthebuyerandseller.UnlikeDash,Monerohasbeenopensourcefromitsinception,soanyonecanviewthesoftwarecodefortotaltransparency.
Theanonymityofthecurrencyhasmadeitafavoriteofthedarkweb.Beforeitsshutdown,darknetmarketsiteAlphaBayhadadoptedMoneroaswellasBitCointoprocesstransactions.Everythingfromillegaldrugs,weaponryandstolencreditcardsweretradedontheplatform.ItsanonymityhasalsomadeMoneroafavoriteamongransomwarehackers.ItremainstobeseenifMonerowillbranchouttomorelegitimateuse,suchastoconcealone’struenetworth.Orifitwillcontinuetobethefavoritecoinofmore
illicitindustries,preventingitfrommassadoptionversusothercoins.Thisuncertaintycouldbeusedtospeculator’sadvantageastheyseektoprofitfrommassadoptionpotential.
Litecoin(LTC)
PriceatTimeofWriting-$40.11Fiat:Coinbase,Poloniex
BTC:NearlyallexchangessupportBTCtoLTCtransactionsTheoriginalaltcoin,Litecoinhasrepresentedunglamorousyetsteadygrowthinacryptocurrencyscenefueledbyhypeandlargeboom/bustcycles.Becauseofthis,manyanalystshavedeemeditthe“lowriskcoin”.Announcedin2011withtheintentionofbeing“silvertoBitcoin’sgold”andrectifyingtheshortcomingsthatBitcoinfacedatthetime.Litecoin’scoinlimitis4xtheamountofBitcoin’sat84millioncoinsmakingittoo,adeflationarycurrency,Thetimetocreateablockis2.5minutes,aquarterofBitcoin’s10minutes.LitecoinwasthelongstandingsecondlargestcryptocurrencybymarketcapitalizationbeforetheriseofEthereumin2017.
Litecoin’sabilitytohandleahighervolumeoftransactionsduetoitsspeedofblockgenerationgivesitamajoradvantageoverBitcoin.Thismeansmerchantscansendandreceivepaymentsnearinstantlywithzerotransactioncosts.Bitcoinontheotherhandwouldtakefourtimesaslongtoprocessthesametransactionatahighercost.Litecoinalsopossessesoneofthemostactivedevelopmentteamsinallofcryptocurrency,allowingthecointoundergoregularcuttingedgeupgradessuchasbeingthefirstcointoadoptSegregatedWitness(SegWit)technology.ThisalsogivesthecointheadvantageofhavingthesecondmostsecureblockchainafterBitcoinitself.Anotheradvantageforwouldbeinvestorsistheuptakeonmajorexchanges.NearlyallofthebiggestcryptocurrencyexchangessupportLitecoinpurchasesinfiatcurrencyincludingCoinbaseinMarch2017,whichwasgreatnewsforUSandEUinvestors.Intermsofmarketbehavior,generallyBitcoinandLitecoinfollowasimilarpatternintermsofincreasesanddecreasesinthecurrencyvalue.ManyinvestorschooseLitecoinasasupplementaryoptiontoBitcoinin
ordertodiversifytheirportfolio.
Forthoseinterestinginmining,Litecoin’salgorithmisfarsimplerwhichmakestheminingcostsandbarrierstoentrylower.LitecoinrunsontheScryptalgorithmwhereasBitcoinrunsontheSHA-256.ThemainsignificanceofthisinpracticaltermsisalowerminingcostasScryptislessintensiveonGraphicProcessingUnits(GPUs).In2017,Bitcoinminingisnolongeraviableoptionforthenoviceorhomebasedminer,whereasLitecoinminingcanstillturnaprofit,evenwhenfactoringinelectricitycostsinfirstworldcountries.Litecoin’sdetractorshavecriticizedthecoinforbeing“justanotherBitcoinwithnoinnovation”.ThecoinwasalsothevictimofaChinesepumpanddumpschemein2015wheninvestorsaccumulated22%ofallthecoinsinexistencebeforedumpingthem.
Factom(FCT)Priceattimeofwriting-$19.71Fiat:Coincheck(JP),Yuanbao(CN)
BTC:Poloniex,BittrexLikeEthereum,Factomexpandsonwaystouseblockchaintechnologyoutsideofjustcurrency.WhileEthereumisbasedontwowayverificationandensuringcontractsareunbreakable.Factompromisestodothesamewithlargeblocksofdatabyprovidingarecordsystemthatcannotbetamperedwith.Thiswouldallowbusinesses,governmentstoprovideatrackrecordofdatawithoutalterationorloss.Thepracticalapplicationsforthisincludelegalapplications,companyaccounts,medicalrecordsandevenvotingsystems.Justimagineaworldwhereitwasphysicallyimpossibletoriganelection,orwhereanaccountingscandallikeEnroncouldn’thappenagain.
Likeotherprojectsutilizingblockchain,Factomcannotbealteredbecausenosinglepersonrunsthenetwork.Thenetworkiscollectivelyownedbymillionsofusers,independentlyofeachother.Whiledataownedbyonepersonispronetomalevolence,hacking,usererrorandalteration,thesameisnotpossiblewithdataownedbyanentirenetwork.Withregardstoinvesting,likeEtheristoEthereum,Factoidsarethe“currency”oftheFactomsystem.ThemoreapplicationsthataregeneratedusingFactom,themoretheseFactoidsareworth.
FactomhasalreadysecuredadealwithconsultingfirmiSoftStonetoprovideblockchainbasedadministrationsoftwareprojectsforcitiesinChina.Thedealincludesplansforauditingandverificationservices.
Ofthetechnology,FactomCEOPeterKirbystated“Webelievethatthiswillhelpdeveloperscreateawholenewclassofaccountableandtamper-proofbusinesssystems.Thiscouldbeininsurance,financialservices,medicalrecords,orrealestate–anysystemwhererecordkeepingisessential.”
Likeotherblockchaintechnology,commonquestionssurroundingFactomareonesofscalabilityandwidertechnologyadoption.TheothermaindrawbacktoFactominvestingiswhethertheteamcanrunthesystemataconsistentprofitgoingforward-orwhetherthetechnologywillleadtoaracetothebottomintermsofprice.
Neo(NEO)PriceatTimeofWriting-$7.89Availableon:
Fiat:Yunbi(CN),Jubi(CN)BTC:Bittrex,Binance
OneoftheseearliestChinesebasedblockchainprojects,Neo,formelyknownasAntsharespridesitselfonbeingopensourceandcommunitydriven.ThecoinhasbeencomparedtoEthereuminthesensethatitrunssmartcontractsinsteadofactingasasimpletokenlikeBitcoin.TheprojectisdevelopedbyaShanghaibasedcompanycalledONCHAIN.InaJune2017pressconferenceheldattheMicrosoftChinaHQinBeijing,theAntsharesfounderDaHongfeiannouncedtherebrandingtoNeoaswellassomeprojectsinthepipeline.TheseincludedcollaboratingwithcertificateauthoritiesinChinatomapreal-worldassetsusingsmartcontracts.
Neo’sbaseinChinaallowsituniqueaccesstotheworld’s2ndlargestmarketandthelargestcryptocurrencymarketwhichcouldbeseenasauniquepluswhencomparedtoothercryptocurrencies.Howevercurrentdrawbacksincludealimitednumberofwalletsforthecoinitself.Attheevent-SrikanthRaju,GM,DeveloperExperience&EvangelismandChiefEvangelist,GreaterChinaRegion,Microsoft,saidthatONCHAINis“oneofthetop50startupcompaniesinChina.”SupportandpositivepressfromaglobalpowerhouselikeMicrosoftcanonlybeapositiveforNeogoingforward.
PerhapsthebiggestdeterminingfactorforNEOgoingforwardissupportfrom
theChinesegovernment.Whileothercryptocurrenciessufferfromlegalbattleswithgovernments,Neo’srelationshipwiththeleadershiphasbeenlowkeyifsomewhatpositive,withfounderDaHongfeiattendinggovernmentconferencesandseminarsoncryptocurrencyandblockchaintechnology.
OnethingtobewaryofwithNeoisonceagain,aChinesefactor.Thistimeit’sthelanguagebarrier,asmuchofthenewsaboutthecoinispublishedinChineseoriginally,thereissignificantpotentialformistranslationsintheEnglishspeakingworld.Forexample,“partnerships”withMicrosoftandAlibaba(China’slargesteCommercecompany)havebeenoverstatedduetopoortranslationsfromChinesenewssources.Thatdoesn’tmeancollaborationslikethisaren’tpossibleinthefuturethough.
ThesmartcontractsrunningonAntsharesincludeequities,creditorclaims,billsandcurrencies.UpdateasofAugust2017:NEOiscurrentlytradingat$51.99-injustafewshortweeksthepriceincreasedbyover500%
Golem(GNT)Priceattimeofwriting-$0.26Availableon:
Fiat:Yunbi(CN)BTC:Poloniex,Bittrex,Liqui
Golenisacointoken,basedonEthereumblockchaintechnology.Describedbysomecommentatorsasthe“AirBNBofcomputing”,thevalueofthecoiniscenteredaroundthesoftwarethatcanbedevelopedusingit.ThefoundersoftheGolemProjectrefertoitasa“supercomputer”,withtheabilitytointerconnectwithothercomputersforvariouspurposes.Theseincludescientificresearch,dataanalysisandcryptocurrencymining.Forexample,ifyourcomputerhasunusedpower,usingtheGolemnetwork,youcanrentthatpower(hencetheAirBNBcomparison)tosomeoneelsewhoneedsit.Theuserwhoneedstheextrapower,hastheabilitytoaccesssupercomputerlevelsofprocessingpowerforafractionofthecostofactuallyowningtheprocessingpowerthemselves.
Theabilityforuserstoearnmoneyfortheirunusedcomputingpoweris,intheory,ano-brainer,howeverwhatremainstobeseenisthepracticalapplicationofthetechnology.TheGolemteam’slackofmarketingvisibilityalsoappearstohurtthecoinsvalueinrecenttimes.ThelackofabilitytobuyGNTusingfiatcurrency(suchasUSD)isalsoadrawbackforthemassmarket.ItshouldbenotedthatthetechnologyisstillverymuchintheearlydevelopmentstagesandasofAugust2017,theteamarestilllookingforalphatestersfortheproject.TheGolemProjecthasaveryrealpossibilityofpeteringoutintonothing.Ontheflipside-thereistremendouspotentialforlargefuturegains
withthepriceofacoinstillunder$0.30.
STEEM(STEEM)
Priceattimeofwriting-$1.10Availableon:
Fiat:OpenLedgerDEX(Eur)BTC:Poloniex,Bittrex
Steemrepresentsoneofthemoreintriguingcryptocurrenciesavailableonthemarkettoday.ThecurrencyitselfisbasedonthesocialmediaplatformSteemit.Userscanpublishcontentsuchasblogpostsandlongformarticles,andthiscontentisrewardedintheformofdigitalcurrency.SimilartohowRedditusersreceiveupvotes,SteemitusersreceiveSteemtokensknownasSteemDollars.Thefinancialincentiveensuresthatusersstrivetoproducequalitycontent.Theplatformallowspostsonamultitudeoftopicsrangingfromcryptocurrencydiscussion,tosportsnewsandevenpoetry.Steemdollarsareworththeequivalentof$1atthecurrentexchangerate.TheymustbeconvertedtoSteeminordertoexchangetofiatcurrencyorothercryptocurrencies.ThereasoningbehindthisissotheycanbepeggedtothevalueoftheUSdollarinordertodecreasetheriskofinflationdevaluingthem.Steemitgoesfurtherandactuallygivesusersa10%interestrateonanySteemdollarsheldintheiraccountformorethanayear.
Themaindrawbackisthatthesuccessofthecoinitselfisbasedonthesuccessoftheplatform.Ifthewebsitereachesaplateauintraffic,sowillthecoin’svalue.Othershavequestionedthevalidityofthesiteitself,andwhetheritmaybealargescalepumpanddumporevenapyramidscheme.ThecriticismcomesfromthefactthatmanyofthemostupvotedpostswereonesthatpromotedtheSteemitplatformitself.Concernshavealsobeenraisedwithautomaticpostingbotsstealingcontentinordertogainextravoters.
CreatorsofthesiterespondedtothecriticismbysayingthattherearecertainsafeguardsinplacedesignedtokeepcontentfreshandgiveusersanextraincentivetoholdontotheirSteemcoins.TheirwayofdoingthisiswithsomethingknownasSteemPower.SteemPowerisawayforuserstolockuptheircoinsinthelongrunbydirectlyinvestingthemintotheplatformitself.ByconvertingSteemtoSteemPower,usershaveagreaterweightingofupvotesontheplatformandessentiallybecome“powerusers”forlackofabetterterm.
OneadvantageSteempossessesversusothercryptocurrenciesisthatbydesignitistheeasiestcurrencytoaccesswithzeroinvestment.Insteadofsimplybuyingcoinsonanexchange,orspendingmoneyoncomputerhardwareneededtominecoins,userscansimplysignuponthewebsiteforfreeandbeginpostingcontentinordertogaincoins.Itrepresentsthelowestbarriertoentryforanyassetinthecryptocurrencymarket.Althoughmakingsignificantgainsmaybetoughinitially,certainusershavemadethousandsofdollarsworthofSteemfromjustasinglepost.
IOTA(MIOTA)TimeatPriceofWriting-$0.92Availableon:
Fiat:BitfinexBTC:Bitfinex
IOTA,ortheratheruninspiringlynamedInternetofThings(IOT)Coin,isanothercoinbasedonblockchaintechnology,butwithatwist.TheteambehindIOTAisbasingtheirhopesonaprojectknownasTangle,whichisatechnologycurrentlyindevelopmentthatcanbedescribedasablockchainwithoutblocks.Intheory,ifTangledoessucceed,anentirenetworkcanbedecentralized.ThiswouldleadtoZEROscalabilityproblemsthateveryothercoinfaces.Tobefrank,ifthetechnologydoesindeedwork-itcouldbeacompletegamechangerforthecryptocurrencyscene.Imagineaworldwithoutunnecessarymiddlemen,andthinkofthesheercost-savingthatthiswouldachieve.
Theunderlyingtheorybehindthecoinisnear-zerotransactioncosts,evenfortransfersofminuteamountsofmoney-somethingthatnoothercoinortechnologypromisesrightnow-notevengiantslikeBitcoinorEthereum.Byfocusingonthesemicro,ornanopayments,therearecountlessusesforbothconsumerandbusinessbasedfinancialtechnology.Thetechnologyisopensource,soanyonecanseethecodebehindit,andfollowalongwiththecoin’sdevelopment-ifyouaresoinclined.Thereasonforthelowpriceofthecoinasitcurrentlystands,isthatthetechnologyisrightnowstillfirmlytheoretical.Issuesthatplagueallcryptocurrencytechnologieslikemassadoptionandsecuritywillhavetobe
resolvedbeforethecoincantakethenextstep.Thedevelopmentteamhavemanyissuestoovercomeinjusttheconstructionofthetechnology,letalonethemarketing.
Dogecoin(DOGE)Priceattimeofpublication-$0.0019Availableon:
Fiat:YoBit,BTC38(CN)BTC:HitBTC,Poloniex,Bittrex
Amemethatendedupwithactualmonetaryvalue.FavoredbyShibaInusworldwide,dogecoinwasinventedbyJacksonPalmerin2013andbecamesomethingofafadinthecryptocurrencyworld.Dogecoin’svaluelargelycomesfromaninternetformof“tipping”.ThemostprominentexampleofthisisholdersdonatingDogecointoRedditusersforpoststheyenjoyed.Dogecoineventuallybecamethesecondmost“tipped”cryptocurrencyafterBitcoinandthemarketforDogecoinexplodedtoapeakof$60millionmarketcapinearly2014.AcampaigntosendtheJamaicanbobsledteamtotheWinterOlympicswasfundedinpartbythecoinand$25,000worthwasdonatedtoaUKservicedogcharity.
ThecoinflamedoutalmostasquicklyasitroseafterDogecoinbackedexchangeMoolahfiledforbankruptcyandCEORyanKennedyakaAlexGreen/RyanGentlewassentencedto11yearsinprisononsexualassaultcharges.Kennedywasestimatedtohavecaused$2-4milliondollarsworthoflossesforthosewhofundedtheproject.Thecoin’spresentdaystatusremainsthatofalighthearted,funcommunitybasedprojectthatrewardsforumposts.Dogecoinstillpossessoneofthemostactivecommunitiesofanycryptocurrencyandsupportershopethatonedaythecoinwillreturntoitspositionasoneoftheinternet’smosttippedcoins.
Wheretostoreyourcryptocurrency-Wallets&ColdStorage
Onceyou’vesuccessfullyboughtsomecryptocurrency,beitBitcoin,Ethereumoranotheraltcoin,you’llneedsomewheretosafelystoreit.
Yourcryptocurrencywalletisakintoaregularfiatcurrencywalletinthesensethatyoucanuseittospendmoney,inadditiontoseeingexactlyhowmuchmoneyyouhave.Howevercryptocurrencywalletsdifferfromfiatcurrencywalletsbecauseofthetechnologybehindhowthecoinsaregenerated.Asareminder,thewaythetechnologyworksmeansyourcryptocurrencyisn’tstoredinonecentrallocation.Itisstoredwithintheblockchain.Thismeansthereisapublicrecordofownershipforeachcoin,andwhenatransactionoccurs,therecordisupdated.YoucanstoreyourcryptocurrencyontheexchangewhereyouboughtitlikeCoinbaseorPoloniex,itisadvisablenottodothisforanumberofreasons.
1. Likeanyonlineentity-theseexchangesarevulnerabletohacking,nomatter
howsecuretheyare-orwhatsecuritymeasurestheytake.ThishappenedwiththeMt.GoxexchangeinJune2011
2. Yourpasswordstotheseexchangesarevulnerabletokeyloggers,trojanhorsesandothercomputervirustypeprograms
3. Youcouldaccidentallyauthorizealoginfromamaliciousservicelikecoinbose.com(example)insteadofcoinbase.com
Coldstoragereferstoanysystemthattakesyourcryptocurrencyoffline.Theseincludeofflinepaperwallets,physicalbeareritemslikephysicalbitcoinoraUSBdrive.Wewillexaminetheprosandconsofeachone.
Cryptocurrencywalletshavetwokeys.Apublicone,andaprivateone.Thesearerepresentedbylongcharacterstrings.Forexample,apublickeycouldbe02a1633cafcc01ebfb6d78e39f687a1f0995c62fc95f51ead10a02ee0be551b5dc-oritcouldbeshownasaQRcode.Yourpublickeyistheaddressyouusetoreceivecryptocurrencyfromothers.Itisperfectlysafetogiveyourpublickeytoanyone.Thosewhohaveaccesstoyoupublickeycanonlydepositmoneyinyouraccount.
Ontheotherhand,yourprivatekeyiswhatenablesyoutosendcryptocurrencytoothers.Foreverytransaction,therecipient’spublickey,andthesender’sprivatekeyareused.Itisadvisabletohaveanofflinebackupofyourprivatekeyincaseofhardwarefailure,ordatatheft.Ifanyonehasaccesstoyourprivatekey,theycanwithdrawfundsfromyouraccount,whichleadsustothenumberoneruleofcryptocurrencystorage.
ThenumberoneruleofCryptocurrencystorage:Nevergiveanyoneyourprivatekey.Ever.
PaperWallets:
Paperwalletsaresimplynotesofyourprivatekeythatarewrittendownonpaper.TheywilloftenfeatureQRcodessothesendercanquicklyscanthemtosendcryptocurrency.
Pros:
●Cheap●Yourprivatekeysarenotstoreddigitally,andarethereforenotsubjecttocyber-attacksorhardwarefailures.
Cons:
●Lossofpaperduetohumanerror
●Paperisfragileandcandegradequicklyincertainenvironments●Noteasytospendcryptocurrencyquicklyifnecessary-notusefulforeverydaytransactions
Recommendations:
Itisrecommendedyoustoreyourpaperwalletinasealedplasticbagtoprotectagainstwaterordampconditions.Ifyouareholdingcryptocurrencyforthelong-term,storethepaperinsideasafe.Ensureyoureadandunderstandthestep-by-stepinstructionsbeforeprintinganypaperwallets.
Bitcoin:http://bitaddress.orghttp://bitcoinpaperwallet.com
Ethereum:http://myetherwallet.com/
Litecoin:https://liteaddress.org/
Forallothercurrencies-consultareputablecryptocurrencyforumforthelatestrecommendationsonpaperandofflinestoragewallets.
HardwareWallets
Hardwarewalletrefertophysicalstorageitemsthatcontainyourprivatekey.ThemostcommonformoftheseareencryptedUSBsticks.
Thesewalletsusetwofactorauthenticationor2FAtoensurethatonlythewalletownercanaccessthedata.Forexample,onefactoristhephysicalUSBstickpluggedintoyourcomputer,andtheotherwouldbea4digitpincode-muchlikehowyouuseadebitcardtowithdrawmoneyfromanATM.Pros:
●Nearimpossibletohack-asofthetimeofwriting,therehavebeenZEROinstancesofhackedhardwarewallets●Evenifyourcomputerisinfectedwithavirusormalware,thewalletcannotbeaccesseddueto2FA●Theprivatekeyneverleavesyourdeviceortransferstoacomputer,soonceagain,malwareorinfectedcomputersarenotanissue
●Canbecarriedwithyoueasilyifyouneedtospendyourcryptocurrency●Transactionsareeasierthanwithpaperwallets●Canstoremultipleaddressesononedevice●Forthegadgetloversamongyou-theylookalotcoolerthanafoldedpieceofpaper
Cons:
●Moreexpensivethanpaperwallets-startingataround$60
●Susceptibletohardwaredamage,degradationandchangesintechnology●Differentwalletssupportdifferentcryptocurrencies●Trustingtheprovidertodeliveranunusedwallet.Usingasecondhand
walletisabigsecuritybreach.Onlypurchasehardwarewalletsfromofficialsources.
ThemostpopularofthesearetheTrezorandLedgerwallets.Foraltcoinsthatarenotsupportedbythesewallet,youcancreateyourownencryptedUSBwalletbyfollowingonlinetutorials.
CryptocurrencyInvestingMindset
FOMO&FUD-2TermstobeCautiousofIncryptocurrencyterms,FOMOandFUDaretwoofthemostpotentiallydangerouswordsinaninvestor’slexicon.No,theyaren’tthelatesthotshotcoinscomingoutofChina,theyareacronymsthathavecostnaivetradersandinvestorsmoney.
FOMO-FearOfMissingOut
Fearofmissingoutcausespeopletooverinvestandthrowmoneyatcoinswithoutproperresearchorduediligence.Ifyouspendanytimeoncryptocurrencyforums,youwillseehundredsofpostsfromthosenewtothemarketaskingfortipsonwhichcoinstobuy.Itseemslikeeverydaythereisanewshinyobjectthatpeoplearehypingup,causinglessexperiencedinvestorstoblindlythrowtheirmoneyatit.Thisleadstopeoplebuyingcoinsattheirpeak,andthenpanicsellingthemwhenthecoinpullsbackafewdayslater.
Theimportantthingtorememberisthis,youwon’tbeabletowinoneveryinvestmentyoumake.Youwon’tbeabletobuyeverysinglecoinattherighttime,andpeoplewillmakemoneywhereyoucannot.Theimportantthingistoonlymeasureyourselfagainstyourself,andtakestockofyourownprofit/losssheet.Beforeyouinvestinacoin,takeasecondtoaskyourselfwhyyouarechoosingtodoso,andre-examinethefundamentalsofthecoinitself.
Anxietycausedbypotentiallymissingoutonhugereturnsisonlynatural,andsomethingthatnearlyallofussufferfrom.Thebestwaytocombatthisistounderstandblockchaintechnology,andtoresearcheachcoinindividuallybeforedecidingtoinvest.Bymakingsmart,reasonedinvestments,youhaveamuchbetterchanceoflongtermprofits.
FUD-Fear,UncertaintyandDoubt
Fear,uncertaintyanddoubtisanythingtodissuadesinvestorsfrombelievingincryptocurrenciesandtheirapplications.Thiscanbeanythingfromspreadingofmisinformation(suchasthefakeVitalikButerindeathrumors),tonewsreportsdiscountingrealworldusageofcryptocurrencytechnology.CertainnefariouscryptocurrencyfigureshaveusedFUDtopushtheirownagendawhileattemptingtoharmthegrowthofothercoins.Thisiswhereitisimportanttodifferentiatefromreasonablecriticismandanalysisofacoinvs.FUD.Themoreinformedyouare,theeasieritisforyoutoseethedifference.
Whereyouaregettingyournewsfromisanotherfactor.SocialmediaisthekingofFUD,gotoanycryptogrouponFacebookorwatchaYouTubevideofromoneofthelargerchannelsandyouwillseecommentorsspreadingFUDoneveryvideo.Instead,focusonlargercryptonewswebsiteswhereFUDislessprevalent,andremembertoconsumeyournewsfrommorethanonesource.
Shorttermgainvs.Longterminvestment
BillionairehedgefundmanagerandcryptocurrencyinvestorMichaelNovogratzmadeaverygoodanalogywhenhecomparedthecurrentstateofthemarkettothethirdinningofabaseballgame.Themarketisstillverymuchdeveloping,andthereareanumberofshortandlongtermeventsthatcaneffectthepriceofcurrencies.
Unlikeregularstockmarket,thecryptocurrencymarketisrunning24/7365-therearenodelaysbetweeninformationcomingtolightandthemarketreacting,thereisnodeadtime.Ifyoubelieveinthetechnologybehindthecurrencies,thenthesecoinsabsolutelymakesenseasalongterminvestment.Withmanycoins,timeinthemarketbeatstimingthemarket,whichiswhereournextacronymcomesfrom.
HODL:HoldOn(For)DearLife
Abackronymthatisaplayon“hold”-itfocusesonholdingontoyourcoinsevenwhenthemarketisdropping.AmorelightheartedexplanationcomesfromBitcointalkforumposter“GameKyuubi”whoinadvertentlyinventedthetermin2013whileinebriated(author’snote:Donottradeorpurchasecryptocurrencyundertheinfluence)“ WHYAMIHOLDING?I'LLTELLYOUWHY.It'sbecauseI'mabadtraderandIKNOWI'MABADTRADER.ISHOULDHAVESOLDMOMENTSBEFOREEVERYSELLANDBOUGHTMOMENTSBEFOREEVERYBUYBUTYOUKNOWWHATNOTEVERYBODYISASCOOLASYOU. ”
Withanylongterminvestment,youaregoingtoseemarketdownturns-that’ssimplyhowcapitalismworks.Ifyoupanicandselleverytimeyouseeaslightdip(andwithcryptocurrencies,that’sgoingtohappenALOT),thenyou’vegot
asurefirewaytolosemoneyinthelongrun.
HODL’ingofcoursehasitspotentialdownsidesaswell,withmoreandmorecoinscomingtomarket-it’sobviousthatnotallofthemwillcontinuetogoupinprice.Youcancompareittotheregularstockmarketwithbluechipstocksandpennystocks.Justbecauseapennystockorsmallmarketcapcryptocurrencyiscurrentlytradingfor$0.08,doesnotmeanithastherighttoriseindefinitely.Ifthecompanyorpeoplebehindthecryptocurrencydon’tfulfilltheirpromisestothemarket,thenthecoin’svaluewillcrashanditwilleventuallybecomeobsolete.Remember-hindsightiseasy.Timingmarketmovementsinamarketasvolatileascryptocurrenciesontheotherhand,isnot.Approacheachinvestmentwithcaution,andproperresearch.
Paperprofitsvs.Actualprofits
Remember,untilyouhavesoldyourcoins,anyprofityouhavemadeisstrictlyonpaper.Withthecryptocurrencymarketbeingasvolatileasitis,profitmarginsdrasticallyshiftandcandosoonadaily,orevenanhourlybasis.ThatiswhyIrecommendtakingintermediateprofitsforyourselfwheninvesting,youdothisbysellaproportionofyourholdingsataprofit.
Forexample,youbuy1coinat$100,1monthlaterthecoin’svaluehasrisento$150.Ifyoutradeout$75worthofthecoinat$150,thenyoustillhave0.5coinsworth$75onpaperandanextra$75incold,hardcash.Takingmoneyforyourselfisasmartplay,andsomethingyoushouldabsolutelydoifyouarelookingtomakeconsistentprofitsovertime.Theinverseruleofthisistonotsellonthedip.Ifyoufollowedrulenumberoneofinvestingwhichwastonotinvestmorethanyoucouldaffordtolose,youhavezeroreasontosellataloss.Yes,youmayseescaryheadlineswith“Ethereumdrops40%”or“Litecoiniscrashing”,butinthelong-run,themajorityofthesecoinsreturntotheirprevious,andevenhigherlevels.Ifyousellataloss,thenyourmoneyisgoneforever.
TheChaincoinPumpandDumpScheme-WhyYouShouldAlwaysResearchaCoinBeforeBuying
Thefollowingisalessoninsmartinvesting,andwhoyougetyourinformationfrom.
Chaincoin(CHC)wasacryptocurrencythatunderwentameteoricpricerisefrom$0.05toover$6inunderaweek.Priortothis,thecoinwasonlyavailableontwosmallcryptocurrencyexchangesandhadverylittletotaltradingvolume.TheofficialGithub(programmingcommunity)andTwitteraccountshadbeendeadformonthspriortothis,andveryfewtechnicalmilestoneshadbeenaccomplished.Despitethis,aYouTubechannelknownasHighOnCoinsstartedheavilypromotingthecoin.Videostitled“BuyChainCoin$CHC”appearedonthechannel.Thechannelalsoencourageduserstosetupmasternodes(whichrequired1000CHC).Thechannelencouragedpeopletobuyandholdindefinitelyratherthantradingoutforaprofit.Theunderlyingtheorybehindthiswasthatifeveryoneinvestedandheldthecoin,thenthepricewouldcontinuetoincreaseandgrow.
HoweverChaincoinsufferedfrommanyfundamentalflawsincluding:
●Lackofdifferentiationfromothercoins
●Lackofinnovationfromdevelopers●Zerorealworldapplicationsversusothercoins
Theinitialsurgeininvestingcausedastirinthecryptocurrencycommunity.Mixedreactionsrangingfromconfusionfrominvestorsfocusedoncoinfundamentals,toexcitementfromuninformedplayerswhobelievedtheywerepartofagetrichquickscheme.
Thecoinreachedanalltimehighof$6.81onJuly14th2017,afewdayslater,
developersreturnedtothecoin’sGitHubpageandmadeacoupleofsuperficialchanges.Afewdayslaterthepriceofthecoincrashedbackto$1.HighOnCoinsclaimedthiswasasaresultofhackers,althoughexchangeactivityshowedalargedumpingofcoinsfromafewtraders.Chaincoincurrentlytradesat$0.32.
GitHubblogStoreofValuesummarizedtheincidentwiththefollowingstatement“Thiswasablatanttransferofwealthfromthefoolishtothenefarious.”Letthisbealesson,neverinvestinacoinbasedonhype.Instead,dosoonfundamentalsandbeliefinthetechnology.
ConclusionIhopeyouhavelearnedmanythingsaboutcryptocurrencyandhowyoucanprofitfrominvestingortradinginthesecoins.Therearevariousfactorstoconsiderwheninvestingincoinsandyoucanusethesetodecideonaninvestingortradingstrategy.Youmaywanttoreadthismaterialoneortwomoretimes,andmakesomechoicesastowhatyourgoalsareforyourrelationshipwiththecryptocurrencymarket.
Next,decidehowyouwillgoaboutreachingthosegoals.DecideonacryptocurrencyexchangeandhowyouwillstoreyourassetsBEFOREinvestinginanyoneormorecoins.
Thenplanouthowmuchyouwillinvestineachcoin.Remember,diversityisimportantandyoushouldneverhaveallofyourlong-termholdingsinasinglecoin.Ifyouaregoingtobuycryptocurrencies,dosousingDollarcostaveraging–thismeansthatyoudon’tbuyallofyourcoinsinonetradebutinsteadbuyafixedamounteverymonth,weekorevendaythroughouttheyear.Thisallowsyoutonotbetiedtoasinglepriceandinsteadaverageoutyourinvestmentssotheyarelessexposedtovolatilepricemovements.
Traderationally,notemotionally.Ifyouplanonholdingcoinsforthelong-term,donotcheckchartseveryfewhours,oryouwilldriveyourselfcrazy.Thingschangequicklyinthismarketsostayinformedoncryptocurrencynewsandhappenings,youcandothisinlessthan30minutesperday.Ensureyouconsumeinformationfromavarietyofnon-biasedsources.
Andneverinvestinacoinbecause“someguyontheinternet”toldyouto.
Finally,ifyoufoundthisbookuseful,IwouldgreatlyappreciateitifyouwouldreviewthisbookonAmazon.Thankyouforreading,IhopeyoumakeALOTofmoneyinthecryptocurrencymarket.
BlockchainBeginnersBible:
DiscoverHowBlockchainCouldEnrichYourLife,YourBusiness&Your
CryptocurrencyWallet
ByStephenSatoshi
Chapter1:WhatisBlockchain
Technology?
Overthepastfewyears,youhavelikelyheardmoreandmorepeopletalkingaboutcryptocurrencythis,orblockchainthat.Ifyoudon’tunderstandtheseterms,don’tworry,youaren’talone.Itmaybetimetojumponthebandwagon,however,asblockchainuseisrapidlyapproachingconsumerstatuswithIBMestimatingthat15percentofbankswillalreadybeusingblockchaintechnologybytheendof2017.
Simplyput,blockchainisthefoundationthatmakestechnologieslikecryptocurrencypossible.Onafundamentallevel,ablockchaintakesdata,primarilyoffinancialnaturefornow,andreplicatesthatdataacrossavastnumberofdecentralizednodesthatcouldconceivablybespreadaroundtheentireworld.Thisprocessisrunnotbyacentralizednetworkorbody,butbyapeer-to-peerapproachthatusescryptographyanddigitalsignaturestokeepthingsrunningsmoothly.
Eachnewblockinachaincontainsinformationregardingvarioustransactions,andpossiblywhatareknownassmartcontracts,aswellasinformationthatlinksittotheblocksaroundit.Eachblockisalsotimestampedwhichhelpsthechaindetermineitsplaceinthewholething.Thetransactionsinindividualblocksareverifiedbyblockminers,thirdpartieswhoarepaidfortheirwork,andareonlythenaddedtothechainasawhole.
Whatminersareactuallydoingissolvingwhatareknownasproof-of-worksystemswhichmeanstheyaresolvingcomplicatedmathematicalequationsusingspecializedequipmentdesignedfordoingso.Theequationspreventsecuritybreachesthroughdenialofserviceattacksandkeepthingsrunningsmoothly.Theamountofrewardforthistypeofworkvariesbasedonthecryptocurrencythatisbeingmined,aswellasthenumberofpeopleworkingtocompletetheblocktheywerechosentomine.Mostcryptocurrenciesalsochargeasmalltransactionfee,andapartofthatfeegoestotheminersaswell.
Despitethefactthatthedatabaseinformationisspreadaroundtheworldwithnocentralauthority,andthefactthatsectionsofitareinspectedbythirdpartiesonaregularbasis,thedatathatisstoredinablockchainremainsincrediblysecure.Thislevelofsecuritydoesn’tcomefromanactiveoffenseagainstfraud,itcomesfromthedefensivecapabilitiesofthewayinwhichtheblockchainisconstructed.
Ifaspecifictransactionthatisbeingtransferredfromanodedoesn’tmatchupwithwhattheothernodesaresayingthenthatblockisdiscardedinfavorofamoreaccurateone.Essentially,forafalseblocktomakeitpasttheblockchain’sdefenses,itwouldneedtoshowupon51percentofallofthenodesinthesystematthesametime.Thedifficultyofsuchataskmeansthatitcouldbedone,butthecostsinvolvedwouldmorethanoutweighthepotentialrewardfordoingso.
Historylesson
Inordertounderstandthetrueimportanceofblockchaintechnology,itishelpfultounderstandalittlebitaboutitshistory.In2008,apersonoragroupofpersonsusingthealiasSatoshiNakamotoputforthawhitepaperontheideaofadigitalcurrencythatwouldallowindividualstotransfermoneytooneanotherinalargelyanonymousfashion.Thispaper,titled,bitcoin:APeer-toPeerElectronicCashSystem,wassoonfollowedbytheoriginalblockchainandbitcoincodefromthesamealias.Thecodewasreleasedinanopensourcefashion,andtheNakamotonamefadedfromsightasotherdevelopersbeganworkingonthecodeinearnest.
TheNakamotoaliaswasalsothefirstpersontodistributebitcoinsandthenverifythetransaction,receiving50bitcoinsfordoingso.Forthosewhoareconsideringinvestinginacryptocurrencybasedonblockchaintechnology,takenote,asthefirstuseofthosebitcoinswastotrade10,000ofthemforapairoflargepizzaswhichmadeeachworthabout$.002.Ifyouweren’taware,theyaredoingalittlebetterthanthatthesedayswitheachbitcoinbeingworthnearly$5,000asofSeptember2017.
By2014,blockchainusagewasgainingsometractionandanewandimprovedversionoftheoriginalcodenowallowedforentireprogramstobecontainedinblocksalongwithdatathatmakeitpossibleforawidevarietyoftaskstobecarriedoutfromwithintheblockchain.In2016,theRussianFederationstartedworkingonablockchainprogramasameansofcollectingroyaltiesforcopyrightedmaterial,makingRussiathefirstcountrytoofficialannounceablockchainproject,thoughsincethattimeanumberofothercountries,includingChinaandtheUS,haveindicatedtheyareworkingonblockchainprojectsoftheirown.Whentheprojectwasannounced,theRussianEconomicMinisterwasquotedassayingthatblockchaintechnologywaslikelythemostimportantnewtechnologysincetheinventionoftheinternet.
Overthepastfewyears,anotherblockchainbasedcompany,theEthereumplatformhasbeengainingalotofsupportduetoitswidevarietyofenhancedcapabilitieswhencomparedtothebitcoinblockchain.TheEthereumplatformhasitsownofficialcryptocurrency,ether(althoughthetwotermsareusedinterchanablybymanycommentators),andisalsohometoanecosystemofothercryptocurrenciesthatotherprogrammershavemadetoruninitsframework.Itisalsohometoawidevarietyofsmartcontractsandappsthatrunon“gas”,whichisessentiallyatransactionfeetheplatformcollectsforeachtransaction.EtherblocksthataremindtendtobecompletedinashortertimeframethanbitcoinblocksandtheEthereumchaincanhandleagreatmanymoreblocksatatimewhencomparedtothebitcoinchain.
Databasedifferences:Thebiggestdifferencebetweenablockchaindatabaseandatraditionaldatabaseisthelevelofcentralizationthatisrequiredinorderforittoruneffectively.Evenifatraditionalserverisdecentralized,thecorecomponentsaregoingtobearrangedasclosetooneanotheraspossibletofacilitatethetransferofinformation.Instead,blockchainsareformedofnodesthatareseparatedbythousandsofmiles,eachcommunicatingwiththeothersthroughabestusemodelthatmeanstheynaturallyseekoutthenodesthatareclosesttothemandtheinformationspreadsoutfromthere.
Thefactthatmasscollaborationandtheblockchaincoderesultsinareliablemeansbywhichfundscanbetransferredisagamechanger.Blockchainisthefirstinnatelydigitalmediumwherevaluecanbetransferred,inmuchthewaytheinternetallowedforinformationtobetransmitteddigitally.
Hashes:Ahashisamathematicalfunctionthatmakesupacrucialpartoftheblockchainsecuritymatrix.Thisisthefunctionthatensuresthedatathatisaddedtoablockchainremainssecureregardlessofwhomightgettheirhandsonit.Thefunctionencryptsthedatainsuchawaythatitbecomesafixedlengthoutput,whichcanbethoughtofasatypeofdigitalfingerprint.WhenitcomestoblockchainsecuritythemostcommonlyusedhashfunctionisSHA-256.SHA-256isusedbycryptocurrenciessuchasBitcoin,OmniandZetacoin.
Thehashfunctionforeveryblockisgoingtobedifferent,whichmeansthatifthatdataisalteredbyamalevolentthirdpartythentheentirefingerprintwouldberearrangedinunpredictableways.Additionalhashinformationisaddedoncetheblockisaddedtothechainasawhole.Thisprocessisrepeatedthroughouttheblockchaineachtimeanewblockisaddedsothatitisalwayschanging.
Merkletrees:HashesarethenusedbyaprocessknownastheMerkletreewhichisaquickandeasywayfortheblockchaintoverifyallofitsdataonceanewblockhasbeenadded.EachhashisuniqueandcreatedbasedonthedataitcontainswhichmeanstheMerkletreethenessentiallyneedstoscanthehash,compareittotheroothasheswhichistheultimatecollectionofallthehashes,andthendetermineifeverythinglinesupasitshould.Eachtimeitdoesthis,itcreatesapairofroots,onewherethedataiscorrectandonewhereitisnot,thiswayitkeepsthecoredetailsoftheblockchainintactagainstmaliciouschanges.
Chapter2:PracticalApplicationof
BlockchainTechnology
Asblockchaintechnologycontinuestogrowinpopularity,thewaysinwhichitcanbeputtousearegrowingaswell.Whatfollowsareanumberofdifferentwaysblockchaintechnologyissuretochangehowbusinessisconducted,daytodaylife,outsidetherealmofcryptocurrencyandhowgovernmentsandlawmakersinteractwiththepublic.
Businessuses
Moneytransfersandpayments:Whileblockchaintechnologyisalreadysynonymouswithcryptocurrencypayments,thefactofthematteristhatmorecanbedoneinthatspacetofacilitatetheneedsofbusinesseswhenitcomestoutilizingblockchaintoitsfullestpotential.TheEthereumEnterpriseAllianceisagroupofmajorcorporationssuchasMicrosoft,JPMorganandSamsungthatareworkingtogethertobuildablockchainthatisbasedonEthereumtechnologybutalsocontainsthelevelofcontrolthatbusinesseswouldneedinordertousethetechnologyonaregularbasis.
Thistypeofservice,whileextremelycommoninsomepartsoftheworld,areextremelyhardtocomebyinothers.Assuch,morepeopleinKenyacurrentlyhaveabitcoinwalletthanhaveindoorplumbing.Connectingallthesenewindividualstotheinternetisgoingtohaveseriouspositiveramificationsforretailersworldwide.
Notaryservices:Blockchaintechnologyisconstructedinsuchawaythatitcouldconceivablybeusedtoreplacetraditionalnotaryservices.Therearealreadynumerousdifferentappsavailablethatallowfornotarizationofavarietyofdifferenttypesofcontent.
Cloudstorage:BlockchaintechnologyisalreadybeingusedasameansofconnectinguserswithcloudstoragespaceinanAirbnblikesetup.Usingthissystemthosewithsparestoragespaceontheirharddrivescanrentouttheextraspacetothosewhoareinneedofextrastorage.Theestimateisthatworldwidespendinghasreachedmorethan$20billionforcloudstoragesothiscouldbeaprofitableopportunityifthiscatcheson.
Fraud:Blockchaintechnologyhasthepotentialtoincreasetheefficacyoftrackingidentitiesonlineinawaythatisbothefficientandsecure.Blockchainisuniquelysituatedtosolvethisproblembecauseitsresultsaresuretobeproperly
authenticated,immutable,secureandirrefutable.Thisimprovedsystemwilldoawaywithcomplicatedpasswordordualfactorauthenticationsystemsinfavorofasystemthatwillultimatelyusedigitalsignaturesandcryptographytokeepeveryonesafeandefficientlycatalogued.
Usingthistypeofsystem,thetransactionwillbeprocessedasnormal,andtheonlycheckthatwillberequiredisiftheaccountfromwhichthefundsaredrawn,matchestheaccountofthepersonwhoauthorizedthetransaction.Avariationofthissameusageofthetechnologycanalsobeusedwhenitcomestobirthcertificates,passports,residencyforms,accountloginsandphysicalidentification.Therearealreadyappsavailablethatutilizeablockchaintoverifytheidentityofusersfromamobiledevice.
Supplychaincommunication:Ifitisonethingthatcompanieshaveahardtimedealingwith,itistheextremelevelofcommunicationthatisrequiredinordertoensurethattheyhavealltherequirementsatthereadytoensuretheyarereadytodowhateveritistheydo.Blockchaintechnologyallowsforcompaniestoeasilytrackproductsfromdoortodoor,withtheinternetofthings(theabilityforeverydayobjectstosendandreceivedata)connectingshippingcontainerstoaccountsthatgetasteadystreamofdetailsabouttheproductinquestionasitcrossesvariousthresholdsandultimatelyautomaticallypaysforthegoodsoncetheyhavereachedtheirfinallocation.SkuChainandProvenancearetwocompaniesthatareworkingtocreatethesetypesofsystems.
Giftcards:Giftcardsareagoodideaintheorythatultimatelyfallsapartinpracticewhenitcomestimeforthecustomertoactuallyholdontothecardinquestion.Blockchaintechnologyhasthepotentialtochangeallthatbyconnectingcustomerloyaltyproductsdirectlytoablockchainwhichcanthenverifyandupdaterelevantinformationasneeded.GyftBlockisacompanythatalreadyhasadigitalgiftcardupandrunningonthebitcoinblockchainthatcanbetradedjustlikeacryptocurrency.
Internetofthings:SamsungandIBMarecurrentlyworkingtogetheronaconceptreferredtoastheAutonomousDecentralizedPeer-to-PeerTelemetryor
ADEPT,whichusesblockchainasameansofcreatingasystemthatmixesproofofstakeandproofofworksystemstobettersecuretransactions.Essentially,whattheyaretryingtodoistocreateablockchainthatwouldactlikeapublicledgerforawidenumberofdevices.Thispublicledgerwouldthenserveasahubwhichcancreateabridgebetweendevicesforaverylowcost.Thesedevicescouldthencommunicatewithoneanotherinapracticallyautonomousfashion,makingiteasytosaveenergy,sortoutbugsandissueupdates.
Insurancecontracts:Smartcontractshavethepossibilitytoreinventinsuranceinabigway.Ratherthandealwithinsuranceagentswhohavetodetermineliabilityincaseofabusiness-relatedinjury,ablockchainwouldbeabletomakeuseofasmartcontractthatissuespaymentsifaspecificinterconnecteditemregistersafaultysignal.Blockchainwouldthenallowforamorestreamlinedclaimprocessthatwouldimprovethecustomerexperienceandultimatelysavethecompanymoney.
Funding:4GCapitalisacompanythatprovidesaccesstocreditforsmallbusinessesinAfricathroughtheuseofadecentralizedappthatisrunningoffoftheEthereumblockchain.Donorsareabletousetheapptospendtheircryptocurrencyfundsdirectlytotherecipientoftheirchoice.Themoneyisthenconvertedtothecurrencyoftheapplicantanddispersedusingaproprietarytransactionsystem.Inadditiontoproviding100percentunsecuredloanstothosewhooftenwouldnotbeabletogetthemotherwise,italsoprovidesbusinesstrainingandconsultingservices.Whilecurrentlyoperatinginalimitedcapacity,ifitprovessuccessfulmoreoperationsofferingthistypeoffundingaresuretoappear.
Microblogging:Businessesarealwayslookingfornewwaystointeractwiththeirtargetaudienceandblockchainmaybethenextnewfrontier.ProjectslikeEth-TweetofferdecentralizedmicrobloggingservicesthroughtheEthereumblockchain.TheserviceoperatesmuchlikeTwitter,exceptthatasatrulydecentralizedentitythereisnoonewhocanpressureuserstotakecontentdownandnoonecanremovemessagesaftertheyhavebeenaddedtothechain.
DaytoDayLife
Healthcare:Realworldtestsarealreadybeingdonethatlinkindividualstotheirhealthcarestatusastheyaregoingthroughahospital.EarlystudiesfromtheMITMediaLabshowthatthispracticecandecreaseerrorsbyupto30percentinnonemergencysituations.Thisisahugestepforwardforhospitalsthatareoftennotdesignedforthevolumeandrangeofdatathatisbeingcreatedthesedays.Patientdatacanevencontinuetobegatheredonanoutpatientbasisoriftheindividualhasagreedtobepartofatestgroup.Paymentforthesetestscouldthenbeissuedautomaticallyoncetherequireddatahasbeensuccessfullygathered.
Internetdecentralization:WiththeriseofGoogle,theinternetisamuchmorecentralizedplacethanitoncewas.AstartupbythenameofBlockstackisworkingtochangeallofthat.Itisontracktoreleaseprototypesoftwareinthesecondhalfof2017whichwillmakeitpossibleforanyonetoutilizeblockchaintechnologytoaccessaversionoftheinternetwhereyouhavemuchmorecontroloveryourpersonaldata.Thisdecentralizedinternetwillactthesamewaythetraditionalinternetdoes,exceptthatinsteadofcreatingadifferentaccountforeverywebsite,theprocesswillreverseandyouwillcreateaprimaryaccount,thengivecertainsitesaccesstoit.
Ifyouarethenfinishedusingaspecificsiteyoucanthencompletelyrevokeitsaccesstoyourdataatanytime.Whilethismightseemlikeasmallstep,itisactuallyagiantleapforanewandimprovedinternet.Blockstackmakesuseofadigitalledgertotrackusernamesandvariouslevelsofencryption,withtheendresultbeingagreaterdegreeofprivacycontrolfortheindividualuser.Theblockchainwillalsokeeptrackofdomainnamesaswell,potentiallymakingICANN,thewebdomainoversightbody,obsolete.MicrosoftisalreadyintalkswithBlockstacktomakeuseofitstechnology.
Whilethewayithandleswebfunctionsmightseemextreme,itisactuallythelow-levelfeaturesoftheinternetasawholethathaveledtothedominanceofcorporationswhoessentiallyhavefreereigntotreatuserdataastheyseefit.Thenewplatformwillstilloffercompanieswaystomakemoneywhileprovidingservices,thebalanceofpowerisjustgoingtofavortheconsumermorethanitdoesnow.
Improvedpropertyrights:Bothtangibleandintangiblepropertyfromcarsandhousesononehandtocompanysharesandpatentsontheother,canallbeconnectedviasmartcontractandblockchaintechnologytomakedeterminingtherightstotheseitemsmuchlesscomplicatedthanitcurrentlyis.Thesedetailscouldbestoredinatypeofdecentralizedledgeralongwithrelatedcontractualdetailsregardingthetrueownershipofthepropertyinquestion.Thetechnologycouldevenextendtosmartkeyswhichcouldthengivespecificusersaccesstospecificproperty.
Theledgerwouldkeeptrackofthefinerdetailsandactivatespecifickeysasneeded.Inthiscasethedecentralizedledgerisalsoasystemformanagingandrecordingpropertyrightsandalsocreatingduplicatesifsmartkeysarelost.Implementingsmartpropertyprotocolswillhelptodecreasetheaveragepropertyowner’sriskoffraud,questionablebusinessdealsandmediationfees.
Newtypesofmoneylenders:Withblockchaintechnologymakingiteasierandeasiertotransferfundsbetweenindividuals,newtypesofhardmoneylendersarealreadypoppinguptotakeadvantageofthefact.Hardmoneylendersaremorelikelytooffertermstoindividualswhoalreadyhavesubparcredit,unfortunatelythetermsareoftenquitehighandoftenpropertyislistedascollateral.This,inturn,causesmanydebtorstodefaultonloans,andleavestheminaworsepositionthantheywereininitially.Lendingviablockchaintechnologyhasthepotentialtochangeallofthatasthebindingnatureofthetransactionmeansthatlesscollateralwillberequiredandsmartcontractscantakecareofthetransactionsthemselvessocostswillbedecreasedaswell.
Smartersmartphones:Smartphonesalreadyoperateonatypeofcryptographyin
thattheyrequireeitheryourfingerprint,ascanofyourface,orapasswordinordertoactivatethem.Thisisalreadyaformofsmartproperty,justinitsnascentstages.Thisfacetofpersonaltechnologywillbeenhancedviablockchaintechnologyinthat,ratherthanhavingthesedetailstiedtoyourphysicalSIMcard,theywillbestoredintheblockchainwhereyoucaneasilyaccessthemnomatterwhereyouare.Whileissuesconcerningsecuritywouldtypicallyariseinthesesortsofsituations,thefactthateachtransactionneedstobeverifiedinordertoaddittothechainensuressecurityremainstight.
Passports:Blockchainshavebeenhelpingpeoplemanagetheirpassportssinceatleast2014bymakingiteasierforuserstoidentifythemselvesregardlessiftheyareonlineoroffline.Thissystemworksbytakingapictureoftheuserandencodingitwithaprivatekeyaswellasapublicone.Thepassportisthenstoredinapublicledgerwhichcanbeaccessedviaablockchainaddressbythepersonwhohasthekey.
Importantdocuments:Itdoesn’tmatterifitisaweddingcertificate,birthcertificateordeathcertificate,allofthesedocumentsconfervariousrightsorprivileges.Thiswouldbelessofanissueifitweren’tforthefactthatthephysicalsystemsthatkeeptrackofthesedetailsarepronetomistakes.Infact,accordingtoUNICEF,asmanyas30percentofallchildrenwhoarebelowtheageoffivedonothaveabirthcertificate.Implementingapublicblockchaintostreamlinethisprocesswouldnotonlymakekeepingtrackoftheseservicesmoremanageable,itwillmakethesedocumentseasiertoobtainaswell.
Identification:Currentlyyouhavetocarryyourdriver’slicense,yourworkidentificationcard,yoursocialsecuritycard,thelistgoesonandon.Withtherightblockchain,however,allofthiscouldbeathingofthepast.EventuallyeveryoneisgoingtohaveadigitalIDthatgoeswiththemeverywhere.Itwillbeconnectedtoaworldwideprotectedledgeranditwillcontainallthebasicdetailsyounowneedtocarryaroundwithyou.
Improvedigitalinteractions:Withawiderandwidervarietyofinteractionsbeinginitiatedonline,itisoftendifficulttoknowwhomyoucantrust.
Blockchaincanalleviatethatproblembystoringaversionofyouridentityinablockchainthatisavailableforeveryonetosee.Itwouldautomaticallypullinthingslikereviewscoresandrankingsfromawidevarietyofsitessoyoualwayshaveatleastageneralideaofwhatyouareinforbeforetakinganonlineinteractionintotherealworld.Unlikewithmoretraditionaltypesofsocialmedia,userswouldnothavetheabilitytoremovetheirinformationandstartfresh,onceitisintheblockchainitwouldbethereforever.
Changethewayyoufuelyourvehicle:Modernelectricvehicleshavealreadymadegreatstrideswhenitcomestothefuelingprocess.Anotherimportantstrideisonthehorizonandithastodowithblockchain.Soonblockchaintechnologywillbeabletotracktheelectricitythatagivenownerusesandautomaticallydeductthefundsfromtherelevantaccount.Alltheownerwouldneedtodoispulluptothechargingstation,theblockchainwilltakecareoftherest.
BeyondCryptocurrency
FundHIVresearch:TheUBSbankrecentlydonatedaplatformtoFinclusionsystemsthatwilllaunchasmartcontractcalledHealBondwhichwillseekoutefficienttradesonthebondsmarketsothatthefundsthatitmakescanultimatelybeputtouseforHIVresearch.Analystsareconfidentthatwiththerightlevelofpassivestrategyitcouldstartmakingmoneyrightaway.Ifthisprovessuccessfulthenitwillgivethosewiththeresourcestodosoevenmorewaystohelpouttheirfavoritecauses.
Datasecurity:ThecompanyFactomisturningitsfocustoproperlysecuringdata.CurrentlyitisworkingwiththecountryofHondurastomoreaccuratelyregisterlandandalsowithanumberofcitiesinChinaonwhatareknownasSmartCities.Blockchaintechnologyislookingtoanintegraltoolingettingallthevariousdifferentsystemscommunicatingwithoneanotheronthesamelevel.Thisincludesthingslikedatanotarizationservicesaswellasinformationmanagementwithamuchhigherlevelofintegritythanwhatiscurrentlyavailabletothepublic.FactomhasalsoalreadyreceivedfundingfromtheUSDepartmentofHomelandSecurity,specificallytheTechnologyandScienceDirectoratetoworkontheBlockchainSoftwaretoProveIntegrityofCapturedDataproject.
Decentralizethepowergrid:Ratherthanrequiringacentralizedpowerproviderthatisinchargeofsendingenergytoworkplacesandhomes,adecentralizedblockchaincouldbebuilttoallowpeopletogeneratepowerthroughsolarandothermeansandthensellwhattheydon’tneedonanopenmarket.Allofthesetransactionswouldthenbevisibleontheblockchain,keepingfraudtoaminimum.Asmoreandmoreindividualsarepurchasinghigh-capacitybatteriesalongwithsolarpanelsfortheirrooftops,thistypeofscenarioisfastbecomingarealisticpossibility.
Trackthingsthataredifficulttotrack:Thefactthatablockchaincanshowupatanytimeandcannotbealteredmakesituniquelyqualifiedtotrackthetypesofitemsthatalwaysseemtogomissing.Forexample,thecompanyEverledgeriscurrentlyworkingonawaytoidentifyspecificobjectsandthendeterminewhetherornottheyarelegitimate.Sofar,theyhavecreatedadistributedledgerthatfollowsvariousdiamondtransactionverificationsincludinglawenforcementagencies,claimants,insurancecompaniesandownerstoputtogetheraminetostoreviewofeachdiamond.Thesystemisusefulinthatitkeepsthesupplychainhonestandalsomakesiteasierforindividualbuyerstodetermineifagivendiamondisrightforthem.Furthermore,smartcontractsmakeitpossibleforthediamondtransactionstoclearlybepaidforwhilealsotrackingthem,guaranteeingtoconsumersthattheyarenotpurchasingblooddiamonds.
Gettingartistswhattheydeserve:Ratherthanhavingtoworryaboutmakingsuretheirmusicisn’tusedwithoutgeneratingcompensation,withblockchain,musicianswillsoonbeabletodeterminewhousedeachsongandforwhat,witheachindividualtransactionbeingcarriedoutviasmartcontractsthroughablockchainplatform.What’smore,ratherthanhavingtowaitforfundstohitaspecificlevel,orforsomeone,somewhere,tocutacheck,thesefundswouldbedistributedinrelativelyrealtime.Thissameprocesscanbeappliedtomusiclicensingasawholewhichmeansitwilleventuallybepossibletocutoutmiddlemenfromtheequationentirely.This,inturn,meansadecreaseincoststotheconsumerandanincreaseinprofitforthemusiciansasitmeanspeoplearemorelikelytopayforcontentagain.
Improvedcommunication:Currentlyifyourvehiclereceivesasafetyrecallthenthemakerofthevehiclesendsoutanoticetoallofitslicensedsalesoutletsandeachoftheseoutletsthenreachesouttoitscustomerswhohavepurchasedthevehicleinquestion.Thisinformationthenmayormaynotreachyou,allowingyoutothenmakeaninformeddecisionbasedonthedetailsyouhaveavailabletoyou.Therecallcouldbeforsomethingmajor,orsomethinginconsequential,butregardlessyouarecertainlygoingtowanttoknowaboutit.Placingallofthisinformationontoablockchainwoulddramaticallysimplifytheprocessasafterthedefectwasfound,thechaincouldautomaticallynotifytheownersin
question.
Clarifyingassetlifecycles:Itdoesn’tmatterwhoyouareorwhatyoudo,youhavecertaintoolsthatmakeyourlifepossible.Blockchaintechnologyhastheabilitytomakesureyouknowasmuchaboutthemasyouneedtowhencombinedwiththeinternetofthings.Assetlifecycleisimportantforeveryonefromhomebusinessownerstomultinationalcorporations,andtheinformationprovidedbythistypeofblockchaincouldliterallysavelives.Forexample,thinkaboutanairplanewhichislikelytohaveseveraldifferentownersduringitstimeintheair.Thistypeofblockchainwouldmakeitpossibleforeveryownertounderstandeverypartontheirairplanemorecompletelyandtoensurethatpropermaintenancehasbeencompletedthroughoutitslifetime.
Trackingthefoodchain:Anincreaseinthereadyavailabilityofblockchaintechnologymeansthatslowlybutsurelyconcernsaboutthequalityofthefoodthatyouconsumeonaregularbasiswillbeputtorest.Regardlessofthefinalstateoftheproductwhenyoupurchaseit,youshouldbeabletoseetheentirerouteittooktogettoyourtable.Notjustthecompletedproducteither,everythingthatwentintotheconstructionofthecompletedwhole.Thisisparticularlyusefulastheremaybemoretothetraditionalfoodchainthanyoumightfirstrealize.Forexample,afarmcouldproducevegetablesthatheadtoaprocessingfacilitybeforeendingupinadistributioncenterbeforebeingpurchasedandrunthroughanotherprocessingfacility,alltoendupinacanoftomatosoup.
Changethevalueofownership:ThecompanySlock.itisbasedontheEthereumplatformandrunsablockchainforwhatisknownastheUniversalShareNetwork,thisnetworkisanopensourcemarketplacewhereanyonecangotolisttheirunusedasset,regardlessifitismachinery,shippingcontainers,officespaceandmore.ItisasortofautomatedAirBnBthatworksforanythingandeverything,notjusttemporarylivingarrangements.Thefundamentalsofblockchaintechnologyarethenpassedontotangible,realworldassets.
Transportation:Avariationinthetrendtowardsthecrowdsourcingofridesharingapplications,La’Zoozisadecentralizedtransportationplatformthatisownedbyitsuserswhouseblockchaintechnologytoorganizeandoptimizeavarietyofsmarttransportationsolutions.
Governmentandlawmakers
Everywherearoundtheworld,governmentorganizationsarerapidlyexploringthemanypossibilitiesprovidedbyblockchainanddistributedledgertechnology.Theabilitytosuddenlybeabletorecordanddistributeledgerinformationeasilyandsecurelyhascreatedamarketforavarietyofnewgovernmentalapproacheswhenitcomestoestablishingtrust,preventingfraudandimprovingtransparency.
FromarecentsurveyfromtheEconomicIntelligenceUnitaswellasIBM,itisclearthattheinterestinblockchaintechnologyfromvariousworldwidegovernmentsisquitehigh.Infact,asmanyas9outof10governmentagenciesarealreadyplanningoninvestinginblockchainbasedcontractmanagement,assetmanagement,regulatorycomplianceandtransactionmanagementby2018.Meanwhile7ofthe10predictblockchainisgoingtosignificantlychangethewaythatcontractmanagementishandled.Finally,nearly20percentsaythattheyexpecttohaveablockchainplanupandrunningbeforetheendof2017.
Voting:Asrecentlyasthe2016UnitedStatesgeneralelection,bothRepublicansandDemocratscouldbeheardquestioningthesecurityoftheexistingvotingsystem.Likewise,the2000presidentialelectionprovedthatthewaythatvotesaretalliedisremarkablyoutofdate.Whileconcernsabouthackinghavelimitedtheacceptanceofelectronicmeansofvotingsofar,blockchaintechnologycouldeasilyputthosefearstorest.Adecentralizedpublicledgerwouldnaturallybeencryptedbutspecificindividualscouldstillconfirmtheirvoteswerecountedaccurately.Thissystemwouldnotonlybemoreefficient,butitwouldbemorecosteffective,andclearlymoresecureaswell.
Responsive,opendata:Theblockchainledgerwouldalsocreateaplatformforwhatisknownasresponsive,opendata.Studiesshowthatthistypeoffreelyaccessibledataislikelytobringinnearly$3trillionworldwidewithinthefirstyear.Startupswillbeabletoutilizethisdatatohelpgetaheadoffraudulent
activity,parentswouldbeabletoaccessdetailsaboutthemedicationstheirchildrenarereceiving,thelistisliterallyendless.Currently,thistypeofdataisonlyavailablevialimited,governmentapprovedwindowswhicharenotdesignedtoputcitizensfirst.Asablockchainisatypeofpublicledger,citizenswouldbeabletoaccessitsdataatanytimeandplace.
Self-management:Blockchainprovidestheopportunityforgovernmentalagenciestoself-managemoreeasilyastheexchangeofinformationonaglobalscalewouldbegreatlyimprovedoverall.Therewouldbeagreatdealmoretrustaswellbecausetheinformationintheblockchainwouldbepublicforeveryonetosee.
Reducingadministrationcosts:Ifpropertyrecordswererecordedtoablockchainthenprospectivebuyerscouldmoreeasily,quicklyandcosteffectivelyverifyownershipinformation.Thisprocessiscurrentlystilldonemanuallywhichmeansgovernmentagenciesspendhundredsofthousandsofdollarsperyearpayingindividualswhodothistypeofjob.Manuallyverifyingsuchthingscanalsoleadtoanincreasednumberoferrorswhichhelpstofurtherincreasepotentialcosts.
Itwouldalsogreatlydecreasetheamountofmanualeffortwhichwouldberequiredonthebanks’endastheywouldhavetodomuchlessworkwhenitcomestotitleinsurance.Titleinsuranceisrequiredbylendersasameanstoprotecttheirinterests.This,inturn,woulddecreasepricesforhomebuyerswhoarerefinancingorbuyingforthefirsttimebecausetheywouldhavetopaylessthroughouttheentireprocessastheamountoflaborwouldbereducedsignificantly.
Decreasemoneylaundering:Ifidentitydatawasreadilystoreonablockchain,thegovernmentagenciescouldmoreeasilykeeptrackofthosewhoaremovinglargeamountsofmoneyfromoneplacetoanother.Financialorganizationscouldscanthedetailsofeverynewclientandthatinformationcouldthenbepassedalongtoappropriateagenciesifaneedpresenteditself.Furthermore,storingpaymentandaccountinformationinablockchainwouldgoalongway
tostandardizethetypeofinformationrequiredforanaccount.This,inturn,willhelptoimprovethequalityofthedatathatisgatheredandreducethenumberoflegitimatetransactionsthatarefalselylistedasfraudulent.Finally,havingarecordthatwasknowntobetamper-proofwouldmakeiteasierfortheseorganizationstocomplywithAMLregulations.
Ensuringtaxpayersarepayingup:TheFederalGovernmentislikelyalreadyworkingonitsownformofcryptocurrency,sothereisnoreasontoassumetheyarenotalreadyworkingonameansoflinkingablockchaintothecurrentIRSsystem.Thisblockchainwouldnotonlyrecordtheamountofmoneyeachcitizenearnedinayearbutalsoanyincentives,subsidies,grantsandloansthatindividualmighthavebeenprovidedwithaswellasthereoriginalsource.Whilethiswilllikelyleadtomoreindividualshavingtopaymoreintaxesthantheyarecurrently,itwillalsokeepthegovernmentaccountableforeverydimethattheybringin.Itwillbemuchmoredifficultformoneytodisappearintothefoldsofbureaucraticpocketswhenablockchainthatanyonecanseeiskeepingtrackofthetab.
Keepingtrackofincorporatedcompanydetails:ThestateofDelawaremarksthefirststateinthenationofferincorporatedbusinessestheabilitytokeeptrackoftheirshareholderrightsaswellastheirequityviablockchain.AsitiscommonformanycompaniestoincorporateinDelawaretotakeadvantageoffriendlytaxationprivileges,thishasthepotentialtobeachangethathaswide-rangingresults.Thestateisalsomovingitsarchivalrecordsontoadistributedledger,sothatmorepeoplecanviewit,forfree,atlesscosttotaxpayers.
Digitalproofofresidency:InEstonia,longknownforitsforward-thinkingpractices,itisnowpossibletodigitallyapplyforresidencyinthecountrythroughtheuseofagovernmentalblockchain.Newresidentsthenreceiveadigitalkeycardthatcorrespondstoacryptographickeythatcanbeusedtosignsecuredocuments,takingtheplaceofanysignaturesonofficialpaperwork.VirtualresidentsarethenfreetoopenupbankaccountsinEstonia’sonlinebankingsystem,whichalsoutilizesblockchain,aswellasincorporateacompanyoraccessothere-services.Estoniaisproudtobepushingtheboundariesofdigitaltransactionsandseeingavarietyofnewmonetarystreams
intheprocess.
Welfare:IntheUnitedKingdom,blockchainhasalreadybeenturnedintoaservicethatisavailabletopurchasethroughtheDigitalMarketplacerunbythegovernment.Throughthisservice,variousgovernmentalagenciesfreelyexperiment,deployandbuilddigitalservicesbasedonblockchainandtechnologybasedondistributedledgers.LastyeartheyranatrialthroughtheDepartmentforWorkandPensionthatalloweduserstotakeadvantageofamobileappthatletthemaccesstheirmonthlybenefitpaymentsalongwithtransferringdetailstoaseparatedistributedledgerasameansofhelpingthemwithmanagingtheirfinances,withtheirconsentofcourse.
GlobalBlockchainCouncil:TheGlobalBlockchainCouncilhasbeensetupinDubaiandrepresentsmorethan50publicandprivateorganizationsthathavealreadylaunchedproof-of-conceptblockchainprojectsacrosstheshipping,tourism,digitalwills,businessregistration,titletransfer,healthcarerecordsanddiamondtradingsectors.IBMhasalsopartneredwiththeorganizationinhopesofusingitsblockchainforalogisticsandtradesolution.ThegovernmentofDubaihasalsoannouncedplansforaninitiativetotransferalloftheirgovernmentdocumentsontoaninterconnectedblockchainby2020.Theestimatedcostreductionfromthisprogramisanticipatedtobeat25.1million-manhoursperyear.
Thefutureofblockchain
Whileblockchaintechnologyisstillinanascentenoughstagethatvirtuallyanythingcanhappen,thereareanumberofthingsthatarebeingworkedonatagovernmentallevelthatshouldbeconsiderinthecontextofyourfutureusage.
Morecontrol:Aspreviouslymentioned,oneofthebiggestbenefitsofablockchainisitsabilitytofunctioncompletelyautonomously.However,duetothefactthatbitcointhenallowedfornear-anonymoustransactions,itmadeitveryeasyforthosewithaninterestinavoidingthelawtodoso.Ascryptocurrencybecomesmorewell-known,regulatoryandgovernmentalagenciesincludingtheSecuritiesandExchangeCommission,DepartmentofHomelandSecurity,FBI,andtheFinancialCrimesEnforcementNetwork,justintheUS,haveallstartedbecomingmoreinterestedinitspotentialforunlawfulactivities.
Scrutinybegantoincreaseduring2013whentheFinancialCrimesEnforcementNetworkdecidedthatcryptocurrencyexchangesrepresentedaformofanexistingmoneyservicebusiness.Thismeantthattheywouldthenfallundergovernmentregulations.DHSquicklytookadvantageofthisfacttofreezetheaccountsofMt.Gox,thebiggestbitcoinexchangeintheworldatthistimebasedonaccusationsofmoneylaundering.
ThiswasthenfollowedupwithamorerecentSECrulingtodenybitcointheabilitytoopenanofficialcryptocurrencyexchangetradefund.Thismoveledtoadecreaseinthepriceofbitcoin,thoughthatdecreasewasthencounteredbyanevenstrongerincrease.ThedenialofthisapplicationwasstillpendingreviewasofSeptember2017.Thisthenplacescryptocurrenciesintoabitofanoddsituationastheirincreasinglevelsofscrutinymakesitharderforthemtofollowthroughontheirpurpose,despitebeingmorepopularthanever.
Ifcryptocurrencyiseverygoingtoreachatrulymainstreamlevel,andbeabsorbedintoexistingfinancialsystemsthenitneedstofindawaytoremaintruetoitsinitialpurposewhilealsobecomingcomplexenoughtoholdoffthesecuritythreatsitissuretofaceinthefuture.What’smore,itwillalsoneedtobecomesimpleenoughthattheaveragepersoncanuseitwithoutissue.Finally,itwouldneedtoremaindecentralizedenoughtostillberecognizable,whilealsoincludingvariouschecksandbalancestopreventmisusewhenitcomestothingslikemoneylaunderingortaxevasion.Takentogether,thismakesitlikelythatthesuccessfulblockchainofthefutureisgoingtobesomesortofamalgamationofthecurrentformandamoretraditionalcurrency.
UnitedStates:TheUnitedStatesgovernmentiscurrentlyworkinghardtocrackdownonthosewhoareusingblockchainasameanstolaundermoney.Theyaren’tgoingtobecontentwiththatlevelofcontrolforlong,itseems,assignspointtothefactthattheyarecurrentlyworkingontheirownblockchainbasedcryptocurrencyknownasFedcoin.TheideahereisthattheFederalReservecouldgenerateauniquecryptocurrencyquiteeasily.TheonlydifferencebetweentheblockchaintheycreateandanyotheristhefactthatitwouldallowfortheFederalReservetoretainthepowertogoinanremovetransactionsthattheydon’tapproveof.
TherolloutoftheFedcoinwouldoccurafterthegenesisblockwerecreatedandtherateofFedcoinsbeingsetto1to1withthedollar.Overtime,itwouldbecomemoreandmoredifficulttocomeacrossregulardollarsuntiltheywerephasedoutentirely.Thiswouldthenultimatelyleadtoatypeofcryptocurrencythatisbothdecentralizedforitsindividualtransactions,andcentralizedwhenitcomestothingslikelimitingavailablesupplyandkeepinganeyeonalltypesoftransactions.
TheFederalReserveisalreadyonitswaytowardsmakingthisplanareality,somuchsothattheyhostedaclosed-doormeetingwithbitcoinauthoritiesinthefallof2016.TheChairoftheFederalReservesatinonthemeetinginperson,alongwithrepresentativesfromtheBankforInternationalSettlements,WorldBankandtheInternationalMonetaryFund.Duringthismeeting,oneofthetalkswasliterallytitledWhyCentralBanksWillIssueDigitalCurrencies.
Russia:Russiaissuedadramaticshiftinitscryptocurrencypolicesin2017.Priortothispointanyonecaughtusingcryptocurrencycouldfacejailtime,nowhoweverthecountryisembracingdigitalcurrencywholeheartedly.ThereasonforthisisrelatedtotheextremelevelofcorruptionthatRussiahasseeninitsbankingsectoroverthepastseveralyears.Morethanonehundredbankshavebeenclosedinthepastthreeyears,andarashofmoneylaunderingschemesstillcan’tbestopped.
Tobettertrackwhereitsmoneyisgoing,theRussiangovernmentiscurrentlyworkingonseveralblockchainbasedtechnicalapplicationsthatwillmakeiteasierforthemtomonitorrealtimetransactions.Thismakesitappearasthoughtheyarelessinterestedincreatinganewdigitalcurrencyandareinsteadmoreinterestedinthedistributedledgerportionoftheblockchaintechnology.ThereiscurrentlynowordyetonifRussiaplanstocreateanewblockchainorutilizeanexistingblockchainforitsownends.
China:Chinaiscurrentlyamajorsupporterintheblockchainspace.InJuneof2017,thePeople’sBankofChinareleasedandofficialnewsreportregardingthecreationofitsowntypeofdigitalcurrencywiththeabilitytoscaledramaticallydependingonthenumberoftransactionsthatareseenperday.Whileallofthedetailshavenotyetbeenreleased,varioussourcesseemtoindicatethatthebankcouldreleasethecurrencytotheworldalongsideitsrenminbiproject.Whilenofirmreleasedateisforthcoming,thecurrencyisalreadywellunderwayinthedevelopmentprocessandhasalreadyseeingtestingamongstmanyofthecountry’scommercialbanksandthePeople’sBank.Thistestingisahugestepforwardforofficiallysanctionedcryptocurrenciesandblockchainsofalltypes.ItalsoproveshowcommittedChinaistotheideaofthoroughlyexploringthedigitalcurrencyspace.
Thedigitalcurrencytheyarecreatingislikelytocausemajorgainsfortheireconomyoverall.ThisisduetothefactthatitisbackbythePeople’sBankwhichmeansitisfunctionallythesameasabanknotewithfarfewerassociatedfees.ItwouldalsodoagooddealwhenitcomestobringingbankinginChinato
themodernageasmanyofitscitizensdonothaveaccesstotraditionalbankingservices.
Chapter3:Cryptocurrencyand
BlockchainInteractions
Whileblockchainispoisedtodoagreatmanydifferentthingsinthenearfuture,fornowthemostimportantthingyouaregoingtowanttokeepinmindisthatblockchainsmakecryptocurrencypossible,andbitcoinjumpedinpricemorethan$2,000duringthesummerof2017.Whilethispricehaspusheditoutoftheleagueofmanyamateurinvestors,therearemorethan1,000differentcryptocurrenciesonthemarketthesedayssothereareplentyofopportunitiesoutthereforthosewhoareinterestedinapotentiallyprofitableinvestment.Thisisnottosaythatthereisn’triskinvolvedaswell,however,soitisimportanttokeeptherisksofcryptocurrencyinvestmentinmindaswellbeforemakinganyinvestmentsinthespace.
Pros
Lowersriskofidentitytheft:Ascryptocurrenciesarepurelydigital,theyarenaturallysusceptibletofarlessriskthantraditionaltypesofcurrency.Theycannotbeforgedorcounterfeitedandthetransactioncannotbemanipulatedsothatitneverhappeneddototheunderlyingblockchain.Additionally,onceyouhaveboughtintoacryptocurrencyyoucanmoveitaboutfreelywithouthavetoworryabouttransactionswithspeciouscompaniesorindividualsputtingyourdetailsinplacestheywouldrathernotbe.Instead,withmostexchangesifyoualreadyowncryptocurrencythereisnotypeofverificationwhatsoever.Withmostexchanges,withoutcryptocurrencyinhand,youneedtogenerateanewdebitorcredittransactionwitheachroundoffunding.
Easyaccess:Thereareroughly3.5billionpeoplewhohavesometypeofinternetaccessandalsodonothaveanyreliableformofbanking.Thisisanichethatthecryptocurrencymarketislookingtotakeadvantageoftothefullest,andisexpectedtocausesignificantgrowthintheindustryasitbecomesmorecommonplace.Assumingthistypeofbankingcatcheson,thenthosewhoinvestincryptocurrencyearlyaregoingtoseemorethanjustaprofit,theycouldpotentiallyseeprofitonasignificantscale.
Lowcost:Whileeverycryptocurrencyinteractioninvolvesatransactionfee,thefeesformakingthistypeofexchangeisstillgenerallylowerthanmakinganexchangeonatraditionalbrokerwebsite.
Cons
Newtechnology:Whilebitcoinhasbeenaqualityinvestmentforthepastfewyears,thecryptocurrencymarketasawholeisstillextremelyuntestedoverallwhichmeansthatmanyofitsrisksarestillverypoorlydefined,especiallywhencomparedtomoretraditionalmarkets.Thisnaturallymakesthehighsinthemarketmoredramaticthansimilarmarkets,butitalsomakesthelowersmuchmoredramaticaswell.Therearenoguaranteeswhenoneisgoingtobecometheother,trendscancomeandgoincompletelyunpredictablepatternsthatnoonehasseenbefore.Whatitallcomesdowntoisthattherejustisnotenoughinformationavailabletobeabletoaccuratelypredictwherethemarketisgoingtobeinayear,muchlessfive.Untilthemarketstabilizessomewhat,thereisnowayoftellingifeverydollaryouinvestisgoingtobeworth$2,oneyearfromnoworifitisgoingtobeworth$.02.
Extremevolatility:Bitcoin,themoststableofallofthecryptocurrencies,isstillfivetimemorevolatilethangoldandhasnearlyseventimesmorevolatilitythanifyouweretoinvestthatmoneyintotheS&P500.Whilevolatilitymeansagreaterchanceatprofit,italsomeansthechanceatalossisgoingtobemuchhigherthanitwouldotherwisebe.Itisalsoimportanttounderstandthatmostofthepurchasesofcryptocurrencythataremade,aredoneforspeculativepurposes.Thismeansthatthecurrencyisbeingpurchasedbyinvestors,notpeoplewhoareactuallyplanningtouseitonaday-to-daybasis.This,inturnmeansthatpricesarelikelytorisehigherthanatruesupplyanddemandmarketwouldindicate.Thisearlyadopterphenomenonmeansthosewhobuyinearlyaregoingtoexperienceanicepriceincrease,buttheupwardmovementultimatelywon’tlast.Thisisn’taquestionofif,itisaquestionofwhen.
Lackofphysicality:Whilethefactthatcryptocurrencyisadigitalmeansofpaymentisoneofitsleadingcharacteristics,thefactremainsthatthisconceptdoespresentsomechallenges.Specifically,considerthefactthatiftheserver
holdingyourcryptocurrencygoesdown,andthereisnobackup,thenyourinvestmentisgoneforever.Youcantakeavarietyofmethodstoputthecontrolofyourcryptocurrencyinyourhands,butthefactremainsthatarealcoinisalwaysgoingtobeeasiertoholdontothanadigitalone.
Thevastpotentialforprofitwhenitcomestohackingintoablockchainalsomeansthathackersarenevergoingtostoptryingtodojustthat.Whatthisalsomeans,isthattheyareoccasionallygoingtobesuccessful.Forexample,theEthereumplatformhasseenavarietyofdifferentattacksthroughoutitslifetime,oneofwhichwassosuccessfulthatitnecessitatedahardforkthatsawtheEthereumblockchaindividedintothosethatsawaprofitfromtheattackandthosewholostoutbecauseofit.Asplitinthevalueofthedollarisnevergoingtooccur,nomatterhowmanyarestoleninabankrobberywhichjustproveshowunpredictableinvestinginanewopportunitycanbe.
Tradingcryptocurrency
Regardlessofhowfamiliaryouarewithtradingtraditionalsecurities,tradinginthecryptocurrencymarketcanprovetobeextremelyprofitable,aslongasyouhavecometotermswiththepotentialforrisk.Don’tforget,itisimportanttoneverinvestanymoneythatyoucan’taffordtolose.Thereisverylittlebarriertoentry,aspreviouslymentioned,ifyoualreadyhavecryptocurrencythenyouwon’tevenneedtoworryaboutverifyingyouraccount.
Anotherusefulthingabouttradinginthismarketisthefactthattherearenocentralizedexchangeswhichmeansitiseveryexchangeforitself.Thisthenleadstoamarketthatisveryfragmented,whichmeansitnaturallyproducesspreadsthataremuchwiderthanyouarelikelytoseeanywhereelse.Thislackofregulationalsomeansitisoftenquiteeasytofindaverylargemarginwhichmeansthatsmallinvestmentshavethepotentialtobecomelargereturnsfasterthanwithvirtuallyallothertypesofinvestment,thoughthesamecanbesaidaboutlossesaswell.Finally,dependingonthecryptocurrencyyouaretradingin,youwilllikelybeabletofinditfordifferentratesondifferentexchangeswhichmeansyoumightbeabletomakeaprofitsimplybypurchasingtheminoneplaceandsellingthemsomewhereelse.
Themostcommonwaytotradecryptocurrenciesthroughatradingcompanyiswithacontractfordifferences.Thistypeofcontractbindsthebuyerandsellertogetherforthelengthofthecontract,onceitends,thebuyerwillpaythesellerthedifferencebetweenthepriceoftheassetattheendofthecontractandwhatitwasatthestart.Ifthepricemovestheotherwaythenthesellerhastopaythebuyerthedifference.Whenitcomestosecuringleverage,youwilllikelybeabletofindratesinexcessof20to1,thoughitisnotrecommendedthatyouseekthemoutuntilyouareveryfamiliarwithwhatitisliketotradeinthismarket.
Globalcurrency:Whenitcomestostandardcurrency,thenumberofthingsthatcaninfluencethepriceisnaturallygoingtobefairlylimited.Theoppositeistrue
forcryptocurrencies,however,anditisdifficulttotellwhatisgoingtosetinvestorsoffbeforeithappens.Anycurrencynewsanywherehasthepotentialtosetpricesshiftingdramatically,infact,severalofbitcoin’smostsignificantmoveshavecomeaboutduetotheintroductiontocontrolsforcapitalinGreeceandwhenChinadevaluedtheYuan.
Marketalwaysready:Whiletheforexmarketistraditionallythoughtofasthemostrobustmarketasitisopen120hourseachweek,thecryptocurrencymarketisopen168hourseachweek,andtradesarealwayshappeningregardlessofwhatpartoftheworldiscurrentlyactive.Currentlythereareabout100majorcryptocurrencyexchangesintheworldwhoalloffervariouslevelsoftradingalongwithdifferingratesbasedontheirlevelofservice.Assuch,itshouldnottakemorethanalittleresearchtofindtheonethatisrightforyou.
Thiscanalsobeseenasanegative,dependingonyourtoleranceforriskasthesefactorscanbeenoughtogeneratelargeswingsonadailybasis.Infact,priceshiftsofmorethan5percentarecommononmostdaysforthelargercryptocurrenciesandthesmalleronesaren’tsurprisediftheysee15percentmovementormore.
Findingyourexchange
Whenitcomestocommittingtoaspecificexchange,itisimportanttoalwaysdotherelevantresearchthatyouneedinordertofeelcomfortableaboutyourchoice.Movingforwardwithoutdoingenoughresearchcancauseyoutoendupinasituationwhereyouexchangesuddenlydisappearswithyourmoneyoryoufindoutthatitdoesn’thavethefundstocoverallofitsobligationsandthereisarunonitaseveryonetriestogettheirmoneybackatonce.Ifthissortofthingweretohappen,itisimportanttokeepinmindthatyouaregoingtohaveverylittlerecourse,especiallyifyouchooseanexchangethatisnotbasedinyourcountry.Thisiswhytheinitialchoiceyoumakehasthepotentialtobesoimpactful.
Prioritizetransparentexchanges:Asageneralrule,themoretransparenttheexchangeyouchooseiswillingtobe,themoreonthelevelitisgoingtobe.Thismeansyouaregoingtowanttobeabletotakealookattheirorderbook,whichisjustaversionoftheirdistributedledgerandshowshowmuchofeverythingisbeingboughtorsoldonaregularbasis.Youshouldalsobeabletorequestdetailsregardingwheretheirfundsareheldandtheirsystemforverifyingtheirappropriatelevelofreservecurrency.Ifyouhaveahardtimegettinganswerstotheseverybasicquestionsthentheexchangemightsimplynothavethemeanstomakethatinformationpublic.Ontheotherhand,itcouldmeanthattheyareafractionalexchangeandcan’tcovertheirdebts.Whenitcomestochoosingtherightcryptocurrencyexchangeitisalwaysbettertobesafethansorry.
Availablesecurity:Itisveryimportanttoalwayschooseanexchangewithahealthylevelofsecurity,afterall,aspreviouslymentionedyourcryptocurrencyprofitswon’texistoutsidethisexchangewithoutyourhelpwhichmeanssecurityisoftheupmostimportance.YouwillonlywanttouseexchangesthathaveanHTTPSinfrontoftheirURLasthisindicatestheyareoperatingoffofasecureprotocolwhichmeanstheyareactivelyworkingtokeepyouraccountdetails
frombeingstolen.Youwillalsowanttoensurethattheexchangeisutilizingatypeoftwo-factorauthenticationinadditiontostandardsecureloginpractices.Ifyourexchangeisn’tatleastthiswellprotectedthenyouareflirtingwiththeftofbothyouridentityandyourinvestments.
Feesaddup:Almosteverytypeofcryptocurrencyhasanassociatedfeethatispaid,partofwhichgoestotheblockchainplatformholderandpartgoestotheminerorminerswhoverifyyourtransaction.Whilethesefeesarecertainlyvoluntary,inmostcases,notpayingthemremovesmuchoftheincentiveforyourtransactiontobeverifiedwhichmeanstheentireprocessmightenduptakinglongerthanitotherwisewould.UnlessyouchooseanexchangeinChina,youwillthenalsohavetopayatransactionfeetotheexchangeaswell.Withsomanyfeesflyingaround,theycanaddupquicklywhichmeansyouarealwaysgoingtohaveatradingplaninplacebeforeyoumakeyourfirsttradetopreventyourselffromlosingasizeableportionofyourtradingcapitaltofees.
Tryforsomethinglocal:Despitethefactthattherearecryptocurrencyexchangesworldwide,youshouldaimforonethatoperatesinyourhomecountryifpossible.Thisisadvantageousinmultipleways,thefirstofwhichisthatyouwillnaturallybeabletotakeadvantageofperiodsofhighervolumesimplybecauseyouwillbeonthesamegeneraltimezoneasyourexchange.Choosingalocaloptionwillalsomakeiteasiershouldyoueverneedtocontactsupport,andyourdepositswillgothroughmorequicklyaswell.Evenbetter,dependingonyourcountryanditslaws,theremightevenbesometypeofoversightregardingcryptocurrencyexchangeswhichmeansgettingyourmoneybackaftersomefunnybusinessmightnotbecompletelyoutofthequestion.
Whenchoosingalocalexchange,makesuretoverifytheyofferthecryptocurrencypairsthatyouarelookingfor.Exchangesvarydramaticallyfromonetothenextsotherearenoguaranteesyouwillevenbeabletotradeinyourlocalcurrency,evenifyoupickanexchangethatisclosetohome.
Understandtransactiontimes:Asallcryptocurrencytransactionneedtobeverifiedandaddedtotheblockchainbeforetheycanclear,exchangesoftenwork
onabitofaleadtimetoletthisprocessbreathe.Itisimportantthatyouchooseanexchangewhosetransactiontimeisreasonable,forthebestresults.Likewise,youaregoingtowanttoensurethatthepriceyoubuyatisthepricethatislockedinregardlessofhowlongthetransactiontakes.Ifthisisnotthecasethenyouriskmakingatradethatlookspromising,onlytohavethepricechangeandruineverythingbeforeitactuallygoesthrough.
Well-knownexchanges
Kraken:ThisisaEuropeanexchangethathandlesthehighestvolumeofeurotradeseachday.Theyarealsowithinthetop15whenitcomestoUSDexchangesaswell.
Coinbase:ThisistheelderstatesmanofthecryptocurrencyexchangesintheUSandhasthehonorofbeingtheoldestcontinuouslyactiveUSDexchange.Itisknownforbeingstrictlyregulatedandisstilloneofthetopfivewhenitcomestopurevolumetradedperday.
OKCoin:ThisisprimarilyaUSDexchangethatisbasedinJapanwhichmeansitissubjecttofarfewerregulationsthanmostoftheotherexchangesinthislist.Ifyouarelookingforhighermarginsandfewfees,andarecomfortablewiththeextrarisk,thenthisistheexchangeforyou.
Bitstamp:Thisexchangehasbeenrunningcontinuouslysince2011andthesecondmostcommonlyusedUSDexchangewithavolumegreaterthan10,000unitsaday.
Bitfinex:ThisexchangedoesthegreatestamountofUSDtradingbyvolumeofalltheexchanges,worldwide,clearingmorethan200,000unitsofcryptocurrencyeverysingleweek.Ifyouareinterestedingoingwiththisoption,beawarethatifyoualreadyowncryptocurrencythenyoucangetstartedwithoutsubmittingtoanytypeofverification.
Initialcoinofferings(ICOs)
In2017,ablockchainbasedcompanymanagedtoraisemorethan$150millioninlessthan24hoursandanother,Status.immanagedhalfthatamount.Theseoutpouringsofinvestorgenerosityareknownasinitialcoinofferingsand,likeeverythinghavingtodowithcryptocurrency,theyofferaheavyriskinexchangeforapotentiallylucrativereward.Asofsummer,2017,theprocesshadalreadyraisednearly$500,000,000.
Despitebeingaplayontheterminitialpublicoffering,theinitialcoinofferingisactuallyaverydifferentbeastinalmosteveryway.Aninitialcoinofferingisreallyjustanothercrowdfundingstrategywhereablockchaincompanyoffersitsnewcryptocurrencyataveryinvestor-friendlyrateandtheninvestorsbuyitupinhopesofseeingthepriceriseevenaslittleas50cents.Thecompanythen,intheoryatleast,willhavethemoneytocompleteitsprojectandcometomarket,whereitsproductsorserviceswillbesowidelyadoptedthatthepriceofitscryptocurrencywillrisebasedonincreaseddemand.TheEthereumplatformhasquicklyprovenitselfthemostpopularhomeforcompanieswhoarelookingtoofferaninitialcoinoffering.
AmajorityofthismoneycurrentlycomesfromChina,thoughinvestorsfromaroundtheworldhavebeenknowntoopentheircheckbooksifthepriceisright.Whileinvestingonwhatismoreorlessanunknownquantityalwayscomeswithcertainrisks,initialcoinofferingsareevenriskierstill.ThisisduetothefactthattheyarenotcurrentlyundertheSECregulatoryumbrellawhichmeanstheirbusinessplansarenotputthroughthesametestingthatthosewhoapplyforaninitialpublicofferingare.Thereisalsosomeconcernthatthesuccessthatthefirstfewinitialcoinofferingsgarneredisactuallyduetoanotherbubblewhichmeansitisunlikelytolast.
Whiletheydohaveissues,initialcoinofferingsalsohavethepotentialtogenerateseriousprofitsforinvestorswhomaketherightdecisionsattherighttimes.Nevertheless,ifyouareconsideringthistypeofinvestmentthenyouneedtounderstandthatifyouchoosetoinvestinaninitialcoinoffering,thenyouaremakingoneoftheriskiestinvestmentspossible.
Tocounteractthepotentialdangerasmuchaspossible,youwillneedtoapproachallinitialcoinofferingswithaquizzicalmindsetandthefirstthingyouwillwanttodoislookthroughanyinformationthecompanyhasmadeavailableincluding,hopefully,abusinessplan.Thiswillmakeiteasierforyoutodetermineifaspecificprojectmakessenseonafinanciallevelandtoensurethatisbusinesspropositionchecksoutinthelong-term.Youwillalsoneedtoknowthatthemarketisgoingtoactuallywanttheproductorservicethecompanyishopingtoprovide.Furthermore,youwillwanttodoublecheckandseewhattheroleofthecryptocurrencythatyouarebuyingintowillbewhentheproductorserviceisupandrunning.
Youwillalsoneedtokeepinmindthatbuyingintoaninitialcoinofferingisgoingtobequitedifferentthanbuyingintoaninitialpublicoffering.Whenbuyingintothelatter,youcomeawaywithownershipsharesthatessentiallymeanyouownasmallportionofthecompanyinquestion.Initialcoinofferingsgrantyounosuchrights,justapileofdigitalcurrencythatmayormaynoteventuallybeworthsomething.Additionally,initialpublicofferingshavestricterrequirementsplacedonthemincludingaccreditationobligationsandfiduciaryrequirementsthatthecompanymustmeetbeforeitcanhaveitsoffering,noneofwhichisrequiredforinitialcoinofferings.
Inreality,youarelikelynevergoingtoseemorethanawhitepaper,businessplanandwebsitefromaninitialcoinofferingcompany,andsometimesnotevenallofthese.Theyaremorethanlikelynotgoingtohaveaproductorprototypetoshowoffeitherwhichmeansyouaregoingtobetakingalotofwhatisbeingtoldtoyouonfaith.Youalsoneedtobeawarethatjustbecauseaninitialcoinofferingseesagoodamountofresponseearlyon,doesn’tmeanthisgoodwillwilllastuntilitslaunchday,muchlessbeyondit.Alsonoteworthyisthefactthatmanyanalystsbelievethatgivingnewcompaniestoomuchmoneytoosoon
actuallylimitstheirpotentialastheowner’sfeeltheneedtospendallthemoneyavailabletothemwhilefeelinglessinclinedtoactuallycompleteausableproduct.
WhilethelistofpoorICOsrangesfromthosewithoverlyoptimisticideastodownrightscamswiththesolegoaloftakingyourhardearnedcash.ThereareanincreasingnumberofICOsouttherewithnothingmorethanaflashywebsitefilledwithatonofbuzzwordsandahighvaluationbasedonnothingmorethantheirownopinion.Thesinglebiggestfactoryoushouldexaminebeforeinvestingistherealworldviabilityoftheproject.Whatsolutiontoacurrentproblemdoesthecompanypromisetosolve?Evenmoreso,isthereevenaprobleminthefirstplacethatrequiresblockchaintechnology?It’simportanttoexaminetheteambehindtheproject,andmoreimportantlytheirprevioustrackrecordwithprojectslikeit.Anothermaindeterminantshouldbewhetherthetokentheyareofferinghasactualutilityfortheproject,orareinvestorsjustgoingtodumpitforaquickprofitassoonasithitstheopenmarket?Youshouldalsowatchoutforanyhugebonusesofferedforearlyinvestors.It’snotuncommonforapre-salebonustobeoffered,butifthesebonusestop100%,youcanandshouldquestionwhattheincentiveisfornon-earlyadopters,andiftheteamarejusttryingtogenerateasmuchcashasquicklyaspossible.OneadvantagetheEthereumplatformdoeshaveistheabilityforsmartcontractstobecodedintotheICO,suchasfundsheldinaservicesimilartoescrow,toensuretheyarereturnedtoinvestorsiftheprojectfoundersdonotupholdtheirendoftheagreement.
Lastbutnotleast,itisworthnotingthatamajorityofthecurrentlysuccessfulinitialcoinofferingshavebeenbasedontheEthereumblockchainplatformwhichmeansthebasisofthesecompaniesisstillessentiallyanuntestedtechnology.WhiletheEthereumblockchainplatformhasabetterchanceofmakingitthanmakingitthanmost,thefactofthematteristhatitisstilluntestedtechnologysothereisstilldownsidepotentialaswellasupside.Overall,itmightbethebestchoicetoinsteadwaitandseehowthefirstroundofinitialcoinofferingcompaniespanoutbeforegettingtooinvolvedwiththesetypesofinvestmentsdirectly.
Tipsforinvestingsuccessfully
Whilestartingtoinvestincryptocurrencyisaseasyasfindinganexchangeandputtingsomemoney into thecryptocurrencymachine,doingsoand turninganinvestment profit is something else completely.What’s next is a list of thingsyouwillwanttokeepinmindinordertoinvestsuccessfullyinthelong-term.
It’sacommodity:Thefirst thingyouaregoingtoneedtodo is to thinkaboutcryptocurrencyinthesamewayyouwouldanyothercommodity.Justlikeanyother commodity, cryptocurrency is used for practical as well as investmentpurposes, just as preciousmetals have commercial uses and basemetals haveindustrialones.Additionally, theyareall tradethroughexchangesthatmoreorless all follow the same rules. This means that in order to choose acryptocurrencythatislikelytoincreaseinvalue,youaregoingtowanttopickthe one that is likely to provide themost real-world value or has the greatestnumberofprobableusesbeyondjustP2Ptransactions.
Increasingusage:Whengatheredtogetherasawhole,all thecurrentlyexistingcryptocurrencieshaveamarketcapofabout$160billion.Thisputstheminthesame leagueas companies likeTesla andMicrosoft in termsofpurenumbers.What makes this number particularly interesting is that real world usage andincreasing market cap have gone hand in hand so far, and reports show thatblockchain and cryptocurrency usage is only likely to increase for at least thenextfiveyears.
Thisiswhenmarketsaturationisexpectedtooccurandislikelywhenmanyofthe existingbubblesbreak for the first time.Nevertheless,while themarket isstill extremely volatile in the short-term, cryptocurrency as a long-terminvestmentshouldberelativelyreliable.Whenthisnumberislookedatthroughthe lens of the current market cap then the potential for growth is truly
staggering.Essentiallythepriceofcryptocurrencyacrosstheboardhasnowhereto go but up. Even better, once the number of users eventually stabilizes,investorwon’t have toworry about the bubble effect nearly asmuch becausepriceswilllikelystopdecreasingdramaticallyatthatpointaswell.
Point in thecycle:Themarketcycle isa typeof investmentpattern thateveryinvestment goes through sooner or later. On the positive side, it starts withoptimism beforemoving up to thrill, and then peaking with euphoria. It thendecreases through anxiety, denial, fear, depression and finally, panic. After itbottomsoutitthenrisesbackupthroughdepression,hopeandreliefbeforeonceagainreachingoptimism.
Whilebitcoinhasalreadybeenthroughthecyclemorethanonce,mostrecentlybottoming out during the 2014 crash, the vastmajority of all cryptocurrenciesarestillverymuchintheoptimismstagesothereisstillplentyoftimetogetinwhilethegettingisgood.Aslongasyoudoyourresearchcorrectlyinthefirstplace there is no reason you couldn’t realistically see five reliable years ofgrowthonyourinvestmentbeforeithitstheeuphoriastage.
Whilethisisdecidedlygoodnews,itisalsoimportanttokeepinmindthefactthat the cryptocurrency market today, is very much the same as the dotcomboom of the 90s. What this means, is that roughly 80 percent of all thecryptocurrencies on the market today are going to fail before or during theperiodwhenthemarkethitsitssaturationpoint.Thisisduetothefactthattherewillonlybesomanyoptionsinalimitedmarketplacethatonlyahandfulwillbeabletosurvivethebuildup.Manyinvestorswillendupthrowingtheirmoneyata companywithout having any ideawhat that company actually does and themarketwillcrumblebecauseofit,thoughifyouknowwhat’scomingyouwillbeabletoavoidtheworstofit.
Solving problems is key: It doesn’t matter what the potential for profit on agivencryptocurrencyturnsouttobe,buyingintoitandthensittingbacktowaitforthemagictohappenwillneverbethemosteffectivemoney-makingstrategy.Instead, you will be better served putting time into finding those
cryptocurrencies thatsolveproblemsfor individualmarketsor,evenbetter, theworldatlarge.Thebiggertheproblembeingsolved,themorelikelyitwillturninto something that is worth investing in for the long-term. It is especiallyimportanttoconsidersolutionswhenitcomestothebankingservicesthatsomeparts of the world take for granted. Cryptocurrencies that focus on solutionswhenitcomestomakingpaymentsandwiringmoneyaregoingtobegoodbetsinthenearfuture.
Long-term view:Given the amount ofmovement you can expect to see on aregularbasis, the idealcryptocurrencyportfolio isgoingtobeonethatfocusessolelyonthelong-term.Youarealsogoingtowanttomakeapointofpickingseveraldifferentcryptocurrenciestoinvestin,betweenthreeorfive,sothatyouwillneverbe toonegativelyaffectedbyseriousdrops inoneplaceoranother.More than anything else it is going to be important that you control youremotions as thoroughly as possible and strive to avoid rash decisions wheninvestmentsareontheline.Whenyouarefirstgettingstarteditisagoodideatonotwatchyourinvestmentstooclosely,astheyarelikelygoingtobeallovertheplace.Don’t forget, thegoal to long-term investing is a steadyoverall upwardtrendwhichmeansalittlebackandforthistobeexpected.
It is also important to remember that cryptocurrencies do not come with thelock-inriskthatmanyotherlong-terminvestmentsdo.Ifyoufeelthatacertaincryptocurrency’s time has come, you can quickly and easily exchange it withany other currency you choose, instead of having to go through the hassle oftrading inamore traditional fashionduringadownmarket.Assuch,youmaywant to think about investing in cryptocurrency as just keeping money in asavings account, but one that has a much higher potential for return on yourprimaryinvestment.
Conclusion
Thank you for making it through to the end of Blockchain Beginners Bible:Discover How Blockchain Could Influence Your Business, let’s hope it wasinformative and able to provide youwith all of the tools you need to achieveyour goals,whatever it is that theymay be. Just because you’ve finished thisbook doesn’tmean there is nothing left to learn on the topic, expanding yourhorizonsistheonlywaytofindthemasteryyouseek.
This is especially true for the blockchain market as it is a new enoughtechnology as to literally be always changing. Only by making it a habit tobecomea lifelonglearnerwillyouever trulygetagraspon it thatyouwillbeabletouseforyouradvantage.Whateveryoudo,alwayskeepinmindthatthemarket isheadingtowardsaninevitablesaturationpointwhichmeanshoweveryoudecidetointeractwithblockchaintechnologyyouneedtoensureyouendupontherightsideofit.
Itisextremelylikelythatyouwillnotseeanothertechnologythisdisruptiveinyour lifetime,andwithsomany technologyvariationsandcryptocurrenciesallvyingforthemarketatonce,allyouneedtodoisbeawareofthepossibilityofsuccesstobeabletoseekitoutandreapall therelatedrewards.Italsomeansthatthereareplentyofwaystofail,however,soyouaregoingtoreallyneedtodoyourhomeworkandensurethatyounevermakeamovewithouttakingallofyour options into consideration fist. Remember, investing in blockchaintechnologyisinvestinginthelong-term,slowandsteadywinstherace.
Finally,ifyoufoundthisbookusefulinanyway,areviewonAmazonisalways
appreciated!
[1]Source:Coincap.io-2017priceasof22/08/2017[2]TheactualsupplynumbersaremeasuredinSatoshi(0.00000001BTC).Thereare2,100,000,000,000,000(2.1quadrillion)Satoshi.
[3]UntilrappersstartrhymingaboutBitcoinsandSatoshisratherthanDollarBills,Fiatwillbethedominantformofcurrency