Cryptocurrency for the Busy Beginner: Bitcoin, Ethereum, and Beyond
In 1848, James W. Marshall picked up a gold nugget from a river basin in Coloma, California and launched the California Gold Rush with his strategically self-gratifying Instagram post.
Over 300,000 people from around the world risked life and limb in pursuit of gold, hopping on rickety wagons and janky trains to travel thousands of miles.
Fast forward 150+ years. The invention of the Internet has channeled a similar desire to hit it big. Instead of wearing boots and wielding shovels, people are wearing hoodies and wielding MacBooks. Instead of sifting through river basins for gold nuggets, people are sifting through information to find the next rush.
The recent numbers are enticing.
- $1,000 in Bitcoin in January 2017 would be worth around $2,200 in May 2017
- $1,000 in Ethereum in January 2017 would be worth around $21,000 in May 2017
- $1,000 in Ripple (XRP) in January 2017 would be worth around $36,000 in May 2017
To bring things back a few:
- $1,000 in Bitcoin in August 2013 would be worth around $18,300 in May 2017
- $1,000 in Ethereum in January 2016 would be worth around $194,700 in May 2017
Unlike the concept of wading knee-deep in a river and sifting through pebbles to find the shiny ones, cryptocurrencies can be extremely complicated. Whether your desire to learn is fueled by curiosity or the desire for financial gain, you’ll be able to get something valuable out of this article.
It may be easy to make gold rush comparisons because similar elements are present: the exciting potential to make a lot of money, uncertainty, and the ensuing speculation. The biggest differentiator is that some cryptocurrencies have the potential to potentially disrupt billion dollar industries. That’s worth more than the idea of shiny metal in a river.
“The thing is, most of the people in the gold rush didn’t get rich. The comparison holds up right now because you have a lot of people coming in and buying without a lot of knowledge. Having [awesome] articles like this is a good way to influence people’s transition from unknowledgeable traders to people with a working knowledge of what this is, how it’s important, and what they can do to not be left behind. This is not a gold rush that is going to last a few years and then the gold dries up. This is an evolution of the payment system. Bitcoin is an attempt to replace long-term value storage. Ripple is an attempt to replace the payment system and transfer of money. Ethereum is an attempt to replace the “work-based” value of currency with a value derived from actual work done executing programs.”
-James Risberg, Bearded Tech Guy, San Francisco, California.
Setting the Scene
You might have noticed this article is both a good time and a long time. It’s nearing 8,000 words, but it’s written with the full understanding that we’re busy people. It’s written for you to be able to bounce around between sections or dive into the specifics of a topic at your own discretion. Feel free to bookmark this, refer to the table of contents, and enjoy.
The goal of the first section is to get familiar enough with cryptocurrencies such as Bitcoin to the extent that you understand what they do, and how you can buy them. Here’s the general gist:
- The State of the Union
- What is a cryptocurrency
- How to Buy Cryptos
- Final Thoughts – Crypto Group Signup
Chances you’ll have a few questions. Some of the most frequent burning questions most encounter are listed in the next section.
- What’s stopping someone from stealing my stuff?
- What can I do to make my bitcoins more secure?
- Where are all these altcoins coming from?
- Is investing in cryptos a good idea?
- Where is the best place to check crypto prices?
- Why aren’t more people investing cryptos?
If you don’t understand everything on the first try, that’s OK. We’re going over a lot of things. Feel free to read a bit, think about it, take a Daily Calm meditation break, and get back to it.
Here we go.
The State of the Union
Let me tell you about my friend Kyle.
Kyle is a young, bespectacled, and incredibly intelligent kid. By any measure, Kyle is objectively nerdy. He was always enrolled in the most advanced math classes and loved programming. Although friendly, he mostly kept to himself and his crew of friends who played World of Warcraft.
A fun weekend for Kyle meant going to a hackathon and building new fun things.
He’s got an ideological side, but usually doesn’t bring it up because people have told him it comes on a bit strong.
People aren’t sure whether Kyle is secretly building the next Facebook or training to bring a katana to school if he’s pushed to the edge. They generally want to be his friend, but keep their distance because they aren’t really sure how to interact with him.
In college, Kyle started making a lot friends who were interested in the cool projects he built. He started becoming more popular, and soon enough magazines started running stories on him. Now, everyone who’s ever known Kyle is starting to contact him to see how they can get in on the action.
“Hey bro, I saw your article in TechCrunch. I don’t really know what you’re doing, but are y’all hiring?”
Kyle is a cryptocurrency.
Mainstream society views cryptocurrencies just like most people view Kyle: complicated, loaded with potential, confusing, and slightly dangerous. These are a few of the reasons cryptos haven’t quite caught on.
“Everyone has their own reasons. Lack of awareness, lack of need, lack of knowledge, lack of resources etc. Most people don’t understand what money is in general and when you show them a new form they really have no idea what to make of it. I’m sure the first nerds to use gold as a money were laughed at or misunderstood by many in the tribe. Its very difficult mentally to abstract our global monetary and financial system as well as the theories behind it. On top of that, abstracting what’s going on from a technical perspective is also extremely difficult. Mentally they are huge barriers to entry even for well educated people. People generally don’t trust things they don’t understand. Not one person on Earth is born knowing how bitcoin works and why it works. You can’t fault people for not knowing about something so abstract and mysterious.”
-Brett Musser, Paradigm Shifter @ AirBitz, San Diego, California
Think of it this way. You’re fairly intelligent, have access to the Internet, and have likely heard about Bitcoin and cryptos. You’re interested, yet you (along with 99.99% of people) still feel distanced.
Who can blame you? The majority of crypto information, although welcoming, is littered with overly technical explanations and ideologies that are easily dismissed by our busy, distracted, nontechnical minds.
Once you get to know him, Kyle’s a pretty cool guy. Let’s get you up to speed.
What is a cryptocurrency
No, wait. Don’t leave.
While the term “cryptocurrency” may be off-putting to most due to its multisyllabic geekiness, it’s really quite simple to understand.
“Cryptocurrency” is a blanket definition for any type of digital currency that uses an encryption technique to regulate how the currency operates. This means that the underlying transaction system is grounded in hard-cut mathematics and hack-proof programming, rather than corporate banks, politics, professors of economics, investment bankers, or state-run treasuries.
Bitcoin is the oldest and most popular cryptocurrency.
We’ll occasionally call them “cryptos” because it makes us sound like we know this stuff on a conversational basis. We’re hip.
These digital coins usually don’t have a central regulating authority, but rather are programmed to share authority that is distributed across dozens, hundreds, or even thousands of computers. All these computers have to verify transactions and agree upon how the supply is created. At first glance, the concept might be confusing just because it is so unlike how we traditionally view money.
The similarities, however, are uncanny.
- You want to pay Jim $20 in USD, so you give him a $20 bill.
- You want to pay Jim $20 in Bitcoin, you send him a fraction of a Bitcoin worth $20.
- You keep your money in your bank savings account.
- You keep your Bitcoin in your Bitcoin wallet (we’ll get into that later).
There are several distinctive features that separate cryptos from their paper cousins:
- No central regulatory agency such as the Fed to buy and print money.
- “Blockchain” is the backbone that combines cryptography and distributed computing networks to create networks that are secure and not controlled by anyone one person or institution. You can think of it as a much more secure internet. Blockchain is a huge concept that many people have started to hear, but still don’t completely understand. We’ll go into this in more detail. This video (embedded below) does a great job of explaining it.
- No single overruling governing body, making it a global currency
The following is probably the best video on the Internet explaining how cryptos work in an easily digestible manner.
To reiterate on one of the key points about cryptos, a primary distinction for most cryptos is that they don’t have a central server like banks do, and are therefore “decentralized.”
For example, the payment processing, currency creation, and holding of actual money on Bitcoin is decentralized. The power and responsibility, however, is distributed much more throughout the bitcoin network.
So, if there’s no specific person in charge, what’s to stop people from breaking the system by hacking and double spending money they don’t have?
Cryptos function using what is referred to as a “blockchain” structure. This structure of each “block” in the blockchain is made of out a data structure based on encrypted Merkle Trees. We won’t get too technical here (that linked video does a phenomenal job of explaining), but just know that blockchain structure automatically detects when a single file in a chain of files is corrupted, and prevents any damage from being done. This is kind of like a “giant receipt” of every transaction checked at the door by a Walmart greeter.
Bitcoin, for example, is financial transactions run on a blockchain. Bitcoin’s blockchain is made up of blocks of verified transactions. Once a set amount of transactions are verified, a block gets added to the chain and it keeps going.
The entire integrity of the blockchain system rests on the individual blocks being accurate. Thankfully, the Bitcoin blockchain has a ruthless verification process, making it impossible to “double-spend” bitcoin.
For example, if I wanted to withdraw my $1,000.00 from my bank account on a central server, the transaction would have to be verified only by that central server. I walk up to an ATM, insert my card, type in my pin, and *fffffffffrrrrrrrrtttttt* I have 50 crisp 20s in my hand. While this system has worked fairly well in the past, it has not been without its fair share of fraud.
Bitcoin, being decentralized and using blockchain, requires much more than a single verification. A transaction not only has to be verified by one person, but virtually every other person on the network. This way there is no way a fraudulent transaction can occur. Unless someone steals your bitcoin.
The people that verify these transactions of called “miners” and are tasked with solving complicated math problems to prove their humanity. Theoretically, the first miner to solve the math problem wins and gets to add the next block of transactions to the chain. While Bitcoin mining is much complicated than a bunch of people sitting in a room doing pre-calculas homework, this is the general concept. The majority of bitcoin mining is mostly all hardware.
These miners are incentivized by Bitcoin’s built-in reward system. With each new block of verified transactions, 12.5 Bitcoins are created and added to the winner’s account, which adds up to about $26,537.50. This number changes over time, and the block reward halves every four years approximately. These calculations aren’t about proof of humanity, they’re about proof of work (POW), or proving a minimum amount of energy was expended to get to the correct answer. You can’t fake energy expenditure on specific math problems.
While cryptos and blockchain are not mutually exclusive, the vast majority of cryptocurrencies including bitcoin use blockchain. Decentralization is the main characteristic for a vast majority of cryptos, there are some that are actually more centralized, such as Ripple. There are certain cryptos such as Ripple (XRP) that are clear counterexamples to how cryptos are traditionally viewed and are more centralized, but we’ll get into Ripple later.
So far, the bitcoin blockchain is the only antifragile, and sizable blockchain out there. The structure of each specific crypto’s blockchain varies. Just because something has a blockchain doesn’t automatically make it secure. It’s important to realize the distinction because many could unfortunately fall to scams if they don’t do any technical research on extraordinary claims because they think all blockchains are equal.
Explain it to me like I’m five: Cryptocurrencies are money on the Internet.
Still following? Good.
Bitcoin is the posterchild for cryptos.
You might recall seeing a Bitcoin pop up in the occasional article or news segment with headlines such as Man buys $26 of bitcoin, forgets about them, finds they’re now worth $850k.
So, what is this fortune forming coin?
Bitcoin is a peer-to-peer decentralized currency that is not tied to any particular government or regulating body. The transactions are handled by the blockchain described above.
What makes Bitcoin very interesting is that as the flagship of the crypto fleet, it is remarkably useful and easy to get into. It’s also becoming more accepted around the world as a legitimate alternative source of payment. Its global implications play in perfect harmony with its decentralized blockchain structure.
While the price of one bitcoin has been hovering around $2,100 lately, don’t be discouraged if you don’t have $2,100 to spend. Exchanges allow for fractional purchases, and the currency is divisible up to a millionth. For example, if you have an extra $5, you could currently buy around .00222171 of a Bitcoin.
An interesting thing about Bitcoin is that there are currently only 16,345,487 BTC in circulation. Remember, since there is no central regulatory agency, there isn’t a single government deciding to print sheets of bitcoin. By design, the supply Bitcoin is capped to 21 million.
A study by Cambridge University found that there are 2.9 to 5.8 million unique users actively using a crypto wallet, with a majority using bitcoin as the preferred method of payment. Since the number of people using Bitcoin has been generally increasing over the past few years, the price has been mostly increasing due to simple marketplace supply and demand.
An altcoin is simply any other crypto that is not Bitcoin.
This is like when someone with the same first name is introduced to a group of friends, and they are forever referred to as “the other Alex.” Sucks to be Alex #2, but Bitcoin was here first.
The blanket term refers to 700+ different altcoins trading on the market. Following the example from above, if you get 700+ Alexs in one room, you’ll likely have some gems and probably a bunch of not so great ones. It’s the same thing with altcoins, which are often endearingly referred to as “shitcoins” if that makes them more palatable.
Altcoins such as Ethereum and Ripple (XRP) have massive industry-disrupting potential, whereas some are based off the doge meme.
Altcoins tend to be very volatile, and have seen extremely rapid periods of growth. It’s not uncommon to see a random altcoin jump 250% in a matter of hours.
As you can imagine, going up 11,120.166% in a day isn’t sustainable. Part of the attraction to cryptos is purely speculative (who wouldn’t want to turn $1,000 into $111,200 bucks in a few hours), but keep in mind that this is the Wild Wild West. Bad things happen to good people, and most people who attempt to day-trade cryptos get eaten alive.
There are over 700+ altcoins out there, and unfortunately the shitcoins tend to distract from the altcoins that may have a legitimate use case that is unique to that coin. There are a handful that are relatively successful attempts to create something meaningful, and have a legitimate functionality with market value.
Two of the ones we will go over in this article are Ethereum and Ripple.
This one kind of sounds like something that powers Iron Man’s suit, and in a way it kind of is.
Ethereum, an altcoin, is a decentralized platform that allows decentralized apps (dapps) to “run exactly as programmed without any possibility of downtime, censorship, fraud or third party interference.”
Remember how blockchain powers Bitcoins financial transactions? Well, Ether uses a blockchain but for a different reason. Ethereum is a virtual machine on a blockchain that hosts decentralized apps, and “ether” is the currency that compensates people for running and validating the code. A few dapps of interest include:
Augur: a decentralized prediction market built on the Ethereum blockchain that allows users allows to forecast events and rewards them for correct predictions. for predicting them correctly.
Golem: the first global market for idle computer power. This is essentially a global supercomputer that anyone can access made up from the combined power of every user’s machines, including everything from personal laptops to entire data centers.
Lunyr: is a world knowledge base which rewards users with app tokens for peer-reviewing and contributing information. This is pretty much Wikipedia built on blockchain, with a built-in monetization system without advertising.
This applications could be huge, and they are all built on the Ethereum blockchain and run on ether.
“You upload a picture to Facebook, and you’re actually sending that picture to Facebook’s computers and it gets stored on their computers. If you did that on decentralized computers, you would have the picture on your device, and you would give permission to Facebook or whoever else wants to see the picture. You would give permission to view the picture rather than just view the whole picture. It’s secure because it’s still on your device, and you can trust Facebook won’t get hacked and someone will have your pictures. You’re in control and you can retract permission to that picture at any moment. This is what the Ethereum platform is trying to do.
Ethereum is the platform, ether is the currency. Basically, running code costs a tiny, tiny amount of ether. It’s called the “gas cost”. Each “miner” running an ethereum node will execute your code for you and charge you in ether. You basically can be sure that the code that you ran isn’t fraudulent because it was executed and on many, many other computers on the network who agreed upon the result. Good for introductory general concept, state of these apps.”
–Oscar “Made Out of Blockchain” Lafarga, CTO of SetOcean, Ft. Lauderdale, Florida.
Something has to be powering these dapps and verifying the transactions. Enter ether mining. Ether is the digital gas that powers all of these apps. In the last few years, everyone from billion dollar corporations like eBay, Target, and Yahoo to the United States government has been hacked. This hacking exposed the personal information of millions of people.
In a dapp ecosystem, the owner has complete control of their data and the data that all of these apps can get from you. It’s all predefined and encrypted. You’ll never have the mass corruption or the mass hacks.
“Ethereum doesn’t really compete with bitcoin, nor is it intended to. What you have to understand is that most, and by most I mean like 95%+ of these cryptocurrencies are based on blockchain. Bitcoin was the first implementation, and that’s just in financial transactions on a blockchain.
Every Bitcoin financial transaction is verified. Ethereum, instead of being a blockchain of financial transactions, is a blockchain of decentralized apps (dapps). Ethereum is for creating a template of apps on a blockchain. You know how you hear about these huge hacks that happen on popular services & suddenly 100,000+ emails are posted on pastebin?? That would be extremely difficult on a dapp because all of the data is encrypted.”
-Jesus “Cryptocurrency for Muggles” Najera, CEO of SetOcean, Ft. Lauderdale. Florida
Ethereum seems to be the perfect solution to multiple problems, ranging from security to compensation. The companies supporting the launch of their dapps running on Ethereum include heavy hitters like Accenture, JP Morgan, Microsoft, Credit Suisse, and BBVA. The National Bank of Canada also recently joined the alliance to develop Ethereum.
This support has validated Ethereum as a target for many investors.
Ripple is interesting in the sense that it’s not very similar to how cryptocurrencies are traditionally viewed. Many people find it controversial because of differing definitions of what a “blockchain” is.
Ripple, interestingly enough, is just really advanced banking infrastructure software.
Scenario X, you are a bank owner. You see how fast the fin-tech industry is booming. New applications are coming out left and right that are saving banks millions of dollars and hours. As a bank owner, you’re freaking out because your bank conducts banking operations on computers using Windows 97 with Office 2003 suite to run banking operations. The kind where the Paperclip is offering you fax suggestions. It’s 2017, bruh.
The reason many banks use outdated software is because switching individual banking technologies to apps can be an extremely time-consuming and risky process since you are dealing with other people’s information.
Enter Ripple. Ripple has every financial functionality built into it, powered by the same powerful functionality that makes other cryptos incredibly difficult to hack. It has a single purpose to be the single next financial institution.
“Bitcoin is decentralized global currency.
Ripple is a centralized global currency.“
Ripple as a parent company holds 99 billion XRP, and has only released 33 billion to be traded with. When and why they release Ripply is up to the company. An argument can be made that even though it’s one of the more volatile high-market-cap, it has the potential to be incredibly stabilized due to the parent holding company’s majority holdings.
How to Buy Cryptos
Before we dive into this section, let’s go over some quick definitions:
- Wallet platform (n): This is like your bank account.
- Exchange platform (n): This is where you can trade either money for cryptos, or cryptos for other cryptos.
- Public Cryptographic key (n): This is essentially your account number. It’s an address to receive money. You want people to know your public address so they can send you bitcoin.
- Private Cryptographic key (n): This allows you to spend money. You don’t want people you don’t trust to know your private key because they can spend your bitcoins. There are services such as AirBitz that secure private cryptographic keys.
- Hard wallet (n): This is kind of like a treasure chest that is offline.
There are multiple different ways to purchase cryptos, but we’ll focus on the most popular: Coinbase.
Coinbase started in 2012, was enrolled in the prestigious Y Combinator Startup program, raised over $117 million from prominent VC firms like Andreessen Horowitz, and is located in San Francisco.
It’s safe to say that it’s pretty legit. It’s user friendly interface has helped make it one of the most popular digital wallet and exchange platform, especially for first-time buyers. This is precisely why I’ve chosen to use Coinbase for this article.
- Go to Coinbase. If you use that link, you get $10 free in Bitcoin once you buy or sell $100+ of digital currency. Full disclosure, so do I. This 30+ hour article is an elaborate ploy to get your $10. Welcome to Miami, kid, you just got hustled.
- Sign up: Give the people your information, read over the terms, and follow the subsequent steps for verification.
- Log in: lock n’ load
- Link your payment method: It’s highly recommended you link your bank account, because the fees associated with debit/credit cards are pretty outrageous. This might take a few days. In your down-time, feel free to watch crypto tickers while internally screaming at Coinbase to hurry up.
- Click Buy/Sell.
- Select your crypto of choice: Bitcoin, Ethereum, or Litecoin. Keep in mind you can buy a fraction of any.
- Enter your purchase amount in USD: This will calculate the amount of the crypto you can get at the listed market value.
- Click Buy: observe the values on the right hand side. Look at the fee. Sigh. Mentally commit to reading my next article on how to buy cryptos without having to pay a fee like that.
- Confirm: confirm your purchase. It isn’t confirmed until it says “Your purchase was successful!” since transactions tend to time out rather quickly because of price fluctuations.
Welcome to the world of cryptos. Tell all your friends.
Coinbase makes its money by charging a 1.49% for purchases from your bank account, and 3.99% from your debit/credit card. Please don’t use your debit/credit card because the fee is outrageous. A 1.49% fee isn’t bad, but if you are frequently trading fees start adding up quickly.
After you get a couple trades under your belt and skin in the game, it is worth exploring other options that don’t charge as high fees. I am planning to put together an article on how to use alternative platforms. You also can’t buy Ripple on Coinbase (yet), and I will be putting out a guide on that as well.
When it’s done the link will be here. But for now, if you’re interested feel free to sign up for updates here.
Section Two: Frequently Asked Questions for Cryptocurrencies
Congratulations. If you’ve made it this far, you’ve significantly upped your understanding of cryptocurrencies. That wasn’t so bad was it? Even though you now likely know much more than the majority of people, you’re only just getting started.
Here are some popular questions to help refine your knowledge. I recommend reading through all of them even if you have a vague understanding of them because there are some pearls of wisdom not in the first section.
What’s stopping someone from stealing my stuff?
Cryptocurrency is fundamentally impossible to hack due to its blockchain structure. Since each transaction must be verified by multiple users, a hacker would have to essentially hack into every verification step in the lengthy process.
There is a big difference between changing the blockchain and hacking someone’s bitcoin. The former is pretty much impossible and the latter is possible. To change the blockchain, they would need to hack into every node on the network. To hack someone’s bitcoin, they would just to hack into the person who holds bitcoin.
While cryptocurrency is incredibly difficult to be hacked, cryptocurrency exchange platforms are a different story.
The most infamous Bitcoin exchange hack was that of the Tokyo-based exchange MtGox, which handled roughly 70% of all bitcoin transactions. In 2014, 850,000 bitcoins (valued at more than $350 million) disappeared from the platform. The CEO Mark Karpelès was arrested and jailed.
So, yes, someone could technically hack into a cryptocurrency wallet platform. But, as secure exchanges falter, larger and safer entities tend to emerge. Marc Andreessen, a renowned venture capitalist and Bitcoin advocate noted that “MtGox had to die for Bitcoin to thrive. Its former role from early Bitcoin days has been supplanted by better, stronger entities.”
What can I do to make my bitcoins more secure?
While bitcoin wallet exchanges do offer convenience, the miniscule possibility of getting hacked often plays a big role in people’s thought process of buying cryptos.
Enter the hard wallet.
Hard wallets are USBs that store your cryptographic key offline and away from exchanges. Since it only lives on your device, it’s impossible to hack. However, if you do lose the physical copy of your wallet full of cryptos, you enter a sticky situation. Most hard wallets come with recovery keys, but the process can be pretty unforgiving.
“Basically, if you don’t want to trust a room full of scheming bankers to keep your bitcoin safe, you’re gonna want a hard wallet. It’s almost like if you wanted to hold $1M in cash in your back pocket, you can trust the hard wallet to securely take care of that for you.”
– Oscar “Larry David SNL Bernie Sanders Bank Sketch” Lafarga
But for the scope of this article, you should at least be aware of hard wallets as an option rather as the only way to get started.
What would negatively affect the price?
- If an exchange got hacked.
Keep in mind that an exchange hack doesn’t damage the integrity of the system itself, it just proves that exchange platforms are capable of getting hacked just like any other company. It’s not a problem unique to cryptocurrency. Imagine US dollars getting stolen from a bank vault or gold from a safe. This robbery doesn’t make gold or dollars unsafe, it just means the institution or mechanism storing them was vulnerable.
“As sure as I am of anything, after a price dips after a hack, it will recover and come back. It doesn’t stop all the other people with regular [hard] wallets from using bitcoin. There are so, so many people using bitcoin in the whole world, and the global level access will constantly ensure a demand. For example, there are countries that are developing right now that don’t even have banks, yet they have bitcoin because it’s useful to them. It’s not the alternative, it’s the only thing they use to transact.”
– Oscar “probably tired of nicknames by now” Lafarga
On the global level, there is no way a short-term supply shock from an exchange getting hacked is going to outweigh the rest of the world picking it up and buying it long-term.
- If a major government enforces a policy it’s illegal to accept bitcoin as payment.
There are currently a lot of governments supporting bitcoin. Since it is without a regulatory agency, it hangs around in a gray financial territory. This is an inherent risk, but in reality, governments have tended to be very favorable towards cryptos and blockchain in general.
However, a major government outlawing the use of cryptocurrency could cause a massive shock in the bitcoin markets. The United States has had its hands full politically, so we haven’t really been seeing much Bitcoin related legislation lately. The SEC denied the approval of a bitcoin-based exchange-traded-products (ETPs) by the Winklevoss twins in 2017, causing an 18% dip in price.
Alternatively, if the U.S. government approved Bitcoin, it would skyrocket. It’s interesting to note that Bitcoin is becoming more popular among the developing world as well.
“Many in the developed world are running on an existing financial system that has created a vast amount of material wealth while being parasitic at the same time. Most people don’t notice the parasite because many parasites are good at keeping their host alive for as long as possible. Many people need pain to change. So when they feel the parasitism of the financial system increase overtime, as it mostly surely will, they will finally understand why bitcoin exists in the first place. Many in Venezuela, Argentina, Cyprus, and many others, don’t just want bitcoin, they NEED bitcoin. They feel the pain of a government that has trashed the one thing that truly connects people inside their nations: money”
-Brett “Consider the Paradigm Shifted” Musser
If the world were a country, cryptocurrency would be its native currency; just like the US dollar is the native currency of the United States.
“Technically the US Dollar is the “world’s currency” right now, because it is by far the most used Reserve Currency (currency held by central banks and large financial institutions to send to each other) because of it’s stability and strength. After WWII the Bretton Woods System was put in place that placed the Dollar as the anchor of the global financial system. In recent years the Euro has picked up some steam (~20% of reserves are Euro now) and before the dollar the Pound Sterling held sway. The Dollar is losing its grasp as our financial situation deteriorates and who’s to say BTC doesn’t start to fill in as part of our reserve system.”
-James “Hackerman” Risberg
Where are all these altcoins coming from?
Mostly speculation. Think of the gold rush and goldminers mixed in with Wolf of Wallstreet-esque penny stock traders.
“The difference is that even penny stocks have specific congressionally-mandated rules on how they can be traded, due to some major cases of fraudulent activity in the past. Altcoins have no such rules as of yet. For now, it’s a completely “free” unregulated market, so depending on what country you live in, you’re going to have to watch out for how regulatory authorities are going to try and impose legal control. You have to be able to protect yourself and assess your own risk if you buy into these altcoins, since there’s no government doing it for you.”
– Oscar “The Wild Wild West Protaganist” Lafarga
Some of the growth may be due to the overall growth of the cryptocurrency market, it’s often more closely related to pumping and dumping, or traders artificially increasing the price by buying massive chunks of the altcoin only to sell it after other traders notice the trend and start buying some as well.
There’s a reason altcoins are often referred to as shitcoins.
Altcoins are “alternative” cryptocurrencies to Bitcoin, and other than most having a blockchain structure, they have little in common with Bitcoin.
You remember how blockchain functions based on blocks of verified information? Some altcoins are people making their own transaction history based off the bitcoin blockchain but using a time in the past. For example, some might rip BitCoins transactional history from 2012 but then add entirely new transactions. Any new transactions not synched to THE Bitcoin blockchains essentially turns it into an entirely new ledger. In doing so, they’ve just fabricated a brand new coin.
“If you wanted to, right now, you could clone the source code of bitcoin, “fork” its blockchain, rebrand it as your own cryptocurrency, and start selling it to people for whatever price you wanted, bullshit included for free! If you get enough people in on it, you can pump and dump, sell all of your altcoins for bitcoin and crash the price.
The problem with “scamming” is that theres a very blurry line between a) running off with the money you gave me and b) promising you that you should “invest” in my altcoin because one day it’s going to be the “next big thing” while you spend the next 2 years watching me “fix bugs” and “find more developers” while we “pivot to a more robust consensus mechanism”.
I shit you not PonziCoin is actually a real altcoin. Not all of these altcoins are bitcoin forks, but in any case, if they’re not offering unique features that differentiates itself from bitcoin, it’s hard to argue the long-term value unless Bitcoin were to fail in a major way.”
-Oscar “The Protecter” Lafarga
It’s a fugazi, you know what a fugazi is? Fugayzee, foogahzee, it’s a whazee it’s a whoozee, its a *whistle* fairy dust.
There are a handful of legitimate altcoin attempts such as Ripple to create something valuable. Out of the 700+ altcoins on the market, it’s rather difficult to distinguish which are worth investing into, and which are artificially inflated from scammy marketers. The illegitimate attempts opaque the altcoin landscape, and one must be careful when venturing into the Wild Wild Altcoin West.
A general rule of thumb is that if something has over $1 billion market cap, it has statistically less probability to be a pump and dump scheme than those with small market caps.
Where is the best place to check crypto prices?
On a web browser, Coinmarketcap.com is my go-to place. It’s not so hot on mobile.
On mobile, you can download the Coinbase app for Bitcoin and Ethereum. For ALL coins, I recommend CoinCap because it lets you create your own alt-coin portfolio to look at specific coins.
Is investing in cryptos a good idea?
Here’s where we venture into the land of opinions. Follow at your own peril.
While crypto investments have turned people into millionaires, there are obviously no guarantees. Here are a handful of tips I’ve gathered:
- Don’t invest what you can’t afford to lose.
- Don’t beat yourself up for missing the “next big crypto spike.” Yes, we know you heard about bitcoin at $20. Yes, you could have bought Ethereum last month for $5. This erratic mindset leads to erratic trading and “crash jitters”.
- Invest in fundamental features for the long-term. Some people have been holding bitcoin since 2011; it’s worked out pretty well for them.
- Day trade at your own peril. Traders are more likely to get eaten alive.
- Don’t believe everything you read online. An average guy casually making a billion by buying Dogecoin and forgetting about it makes for a sexier story than “Dumb college kid loses rent money on Bitcoin”
- Don’t invest what you can’t afford to lose. Don’t do it.
- Surround yourself with multiple perspectives from intelligent people. How do you think this article was written? We put together a group for cryptos as well.
- Learn more about the crypto community. There are actually fascinating implications for some of these cryptos that could potentially disrupt every industry.
- Stay updated on coin-specific forums. Reddit is a spectacular resource with experts and noobs alike. We’re currently in the process of putting a little somethin’ somethin’ together with crypto experts, investment bankers, and startup nerds. If you’re interested, check this out.
- And don’t invest what you can’t afford to lose. Seriously, don’t.
I’m obviously bullish on cryptocurrency, but more like a bull who has seen his fair share of javelins in the face in the bullfighting ring.
You win some, you lose some, and thankfully (for now) cryptocurrency has led me to win more than lose.
Here’s my personal justification.
Cryptocurrencies with over a $1 billion market cap are inherently safer bets because they are more insulated from the risk of being pumped and dumped. There might be some players in the market with a maybe a few hundred million that can play around with altcoins, but not many with a few billion.
For example, if you invest $10,000 in Ethereum and lose $5,000, that means Ethereum would have lost $8.5 billion in market cap. That’s pretty serious.
The trend lately is that cryptocurrencies are generally growing in trade volume and market cap. What that tells me is that more and more people are starting to trade cryptos. Realistically, how much did you know about Bitcoin, Ethereum, or Ripple before reading this article? The crazy thing is you’re STILL an early adopter.
The global Forex (foreign currency exchange) market sees about $5.09 trillion in daily trades. The crypto market’s 24 hour volume hangs around 4.5 to 6 billion. To put that into perspective, the crypto market only trades at .1178% of the global Forex market.
While stocks are an entirely different asset class, this idea is worth entertaining as well from a trading perspective. The 60 major stock exchanges in the world are valued at $69 trillion. The cryptocurrency market has a market cap of around $79.5 billion. That means the crypto market is currently only .115% the size of the global stock market.
When you see one of the three main cryptos jump up 30% in a day, they start to look like viable investment targets. Investors who would have otherwise allocated their funds to an exchange-traded fund (ETF) earning the traditional annual 9% might start seeing cryptos as something worth exploring.
I’d say there is room to grow.
Why aren’t more people on cryptos?
“You can bring a horse to water… Bitcoin is all about voluntary interaction. No one has to use Bitcoin. If no one wanted it, it would go away. If one person wants it really bad, it will exist. The value of any cryptocurrency is subjective for a whole host of reasons.”
-Brett “Bringing horses to water” Musser
Let’s jump back to the Gold Rush example. It’s much easier to conceptualize the idea of finding a shiny metal and selling it for a substantial amount. Buying a digital currency with very little information on the Internet using multiple platforms presents a mental barrier that stops many people from entering the arena.
I believe the biggest reasons more people aren’t investing in cryptos is a combination of a lack of good information and the scary volatility. As more information comes out and people’s concerns are mitigated as volatility decreases, I would venture to say the market cap for all cryptos will continue to grow.
Aren’t they unstable?
“Stability is also a huge barrier to people feeling comfortable with investing in cryptocurrencies. Our nature is to avoid instability to avoid that risky investment, and on the surface level, it looks like a risky investment. We’ve been exposed to penny stocks. The reason it’s so volatile is that people don’t understand it.
A single article, tweet, or comment on a forum can swing the price of an alt-coin because people don’t understand the underlying technology. They’re in “gold rush mode” they just see money being made by a lot of people and it paying off. They get disillusioned when they lose, and they start hyping with no knowledge of why they made money when they win.
There’s a saying that goes “Buy the rumor, sell the news”. If you wait until the announcement, you’ve waited too long. This is the case only because of the unstable and emotional traders currently flooding the space. We don’t want you guys camping Twitter and buying some weird ass coins and losing all your money.”
-James “also goes by Jimmy” Risberg
The way we reduce volatility is by informing people and writing these sorts of things. This involves placing ourselves on the forefront of understanding, and helping others understand why and how these things work, and how we can use them effectively.
So, What’s Next?
Congratulations. You made it to the end. While this article is an excellent resource to get acquainted with cryptocurrencies, it’s only the start. The devil really is in the details for all cryptocurrencies, and there is only so much we can go over in a single article.
This article wouldn’t have been possible without the help of people much smarter than me. The list includes:
Jesus Najera – CEO at SetOcean, a product agency & incubator niching in blockchain, artificial intelligent, and VR/AR applications, Ft. Lauderdale, Florida
Oscar Lafarga – CTO at SetOcean, Ft. Lauderdale, Florida
James Risberg – Cool Tech Guy with Beard, San Francisco, California
Brett Musser – Business Development at AirBitz, Edge Security Platform and Bitcoin Wallet, San Diego, California
Dennis Hansen – Cool tech guy, awesome designer, father of none.
If there is one thing writing this article has taught me is that the crypto community is surprisingly welcoming to newcomers. I’d hate to close out this wonderful piece sounding like something that would come out of a high school intercom, but information truly is power. In the absence of luck, information makes the difference between making 10x+ returns and getting cleaned out by a pump & dump scheme. The more knowledgeable people welcomed into the crypto community, the better decisions we can all make.
“Don’t play games you don’t understand, even if you see lots of other people making money from them”
-Tony Hsieh, Founder of Zappos
Having your skin in the game and potentially making a profit comes with the responsibility of educating yourself in cryptocurrencies for the long term. It also means spreading good information and being ruthlessly vindictive against bad information.
We’ve put together a think tank with some of the brightest minds in the crypto world consisting of blockchain developers, active investors, and talented entrepreneurs. Check out the group here.