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Dipping Your Toe Into Crypto
Dipping Your Toe Into Crypto
Dipping Your Toe Into Crypto
WELCOME
MY STORY
I was around and curious enough when the whitepaper of bitcoin
was being passed around on the internet. In and around 2009 and
only really started attempting to buy bitcoin from around 2011.
There were places one could purchase like entropay and liberty
reserve, but they required verification procedures that were
impossible. And basically it was sort of underground and way
above my understanding at the time.
I definitely did not grasp the concept and reality of what it was.
Sadly, it was really hard from South Africa and I was not
technically adept at the time. Nobody around me knew what I was
talking about either.
I was curious, but the lack of conversation around me and the
googling brought me nowhere closer to a place of grasping it all
then.
I will point out that the desire to find safety in belief and knowing
your money is safe can incapacitate one so much, it certainly got
the better of me with this.
But I dusted off my bitx app (now luno) and the little bitcoin was
way more than I had ever put in there. Bitcoin had shot over $1000
each.
It must have been a confluence of events, because for the life of me
I cannot think of an exact reason that made me look deeper.
But I know I joined a WhatsApp group started by an internet
marketer on Facebook and these guys were talking another
language…..
This made me look deeper and the plunge was overwhelming.
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So really I started getting into the mining of crypto and started
trading and buying crypto early 2017.
I had to deal with some of my fears of making mistakes and really
having to ask stupid questions.
I had no one around me in my friend circle that even remotely
cared about markets let alone crypto.
But when ICO’s (Initial Coin Offerings) started being a thing, this
is where I really started seeing returns.
You can too if you are willing to keep at this.
SOME HISTORY
I am not a master in economics, but to start us off we need to
understand the basics of how we exchange goods to each other.
In the beginning men and women exchanged what they grew, built
or made based on their needs. Bartering is the process.
Life was good we all got along.
As we progressed and built bigger things and wanted different
things at the same time. They needed what we know today as a
medium of exchange.
Simply this means that a standard value item that we can exchange
with each other that we both agree has value.
This allows us to exchange a “value item” for the things we need.
This soon grew and grew and became a system so large that we
simply could not hold the “store of our value” in our homes. We
started storing them in places we know now as banks.
It however means we have to “trust” said banks that they would
keep their word.
If you have 47mins to spare you can watch this.
https://www.youtube.com/watch?v=4AC6RSau7r8
I know this is the super boring stuff, but I am getting to the juicy
parts soon.
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To date the way payments are made, to give an example. I need to
pay person B a sum of $1000. Person B lives outside of my
country.
In other countries this may be an easy task, but In South Africa I
have to physically visit our tax entity and ask for approval. Visit
the bank and physically request the some of money to be sent, they
add their fee and I have to trust them that they will carry out the
transaction. And it takes a day or two to complete.
Simpler process is paypal, which is a seemingly instant transfer,
but really it is not. You still have to trust paypal to action the
payment on your behalf. And settlement between your bank and
them has to occur and then settlement with paypal and the other
parties bank, unless they all okay with the paypal ecosystem.
There is a lot of trust and permissions in what is a simple process.
When you buy online using your credit card, you look for a stamp
and an SSL certificate to see if the site is “okay and safe”. It really
boils down to trust and recourse.
This may not mean a whole lot to a working first world country
system. But cross border payments are cumbersome. And really
expensive.
Bitcoin has really made this easy and simple to do. Okay not that
simple yet, but when you done with this book it will be.
The other day I had to send £1000 to a guy in the UK, took 10mins
on a Saturday evening and it cost me 11 US cents.
What is a blockchain?
“The blockchain is an incorruptible digital ledger of economic transactions that can be
programmed to record not just financial transactions but virtually everything of value.”
Don & Alex Tapscott, authors Blockchain Revolution (2016)
In simpler terms imagine you kept an account of all your spent and
received transaction every day and created a process that stored all
transactions in a small file as possible. And then similar to Napster
with music, was able to communicate with all others across the
world and shared the “ledger” of transactions and this is while not
having to trust a third party like a bank or government to validate
it. It’s autonomous, accessible by anyone and self-validating and
once a transaction is recorded into this blockchain it is immutable.
Cryptography ensures that this ledger cannot be changed. It has not
been hacked to date and would cost quite a fair amount to attempt
to as well.
What is a Bitcoin?
Firstly bitcoin and the blockchain was created or put together and
uniquely so by a person or group called Satoshi Nakamoto.
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Its not specifically the coding and software that was created, but
the knitting together and creating digital scarcity and economic
incentive into the system
Books are written on those topics, but just note this is the first step
to a major global way of life.
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One of the strengths of the bitcoin network is that you simply do
not need permission from a bank or any sort of approval regardless
of the amount of money you sending.
I would say that money launderers and criminals are probably not
going to use the network.
In its infancy bitcoin could have offered some privacy, since very
few used the network.
But it’s a public decentralized network, why would someone trying
to hide their transaction use a public network where the entire
world can see what your wallet address has and does?
This could very well work against you if your wallet address gets
attached to your personal name. Every single transaction you make
using the blockchain can be seen and can always be seen.
This is why the bitcoin network is basically pseudo anonymous. In
that a history of transactions all the way to the start can be traced.
Its not easy, but its possible.
Now you have to also realise that governments and banks really do
not want such transparency. A lot of their transactions they really
would not want on a public blockchain.
This is my opinion, but of course one can only reason.
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What is mining of crypto currency?
Read
more: GameTheory https://www.investopedia.com/terms/g/gametheory.asp#ixzz
5KPHAEL2N
And every time a block is closed and added the difficulty in the
mining increases. This process is called proof of work. This work
that the mining computer did to cryptographically process the
problem posed to the network, the mining computer presents the
worked out problem to the chain and expresses that work and
energy was spent and therefore deserves its reward.
There are some terms that are pretty much exclusive to the
cryptoverse. This list is by no means exhaustive, as new ones gets
added as use case occurs among the market participants.
You will hear this word wallet thrown around a lot in the
cryptoverse.
I do not want to assume that we are all on the same page, but I
think it is safe to assume that you who are reading this have at
some point done some sort of banking online.
Now you must at some point either send funds from your account
to either a friend or paid a service via your computer or mobile.
If all was good the transactions worked and everyone was happy,
right?
But technically speaking the funds was not in the computer or the
mobile. You were simply interacting with the controls of it. Or
should I say using an interface that could make it relatable to you.
Cryptocurrency wallets are essentially the same.
An interface for you to interact with the blockchain. The wallet
does not “hold” anything.
All our assets live on the blockchain and we interact with it via a
wallet using a private key. This private key should never be shared
with anyone other than you.
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A large push of the crypto world was to solve the unbanked part of
the world.
http://uk.businessinsider.com/the-worlds-unbanked-population-in-
6-charts-2017-8?IR=T
Around 2 billion people have no banking facilities or financial
products to interact with and are largely paid in cash.
It is hard to grasp this if all your life you have lived in a country
where you do not have to worry about if your funds are safe and if
you have had a bank account all your life.
With the advent of the bitcoin network which is its own validating
means of providing it’s “backing” when you own bitcoin you are
your own bank. Since you do not need the backing of an entity
neither the “trusted” sign for making your transactions legitimate.
Cash is probably the easiest and only way this portion of the world,
but cross border payments would not be possible with cash.
It is here where bitcoin can help people on the base level of life.
You don’t necessarily have to have a wallet that you control. You
could leave your crypto on an exchange like Coinbase that is fully
regulated and insured.
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It is however not prudent, especially based on the tenets of crypto.
You would have access to that crypto, but you won’t have the
control of the private key.
In essence then you do not control that crypto. It is the equivalent
of leaving your money in a bank that could in fact fail. Highly
unlikely but could happen.
Biggest issue I have that should there ever be a fork in the
blockchain, on an exchange it would be up to the exchange if they
support the fork.
What is a fork?
The reason why I bring that up is that when a hard fork occurs, whatever
coins you hold in the main chain, you will receive the equal amount of the
new fork. Providing you have the private keys.
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Where do I keep a wallet?
There are various ways one can do this. Simplest is on your own
laptop or pc.
A little caveat here.
If you use the original wallet of let’s say bitcoin, you would have
to download the entire blockchain and it can get quite
cumbersome.
There are plenty options out there here are a list that I use
personally.
….
For a good multi coin wallet there is exodus. I don’t use this one
anymore as I started using a hardware wallet, but more on that
later.
https://www.exodus.io/
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available in my country yet so I cannot vouch for it, but I have
heard good things.
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Hardware wallets have a slight learning curve, but are way more
secure than we tend to believe we are. If you are able to get you
one please do. I have 2 nano ledger’s myself and they work
perfectly for me.
They also prevent me from doing stupid trades sometimes when I
do not have the device with me to send funds. So there is that extra
layer of protection from myself.
There is one more way, which I think is very secure from online
theft, but not the best way in my opinion. Its called the paper
wallet. Meaning you print out the wallet address and private key.
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Its pretty much air gapped from the internet.
Air gapped simply means a computer that has either never been
connected to the internet or is no longer in any way connected to
the internet. And is a “clean” no malware or viruses and secure
computer.
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in a wallet. It is just prudent to split your holdings into at least two
places and have a backup.
Part of being your own bank means you are responsible to look
after your wealth and money.
Be responsible and security conscious.
Please note, that you can only send the same coin in its own
blockchain. So, bitcoin to a bitcoin address. Bitcoin cash to bitcoin
cash address only. Ethereum to ethereum wallet addresses.
If you send it to another chain you will lose that funds forever. It
will not be retrievable.
If have bitcoin but you want ethereum there are ways to do that
and I will show you how.
On transactions:
How do I spend bitcoin?
I will be the first to admit that this side of bitcoin is not the easiest
at present. Right now it’s more a matter of greater adoption that
will produce the willingness to use bitcoin as the currency it was
intended to be.
But there are certainly the simpler approaches to using bitcoin to
pay for stuff.
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There are a few wallet based apps for mobile phones on the
horizon. A few I know of are Abra, Bread wallet, Xapo and
various others that I do not know of yet.
The other way is to link a wallet to a card and then you really do
not have to think about wallets. There are a few like Shift in the
States and Revolut in Europe. But a few still in the process are
Tenx and Monaco.
The standout feature of Monaco and Tenx is that over the year of
using the card you get paid back in crypto based on fees based on
the entire network of payments.
You however have to keep some tokens of each respective
companies.
But the premise is that the company behind the card holds the
crypto and you just swipe a card like any other card and settles the
transaction in the backend.
Personally I have paid many things using bitcoin, but mostly I use
my own hardware wallet to send as I have more control over the
sending of the bitcoin.
The best way I have used is that all wallet address can be made
into a QR code. And via your phone you can send things easy
peasy.
That is the accepted logo of bitcoin, therefore should you see that
sign in a store or online the merchant most likely accepts bitcoin.
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Bitpay is the most used company online to receive crypto currency
payments. Which basically at the time of purchase will work out
the bitcoin value of the dollar based amount and you would have a
time period within which to settle the bitcoin payment.
In short the market does. But it’s not as easy as that. There are
costs to producing a bitcoin. And roughly is based on electricity. It
ranges between $4500 to $5500 per bitcoin depending on where
and the power costs of the associated area.
If the price of bitcoin drops below let’s say $4000, the miners
would cease mining and the network would slow down and well…
it’s never happened yet. Also the mining difficulty would then
drop and the cost of bitcoin production would drop eventually.
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I know this is a long explanation, but one needs to understand the
granular working of a market to understand why bitcoin is erratic.
Now in the forex and stocks market and other larger markets we
see a lot of big players in the space so there may be large areas of
major liquidity, but in between we still have buyers and sellers to
“hold” price steady.
Bitcoin has much fewer players in the entire market.
To illustrate this take a look and click here.
On a basic level the areas of large interest and liquidity areas are
spaced further apart. So, if the market loses interest in a certain
area it can fall or spike very quickly and seek out the next liquidity
area.
See images below and look at the volume profile on the right. At
major areas you see larger volume bars.
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Add to this the fact that the majority of traders in the space are not
actually professional traders, it leads to panic buying and selling
very quickly.
This is not necessarily a bad thing. Because volatility as a trader is
your friend. As long as you study the levels of liquidity and pay
attention to sentiment. You can make a lot of either bitcoin or more
dollars by simply trading this up and down.
Bear in mind that it requires lots of chart time and to be “in the
zone”.
A good site to go to is https://coin360.io/
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Are there any third parties to my transaction between myself
and the seller of whatever item I am buying with Bitcoin?
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From a wallet into an exchange or out of an exchange to a wallet
you control can take much longer as they will have their internal
processes of checks and balances as well.
You can see this process more clearer in the first video
For sure there are many. I will not explore all, but there are over
1000 crypto currencies each doing either specific things or trying
to resolve other issues.
A good site to keep track of it all is https://coinmarketcap.com/
Depends on which country you are in. Most common and easiest
one if you are in the States is
https://www.coinbase.com/join/590c97ae124da06e66973f75
If you use that link and buy at least $100 of bitcoin you will
receive $10 of free bitcoin. (We all love free crypto)
Will create a video….
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We need this to convert from normal dollar to bitcoin or which
ever crypto currency you want to convert to.
https://www.coinbase.com/global?locale=en
Those are the countries coinbase covers. And in Australia they
have coinspot and coinjar.
We have to pause here for a few minutes and ask yourself a few
questions.
1. Are you simply buying crypto currency to hold and hope it grows in value
and at some point convert back to USD or your local currency?
2. Are you wanting to trade in the crypto space to grow your USD portfolio?.
3. Are you wanting to trade the crypto space to grow your crypto portfolio?
4. Are you wanting to hold and grow a mixture?
EXCHANGES
About a year ago from now (currently July 2018) ICO’s were the
craze. Initial Coin Offerings, that in someway relate to IPO’s
(Initial Public Offerings). Usually the average person on the street
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simply will never have access or opportunity to invest on any level
into an IPO.
This opened a can of worms as in the crypto space anyone who
was willing could invest in an ICO. This honestly was the best and
worst time, as there were many ways to 100x your investment and
also gave way to many scams.
Now…..onto exchanges for the crypto market there are a few that I
use and will suggest you start with until you are more comfortable
with what exchanges are and how to use them.
Shapeshift.io
Both of those sites require that you have wallets that you control
on either side of the exchange.
If I convert bitcoin to litecoin, I would need a wallet that I can send
bitcoin from and I would need a litecoin wallet to receive the
litecoin into.
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MY SUGGESTED EXCHANGES TO START
I would say that the crypto trading markets are a mixture of stock,
forex and futures type of trading. Its really new territory. But it
helps because one almost needs to treat each exchange as its own
island and not connected to the other ones.
https://www.marketwatch.com/story/this-is-how-much-money-
exists-in-the-entire-world-in-one-chart-2015-12-18
You not going to 100x your money. Well not intentionally at least.
But the crypto space offers a much more level playing field than
normal markets and this is offered mostly free of leverage which
can be a two edged sword to most traders learning to trade in open
markets.
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I will mention that if you think more level playing field means no
manipulation, then we would be mistaken. Whales (large holders
of crypto) really are able to move the markets quite easily. So like
any other market, follow the smarter players. Do not try to be
clever and think you can risk it all in one trade.
If you come from the forex markets, crypto is very different but
very technically obedient. A lot of the traders are inexperienced
and they learning as they go along. This almost accounts for the
really volatile nature of the different coins.
The current discussion on the table now is the Bitcoin ETF. This
will bring a lot more money into the space and because ETF’s need
to have the underlying asset in ownership, for broker/exchanges to
offer the ETF it would have to buy actual bitcoin. This could lead
to huge price swings up since you cannot inflate the supply of
bitcoin to match the demand.
It has not been decided and nothing is guaranteed in this world, but
that is possible and the decision is most likely happening in mid
August 2018.
In short its not too late to start. If you are willing to learn and put
some effort in you will reap the rewards.
Trading is not easy in any market because you will discover the
biggest enemy of profits is….YOU.
Markets are not personal places and you cannot “talk your way in
or out” you can’t negotiate with a market running or falling. You
have to conclude that you are the one entering the space and only
your state of mind can help or hurt you.
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What if it gets shutdown by government and regulators?
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I know right now, most authorities have major issue with the
privacy coins such as monero, zcash, zcoin, verge, pivx and
spectre. There are more but those are the prominent ones.
The issue is, no one can tell who what or why is happening other
than the participants. You tell me whether it’s a good thing or bad.
I don’t think like a criminal therefore I don’t have a stick in that
fight. But I do care that we are free.
The reality is that more people are not criminals and its something
we cannot escape in this world. We don’t scrap cars and phones
because criminals use it. Best we can do is find what works for
yourself and simply do no harm to others.
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