The truth is that if you are just getting into cryptocurrency investment, the Bitcoin and. Ethereum ships have already s
0101 THE ULTIMATE GUIDE TO SUCCESSFULLY
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INTRODUCTION
CHAPTER 4
What can you expect from this book?
Cryptocurrency Wallet and Exchange Cryptocurrency Exchange Cryptocurrency Wallet
CHAPTER 1 What Is Cryptocurrency How Was Cryptocurrency Created The Meaning of ‘Cryptocurrency’ Blockchain Technology What Is Cryptocurrency Mining The Properties Of Cryptocurrency? Different Types Of Cryptocurrency The Disadvantages of Cryptocurrency
CHAPTER 5
CHAPTER 2
How To Choose Cryptocurrency To Invest Choosing Your Cryptocurrency
Difference Between Investing and Trading Investing vs Trading Bitcoin The Risks Is It Better to Invest or Trade Cryptocurrency?
CHAPTER 6
Cryptocurrency Transaction
CHAPTER 7
CHAPTER 3
Coin Lifecycle - When to Buy and Sell Tips For Investing in Cryptocurrency Disclaimer
How To Use Cryptocurrency In Real Life
INDEX
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IN T R O DU CTI O N If you invested $100 in Bitcoin on January 1, 2017, you would have made $342 in eight months. And that is when one Bitcoin was already worth $1,000. If you invested at the beginning of Bitcoin’s existence, by now, you would be a millionaire, as cliche as it sounds. Investing in cryptocurrency can bring huge profits but it comes at the cost of an incredibly volatile market, and it can become a nerve-wracking endeavour. Most often, the investment should also be a long-term undertaking, through which you never have any Return on Investment guarantee. The truth is that if you are just getting into cryptocurrency investment, the Bitcoin and Ethereum ships have already sailed. Putting money into the most successful digital currencies is more secure, but it is also less lucrative. You would have to start with a significantly large initial outlay and wait a long time for a capital return. But what if I told you that there is a possibility of finding another Crypto-rado? What if instead of following news about the rising price of Bitcoin, you could be making money yourself in the meantime? It exists. And it’s called Investing in Altcoins. If you focus all your cryptocurrency time on researching the market, becoming a part of a community, you can find a virtual currency that has the same potential as Bitcoin did. The key to that, however, is not focusing on the coin’s financial possibilities, but on its innovational and technical capabilities.
W h at can y o u e x p e ct f ro m t h i s b o o k? Don’t worry - it will not be another guide on how to buy your first Bitcoin - but rather on how to invest in anything else but Bitcoin. From the basics of what is cryptocurrency, how to store it and what are different ways of investing, to choosing the one and managing the investment properly. If you do not know anything about cryptocurrency, you will have a good understanding of all basic terms, and by the end of this book, you will be able to decide whether you should invest. Most importantly, it will teach you on how to choose the virtual coin of the future and minimise associated risks and scams. The best thing about the beginning of your cryptocurrency journey is that you do not need any previous experience. The only advantage of a previous investment in fiat currency, property or be it anything else, will be your endurance through ups and downs of the venture. What do you need, though, is a basic computer literacy. You have to understand the importance of secure passwords, data synchronisation and how to backup your data. If you are a firm believer of the anti-virus software protecting you from all that is bad online, and your passwords are a name of your childhood dog, then you have to go back to computer basics and come back to virtual currencies later. If you are confident enough with your computer skills, go on then and start learning on how to invest and become an owner of the future financial system!
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CHAPTER 1
W H AT I S C RY P TO CU RREN CY The truth is - Bitcoin and cryptocurrency are buzzy words that come with a lot of excitement and promises that you will make a ton of money in a short amount of time. The harsh reality, however, is less of a fairy tale with potential, money loss and the lack of market understanding. So, before you jump into an investment and moving your lifetime savings to cryptocurrency, let’s understand what cryptocurrency is and what is the unique technology behind it. Because even though it is considered to be a virtual currency, it works completely different to traditional money.
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How Was C r yptocurrenc y C re a ted But what does it mean? In a centralised network system, you need a payment network with an account, balance and a transaction to be able to monetise the cash. The central server keeps track of all transactions and prevents the so-called double-spending - the same amount of money cannot be spent twice.
The development of cryptocurrency explains a lot about the current lack of trust towards virtual currency and the common misconception about its purpose. In 2008, when the recession hit the world in the worst possible scenario. Not only did people lose their assets and savings, but most importantly, they have even lost trust in a traditional banking system. The new system that was just created, was going to bring back the ownership of money to the owners; without letting it go through third party hands.
In a decentralised network, on the other hand, you do not have that server. So you rely on every single entity of the network to record all the transactions and check if the future transactions are valid, without an attempt of double spending. Usually, the central authority declares the correct state of balances. For us, casual Joes, it is the bank that does all the hard work, and the entire process is out of our site. Hence, most currencies circulating the world are controlled by a centralised government, so that a third party can regulate their creation and value.
The 90’s has already witnessed several attempts of creating a digital cash but none of them were successful. Mainly because each founder tried to centralise it and find a legitimate institution that will accept it as means of payment. Not many people know it, but cryptocurrency emerged as a product of another invention - Bitcoin - the first and most valuable virtual currency that has ever existed. The founder of Bitcoin - Satoshi Nakamoto - wanted to create something nobody has thought about before, a digital currency. All he intended was to develop a peer-to-peer electronic cash system.
In the peers' network, designed by Nakamoto, transactions are an open source, controlled by a code and they rely purely on the network. So no third party can affect the currency. And this was a key to his invention - no entity or government can influence the value of the currency, it is born within the network, and it stays there. The only thing that affects it is people who are investing in it, thus members of the P2P network.
Nakamoto, himself said: A lot of people automatically dismiss e-currency as a lost cause because of all the companies that failed since the 1990's. I hope it's obvious it was only the centrally controlled nature of those systems that doomed them. I think this is the first time we're trying a decentralised, non-trustbased system. - Freedomnode.com
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The Meanin g o f ‘C r yp tocurre nc y’ According to the Investopedia definition: ‘A cryptocurrency is a digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of this security feature. A defining caracteristic of a cryptocurrency and arguably its most endearing allure is its organic nature; it is not issued by any central authority, rendering it theoretically immune to government interference or manipulation.’ Cryptocurrencies are built on cryptography. They are not secured by people or by trust, but by math. It is more probable that an asteroid falls on your house than that a cryptocurrency address is compromised. If you look at money on your bank account and the transactions you make on an everyday basis, you will see that it all comes down to the entry in a database. Money is all about a verified entry in some database, whether it’s an account, balance or transaction. Before you make any changes to the database, certain conditions have to be met - usually, you have to own the money to be able to transfer it etc. The same theory applies for cryptocurrency as well - it is all about limited entries to the database, that nobody can change unless there are certain conditions met.
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Blo ckchai n Tec hnolog y -W h e re T h e M ag i c H ap p e n s The backbone of cryptocurrency is blockchain - a technology that was created alongside Bitcoin in 2008.
Do you remember days of using Word documents and sending it back and forth via email for rounds of edits for changes? Or forgetting to put it on your pen drive and feeling sorry for yourself about missing a presentation? Well… These times are long gone after introducing Google Drive which allows you to store all your documents in a cloud, enables multiple people to edit documents at the same time and updates itself without hitting the ‘Save’ button. Pretty simple, right?
The blockchain is to Bitcoin, what the internet is for email. A big electronic system, on top of which you can build applications. Currency is just one. One of the easiest ways to gain a first understanding of blockchain technology is to think about Google Docs or Sheets documents:
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That is in a nutshell how blockchain technology works.
and authorisation. To do that, we need a distributed network.
Picture a spreadsheet that is duplicated thousands of times across a network of computers. Then imagine this network is designed to update this spreadsheet regularly. And you have a basic understanding of blockchain. The blockchain is a growing database with millions of records, otherwise known as blocks.
#2 Peer-to-Peer Network If you remember the early days of Napster and illegal (ouch!) music downloads, then you also must be familiar with the P2P network. It is a designated network that allows two users to exchange goods (or files) without a third party interaction. And, as we already know, blockchain and cryptocurrency are all about avoid the middleman and its intrusion into the process.
With a blockchain, many people can enter information into records, and a community of users how the record is amended and updated. The blockchain database, just like Google Docs, is not stored in one location. Rather, it functions more like a cloud, which anyone can access and verify it.
When you look at blockchain, you can see a similar pattern. It is an extensive network of members, whose primary purpose is to validate the transactions and by that confirm they have all witnessed the same thing at the same time. And everyone has access to it. To secure the network they work on solving a complicated mathematical formula, and whoever solves it first, gets to verify the transaction and will be awarded particular cryptocurrency.
Three major technologies create a blockchain technology: #1 Private Key Cryptography The entire process starts with two people wanting to do a transaction or one person wanting to pay another entity. To do that, they both need: >>Private secure key >>Public secure key
This step is also known as the distributed network, purely because the entire network and its members are spread all over the world. The bigger the network, the more secure are the transactions. Combining the security key with the verification from distributed network allows a safe and quick flow of transactions that can be approved within minutes. That is not the end - the money has not arrived in your bank account yet. To do that, the network has to establish a protocol.
Both of these keys are required to complete a so-called digital signature. Bear in mind; it is not a handwritten, personal, signature but a complex combination of numbers. The signature will provide and ownership of the transaction and will work as a sort of stamp of the message. It also shows that the transaction comes from a legitimate source and will prevent an account holder from double spending. The key combination only solves a problem of authentication, but it does not provide a full security. It must be combined with the transaction approval
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#3 Program - The Blockchain Protocol After all these steps we now have a block a virtual element that consists of a digital signature, stamp, and relevant information. The block is then spread to all the nodes within a network. Apart from humans (yes, they're geniuses but still humans), the blockchain system is built from nodes - a computer connected to the network. Every node is created on a computer and a client that validates the transactions. Nodes work as ‘administrators’ of the blockchain technology, and they join voluntarily. Each one of them can get an incentive at the end: an opportunity to win a Bitcoin or any other cryptocurrency. So one person’s interest helps to serve the public need. With a bitcoin, the protocol’s goal is to eliminate the possibility of one coin being used twice in two different transactions. Nodes also create and maintain the history of transactions of each coin by solving proofof-work mathematical formulas. Once the transaction is ‘announced’ on the network, all nodes are working on the same formula, either accepting new blocks or rejecting the invalid ones. Once all nodes agree, they add a new block to the chain with a stamped time, through so-called cryptocurrency mining.
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What Is C r yptocurrenc y Mi ni ng? Since miners are the most important part in cryptocurrency transfers, it is worth to look deeper at what do they do. As a rule, everybody can be a miner. Because the decentralised network does not have a single authority, a cryptocurrency still needs some mechanism to prevent one ruling member from abusing it. So, Nakamoto set the rule that whoever wants to be a miner, has to invest into some work of their computers to qualify for the task. What they have to do is find a hash - a product of cryptographic function - that connects the new block with its predecessor.
In simple words, mining is the process of confirming transactions and adding them to a public ledger. To do that, a miner has to solve, a previously mentioned, incredibly complex mathematical puzzle. The mining process is what gives value to the coins and is known as a proof-of-work system.
This function is designed to be difficult on purpose. Otherwise, it wouldn’t be able to prevent a malicious behaviour or spammers. Above all that, it also prevents a single person from having control over which block is added to the ledger next. Surprisingly, the process takes minutes, and the speed of it is one of the things that makes cryptocurrency so efficient.
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TRANSACTIONAL PROPERTIES
What Are Th e Prop e rti es Of Cryptocu r re n c y
IRREVERSIBLE Once the transaction has been sent and approved, there is no way back. Nobody can reverse the transaction, even if you make a mistake or you became a scam victim, you will not be able to get your money back.
To be able to understand the revolutionary aspect of cryptocurrency honestly, we have first to understand its properties and what makes it so different to traditional banks and cash. When describing cryptocurrency properties, we have to separate between two different properties: the monetary and transactional.
SECURE We already spoke about the private key and the encryption that makes cryptocurrency bullet-proof safe. The extremely strong cryptography prevents from anyone being able to access the code and the signature.
MONETARY PROPERTIES CONTROLLED SUPPLY Most cryptocurrencies limit the supply control of tokens by a schedule written in code. It means that there are no surprises and anyone can roughly estimate the amount that will be available in the future. For instance, we already know that by 2140 Bitcoin will run out of its supplies and there will not be any more to buy.
FAST AND GLOBAL Because cryptocurrency exists only online, the transactions are confirmed in minutes. It does not matter if you are sending your money to a neighbour or a stranger on the other side of the world, the virtual money will be deposited into your account almost instantly. Yup, no more lengthy bank transfers and painful currency exchange.
NO DEBT If you look at your current bank account balance, it will most probably be debt. So even if your account is on plus, it is still debt. That is how Fiat Money system functions. Cryptocurrency, on the other hand, is nothing like that. The money you have on your account represent what you have in reality.
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ANONYMOUS Now, this is a part which causes the most controversies around cryptocurrency. Neither the accounts nor the transactions are connected to the real world identities. Your name is a pseudonym, and the address is a combination of 30 symbols, which are not linked to your real address at all.
PERMISSIONLESS You do not need anyone permission to open up a wallet and buying cryptocurrency. Anyone can do that, and you do not need bank’s permission or credit checks etc. No gatekeepers are involved.
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Different Ty p e s O f C ryptocu rrenc y In this sense, cryptocurrency is similar to worldwide currencies. There is not just one cryptocurrency that is available. There’s over 700 of them, and with the rising demand, the new ones are constantly invented. So let’s have a look at the most popular cryptocurrency: Bitcoin It is the very first, most well-known, cryptocurrency available today. What started as Nakamoto’s experiment, turned into a huge investment for some and one of the most desired currencies to purchase. The value of Bitcoin has begun at zero, and it has grown ever since to a value of as much as €5,000. Ethereum The same way as Bitcoin is a Nakamoto's legacy, Ethereum belongs to another crypto-genius - Vitalik Buterin. While Bitcoin is used to validate a set of accounts, Ethereum can also prove so-called states. What does it mean? Ethereum can not only process transactions but also contracts and programmes. Meaning that besides Ethereum, there are other clones of the currency that create an entire Ethereum family. Bitcoin can fuel itself, and it is just a digital currency. Ethereum is more of a blockchainbased development platform.
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Litecoin It’s the second digital currency that emerged after Bitcoin. It is almost four times faster, with a larger amount of tokens and minimised algorithm. Litecoin is more expensive and more complicated to produce than Bitcoin. Hence it is not as popular. Nowadays though it’s considered as a backup option for those who are aware of the problematic Bitcoin. It is also considered as ‘silver to bitcoin’s gold’ - it is cheaper, but there is more of it in circulation. Monero This algorithm was introduced with more security in mind than Bitcoin. It added extra privacy features to the chain and was not considered as a currency at the beginning. If you use Bitcoin, every transaction is documented and can be traced back to its origins. Monero introduced a cryptonite algorithm called ring-signatures. It allowed processing transactions, without them being quickly released in the blockchain. It is one of the most anonymous cryptocurrencies available on the market.
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T h e Di sa d va nta g es o f C ryptoc u rrenc y
LOSING YOUR WALLET
Cryptocurrency has many benefits, and most of them are reflected in its transactional properties. From security, to how quickly money can be available on your account. But with so much bad press and reputation, you are probably wondering what is it that made cryptocurrency such an underdog and a favourite topic of dark web. Let’s have a look at what is not so great about cryptocurrency:
Just like in real life, you can lose your wallet with cash and credit card inside. If you forget your login details or for some reason cannot access the platform, there is not much you can do. There were not many cases in which anyone was locked out of the system entirely, but still, it could happen. And when it happens, there is nothing you can do. Even when somebody steals your credentials or personal keys, which again, is highly unlikely, you will have to accept it and live with the loss.
NOT WIDELY ACCEPTED
SUBJECT TO MARKET FLUCTUATIONS
There are not many companies or websites that accept bitcoin as a method of payment. If you want to use it a payment, you would first have to find a service provider that takes it and only then you can use it.
If you want to invest in cryptocurrency, you have to keep in mind its dynamic and changing market prices. While it can be used to buy and sell, it’s also a commodity like oil. It is best to look at it as a long-term investment, rather than a quick way of making money. So, you cannot get discouraged if the value suddenly drops and you lost quite an amount - the chances are you will recover it in the future.
IRREVERSIBLE As mentioned before, it is one of the cryptocurrency’s properties- you can never get your money back. If you send it to a wrong person or you put an extra zero, and from 1,000 it becomes 10,000, it is your problem. As harsh as it sounds, you cannot complain to anybody, not even Nakamoto could reverse the transaction for you.
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TRANSACTIONS ARE DIFFICULT TO TRACE Cryptocurrency account cannot be linked to a physical and real address, neither to your details, hence it is harder to determine. Yes, there is an algorithm and a unique signature, but you will never be able to trace it back to the real person and the account holder. Which is not an easy task considering the state-of-art security. This feature makes digital currency the perfect tool for criminal transactions and is one of the reasons for some governments to declare cryptocurrency transactions illegal in their countries.
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CHAPTER 2
C RY P TO CURRENCY T R AN S A C TI ON Step 3 - If you have an online bank account then you know that before you make a transfer or payment, you have entered a PIN code or use a digital security key. Same thing works for cryptocurrency - underneath a message, you have to include your signature. Except, the signature is not based on handwriting but a mathematical formula. The math behind a signature comes from the word ‘cryptography’ - an art of hiding. Typically used to hide secret messages, but in transferring cryptocurrencies is used to prove the signature's authenticity. Smart, right? What’s more - each user has their own, unique private key which is used to encrypt the signature!
In the world of cryptocurrency, Bitcoin is not the only one in town. There are many alternative cryptocurrencies, commonly known as altcoins. When Bitcoin was invented in 2008, it was a fresh and revolutionary financial vehicle. The goal was to replace traditional banks and take the control over money from governments and give it back to individuals. Currently, there are over 900 cryptocurrencies, and the list keeps on growing, each one of them with the intention of being Bitcoin’s improvement or offering different security layers. Regardless of what the cryptocurrency is designed for - payments, smart contracts or transferring fiat currency - there’s one common thing. They all can be transferred from one person to another or between businesses.
Step 4 All confirmed transactions from the beginning of cryptocurrency are stored in a public ledger. The ledger ensures the accurate spendable balance, and that each transaction uses only coins that already belong to the spender. Again, it is done to avoid theft and double spending.
There are variations of how each cryptocurrency confirms the transaction legitimacy and how secure, and anonymous, they are. However, there are certain steps certain steps can be applied to most: Step 1 - To be able to send money, you have to set up a wallet. The account and the idea behind it are similar to a popular online bank account. You can see your balance, choose an amount you want to transfer, enter the recipient's details and click ‘Send’. Step 2 - After you click ‘Send’, a message with your and recipient’s details will be forwarded to a particular cryptocurrency network. It prevents theft, and previously mentioned, double spending.
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HOW CRYPTOCURRENCY TRANSAC TION WORKS So who can become a ledger? Surprisingly - anyone. It goes down to the original idea behind cryptocurrency and wanting to avoid having one entity, e.g. government that can control the value of cryptocurrency.
WALLET Download a wallet to your computer or a smartphone. You can also invest in a hardware wallet.
Every time the message is sent, so-called maintainers receive it - people who all want to help with maintaining the ledger and the value of cryptocurrency. Each maintainer keeps a copy of a transaction with a message and updates it upon receiving a new transaction. Ledgers are spread all over the world, so as you can imagine, there will be different versions of the ledger accordingly to whatever balance each maintainer has. It can also be affected by a potential fraud.
ADDRESS Your public address will be automatically generated. Do not forget to keep secure your private key - depending on a wallet, it can be a lengthy word phrase or a complex password.
EXHANGE Find a trusted exchange that trades your chosen cryptocurrency and set up an account.
How can maintainers agree on what the correct ledger is? Like in every democracy, there is a voting system. In cryptocurrency world, it’s different though to a standard ballot box. Instead, maintainers try to solve a mathematical puzzle and whoever solves the problem, gets to decide the correct ledger. Math allows a democratic vote in a decentralised system, and the only way to outsmart the system would be buying more electricity and computers, thus increasing the cost. In a way, maintainers can create new money through computation; hence they can be called miners.
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PURCHASE Buy cryptocurrency from an exchange in your preferred method of payment and wait for the funds to arrive at your account. As soon as your cryptocoins arrive, they will be stored on an exchange wallet.
TRANSFER YOUR FUNDS As soon as you receive the requested amount of cryptocurrency, transfer it to your personal wallet. Never leave cryptocurrency on an exchange as you do not have an access to your private key, and you will not be able to recover it in case the exchange goes busted.
BLOCKCHAIN The record of your transaction will be kept on a public ledger. From the moment you request the transaction on the exchange until it arrives to your personal wallet.
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CHAPTER 3
H O W TO USE C RY P TO CURRENCY IN R E AL LI FE Cryptocurrency is still a relatively new subject that is finding it difficult to make it to our everyday reality. But, that does not mean that it’s going to stay like this for a while. Cryptocurrency and blockchain technology is our future, even though it might not seem like that yet. Not all cryptocurrencies are designed to be a payment method - like Bitcoin - some of them are used only as tokens to be able to program smart contracts or transfer fiat currency around the world. Cryptocurrency has almost endless variations and possibilities in how it can be used. Here are some examples of the most popular cryptocurrencies:
//: Bitcoin - everyday payment method, e.g. coffee, clothes; can replace fiat money. //: Ethereum - Ether is used as a token to program smart contracts that can replace lengthy legal paperwork, messy health records and lost land registry. //: Ripple - the XRP token is used for low-cost international fiat money transfers in less than 4 seconds. //: IOTA - the token is used for feeless and effortless machine-to-machine payments in IoT. //: Dash - it is used as digital cash. //: Monero - thanks to a new way of completing digital signature, Monero is an entirely anonymous digital currency. //: Omise Go - financial technology that can be used for transferring both fiat and virtual currencies.
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CHAPTER 4
C RY P TO CURRENCY WA L L E T & E XC H A N G E C r y p to cu r re n cy E xch an ge Regardless of how much are you planning to invest in cryptocurrency, there are two things that you need before spending your money: a wallet and exchange.
An exchange is a platform that allows you to buy and sell cryptocurrency. Different exchanges have different verification rules, so it depends on how much do you cherish your anonymity.
The former will store your crypto-coins, while the latter will allow you to purchase them. There’s a myriad of options out there, but you cannot just use the first exchange that pops up on Google. Unlike traditional brokers, cryptocurrency exchanges can be run by anyone from serious entrepreneur to coding amateurs. There’s a lot of different types of wallets and exchanges, but there’s one rule you MUST follow:
Do not keep your funds on the exchange! It does not matter how secure or well-known is the exchange - you cannot keep your funds there. There are plenty of stories I could bring here to show you how quickly an exchange can get busted or hacked. It may be one of the most famous exchanges and still get hacked. If you store your cryptocurrency on an exchange, you do not have access to your private key. Hence, you cannot claim the ownership of those crypto-coins. Only if they are securely stored in a wallet, you will know that they belong to you.
Some will ask just for your email address, while others will ask for an ID scan and facial verification. Even though cryptocurrency is all about keeping yourself as anonymous as possible, the more verification is required, the safer the exchange is. Various exchanges, e.g. Coinbase or BitPanda, will increase your buying limits accordingly to the verification level and amount of information you provide. If an exchange is based in the US or the UK, they will be obligated to ask for your ID. It is the local jurisdiction and you must comply if you want to use their services. Most exchanges sell Bitcoin, Ethereum, Dash and Litecoin in exchange for fiat currency. If you are interested in lesser-known altcoins, you will have to exchange them for one of the bigger cryptocurrencies. Cryptocurrency Rules To Follow: 1. Due Diligence When you open a new bank account, you thoroughly research the bank you will be trusting with your money. A cryptocurrency exchange is not any different - you have to do your research and perhaps be even more careful as as any rules or legislation do not bind them.
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3. Who Is The Owner The exchange should be as transparent as possible. You want to know which country is your cryptocurrency coming from, who is the owner and for how long has the exchange been established.
Apart from reading reviews, check forums for any recent complaints or issues. It is worth to Google ‘Exchange-Name Scam’ and see what comes up. If there were previous comments about an individual exchange possibly being a scam, it should appear first. That way, you will not waste your time.
In the past, cryptocurrency exchanges were created mainly in tax heavens. Nowadays, they are moving to world’s financial centres like San Francisco or London - Bitcoin entrepreneurs are just like all entrepreneurs, we like to build the best products and run the best companies, you cannot do this from the shadows.
Saying this - there will be a lot of false complaints that you will come across. Cryptocurrency market is a bit like Wild West right now, so be careful while checking different sources. The most reliable sources for any information are Reddit, GitHub or BitcoinTalk. If you come across just one complaint or the same one suspiciously repeated everywhere, then it is probably a malicious attack rather than a genuine complaint. 2. Customer Service A cryptocurrency exchange is a business - the more it cares about its customers, the more reliable it is. If you send them a quarry or open a support ticket and they do not get back to you within 24h, then you have a picture of how good is their customer service.
4. Fees Before joining, make sure you understand what the deposit, withdrawal and transfer fees are. Reliable exchanges will have them on the website underneath the ‘Help’ section. It is common that exchanges will have higher fees for credit/debit card transactions so do not let that scare you away. Bear in mind, cryptocurrency transactions are irreversible, unlike bank card transactions. Paying with a bank card will also mean stricter security measures and a full identity verification.
//:TIP A good and supportive customer service can tell you a lot about the funds’ of the exchange. The more available customer service is, the more likely it is you are dealing with a well-funded venture. Be suspicious of canned emails with references to “the wiki” or “the FAQ”. Yes, these have their place in the conversation, but the more a customer service agent talks to you like a human being, the more likely it is you are dealing with a reputable and well-funded company. Good customer service is not cheap.
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C r yptocurrenc y Wa llet Unlike traditional wallets, digital wallets do not store the currency. And it comes down to the fact that digital currencies are not stored anywhere. They do not exist in a physical form, and they do not have a location like traditional money, stored in bank vaults.
Cryptocurrency wallets are often misunderstood to be entirely anonymous, but with the current technology, there are ways of tracking it back to your real identity. Your account and the keys will not require any of your details; the address will be your pseudonym. But an advanced technology can track back your IP address.
Virtual money exists in the form of transactions’ records, which are registered on the blockchain.
//:TIP Since you want to start investing in cryptocurrency, you must know that to make cryptocurrency transactions; you need both public and private cryptographic keys. The keys are critical in providing security for your virtual money.
You can use multiple wallets at the same time! You can have a hardware wallet to store most of your funds and online wallet for smaller, everyday purchases.
The public key gives you an address (a long number combination) and is visible to all members of the peer-to-peer network. It is a number that other members will use to identify you and which you would have to provide if you want to receive a transfer from another user.
Types of cryptocurrency wallets:
The private key is what you have to keep secret at all times. The combination of both keys is required as a signature on a message that is attached to your transaction. If you lose your private key, you will also lose your money, and you will not be able to get them back! To be able to unlock a transaction, both private and public key have to match each other. It is important to remember there is not a physical exchange of coins – the balances of the wallets either increase or decrease.
Desktop These wallets are downloaded and installed on a PC or laptop in the form of an application, and they are accessible only from the desktop they have been installed on. Desktop wallets offer one of the highest security levels as you do not have to use your browser. However, if your computer gets hacked, gets a virus or the wallet file is corrupted, there is a possibility you will lose all your funds. You have to backup the wallet regularly to avoid the risk of losing the data completely. Eg. Exodus.
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Online Wallets are stored on a cloud, and they are readily accessible from any location, as long as you have an internet connection, which makes it extremely convenient. But you have to remember that a third party controls them, hence they are not entirely private. Remember, apart from your funds; you also have to store there your private key. It makes online wallets more prone to hacking attacks and theft. Eg. Copay.
Paper These wallets are perhaps the least common, especially that one of the perks of virtual currency is the lack of paper money. The paper wallet is simply a printout of your public and private keys. The printout existence of the wallet significantly decreases the security level, and you are also risking losing the paper. To be able to do transactions with a paper wallet, you still need a software wallet to transfer funds. You have to enter your public address, shown on your paper wallet, to the software wallet and funds will be automatically transferred. If you want to withdraw your money, you have to move funds from paper wallet to your software wallet.
Mobile They are installed on your mobile as an application, and you will need a good 3G connection or wi-fi to be able to access them and make transactions. They are usually a simplified version of the desktop app but have the same features. You have to be careful while using them, especially in open spaces or with the use of public wi-fi, as they make you more vulnerable to hacking attacks. Most of the time, if a wallet is available for a mobile, it also has a desktop version. Eg. Copay
//: WALLET GOLDEN RULES Do not lose your password/key/seed! These all pretty much mean the same: if you lose it, you will not be able to access your wallet, and you will lose your crypto-coins!
Hardware The difference between hardware and software wallet is the method of storing the keys. With a hardware wallet, you will have to store your keys on a particular device, e.g. a USB stick. You can still make your transactions online in the same way as you would with all the other wallets, but your funds are stored offline which increases security. They are still easy to track, and they are portable but away from an online danger. To make a transaction, you have to plug your device to a computer with internet connection, enter a pin, send currency and confirm. Eg. TREZOR, Ledger Nano S.
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Back-up - every time you make a transaction from or to your wallet, make sure you do the back-up! Without it, the balance will not be updated and saved. Install Updates - do not ignore all those annoying and persistent updatesyou need them to protect the wallet, especially from hackers!
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CHAPTER 5
D I F F E R E NCE B E T W E E N INVESTING A ND T R ADING C RY P TO CU RREN CY If you Googled ‘Invest in Cryptocurrency’, then you have probably been shown multiple ads of platforms that are related to trading, but not investing in cryptocurrency. Since you are still a rookie in the crypto-world, put trading aside - until you get more comfortable with the market and understand how it works. Knowing the difference between investing and trading cryptocurrency is crucial while trying to choose your way of making money from cryptocurrency. Because to the uninitiated, cryptocurrency might seem like a gold mine – a dream job which you can do from your own house by clicking a mouse and staring at the screen. The harsh reality, though, involves a high risk, high reward game during which a cryptocoin can dramatically drop or go up in few hours. There is a significant distinction between investing and trading Bitcoin – just like in reality – investing money differs a lot from trading them on a stock exchange.
holding to the cryptocurrency until there’s a perfect moment to sell. And that sometimes can be years from the initial investment. By contrast, Bitcoin trading is more of a short-term endeavour. Getting on the market, staying in trade for a maximum of few months and moving on as soon as the price reaches its peak. Hence, Bitcoin traders are known to be price-sensitive and abandoning the market when it becomes unprofitable. There is also a leveraged trading, resembling forex trading in fiat currency. They say that a serious trader is not a day trader. But in a case of cryptocurrency, a serious trader is a day trader, winning against the high volatility and price fluctuation.
What you choose should not only depend on your experience, but also personality.
Inv e s t i ng v s Tr a d i n g B i tcoin Investing is a long-term undertaking, which features a portfolio of different cryptocurrencies, fiat risk hedging, and business objectives. In most cases, cryptocurrency investors are indifferent to price volatility and unlikely to give up on the investment easily. Investment also means
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T h e Ri sks There are risks involved in both investment and trading - both related to the dynamic spirit of cryptocurrency. Investors can wait through the crash and have the resources to prolong the bad strike. Traders, however, are often compared to professional gamblers – they have to act quickly and know when is the right time to leave the game. Leaving Money on an Exchange Some of the exchanges come with a wallet to store Bitcoins, and it should make one’s life easier. But don’t be mislead that it is the most secure option. One of the most famous events in Bitcoin’s history is the collapse of the Japanese exchange – Mt. Gox. In Bitcoin’s early days, Gox was the largest Bitcoin exchange and the easiest way to purchase Bitcoins. The catastrophic collapse resulted in losing over 800,000 bitcoins, and customers were never able to receive their money back. Your Capital Is at Risk I doubt anyone goes into cryptocurrency investment before giving the first go with fiat money. You would never start with all of your capital – you would rather build the experience and understand the market correctly. Investing in cryptocurrency is not any different. A lot of beginners are deceived with an idea of how much they can make from the initial investment. It surely is a more dynamic environment, and rates are changing quicker than in a traditional stock exchange, but that only indicates an even higher risk.
Investing Everything In One Go At the beginning of your cryptocurrency journey, you might want to be a bit more careful. I know - the perspective of getting a huge return is tempting, but do not get carried away. The market is extremely volatile, and you do not want to start off with losing all your savings. Take it slowly, build a cryptocurrency portfolio and then decide if you want to make a big jump.
I s I t B e t te r to Inv e s t o r Tr ad e C r y p to cu r re n c y? There is no straightforward answer to this question. The choice should depend on experience, available assets, and personality. Investing in cryptocurrency can start from a minuscule amount which can keep on increasing with time and expertise. It is also a long-term undertaking, which eventually might lead to accumulating a significant sum of money. But it can ease the nerve-wracking volatility of cryptocurrency as one would enter the market prepared for a wait. Trading, on the other hand, should be reserved for those who know the cryptocurrency nature in depth and are not afraid of losing. The constant fluctuation can be an exhilarating experience for any trader, but at the same time, it can scare away those who do not know how to deal with it. It is not only the technicalities of it but also one’s character and nature. Nobody said that you cannot do both at the same time. If your budget allows you to do so, try both ways and see what works the most for you.
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CHAPTER 6
HOW TO CHOOSE CRYPTOCURRENCY TO INVEST There are hundreds of coins listed on different exchanges, and by the time you finish reading this book, there will be even more. However, not many of them gain traction, not to mention surviving the next five years. Investing in Bitcoin or Ethereum seems like an obvious choice at the beginning. They are the two of the biggest cryptocurrencies on the market, sold by popular exchanges and there’s a little risk involved. The real deal starts when we look at all altcoins. How to differentiate between a legitimate coin and a scam; how to find out if the coin is innovative or it has been created as a joke, and finally, how can you recognise the financial potential? This chapter will show you all the factors and angles you have to take into consideration when looking for a new cryptocurrency to invest. Without having a degree in programming, software development or investment banking. Bear in mind that everything discussed here must be viewed in context to the coin as a whole. All these signals should be taken as food for thought while picking an investment, rather than a set and stone rule. There are cases where some of them might mean a sound thing to the coin, e.g. a coin with a low liquidity could be a good buy. So keep all them in mind, remember what to look out for but always bring a second judgement to it - does the coin in its eternity is a good investment, with the good and the bad in it?
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Choosing Yo u r C r yptocurrenc y Cryptocurrency ranking is one of the best places to start tracking the development of all coins. The position depends on their 24h volume, liquidity, market capitalisation, developer activity and price.
You have to watch out for the so-called pump and dump schemes. They are set up by developers who buy the currency in a large quantity, drive the price up and sell as soon as the coin reaches a peak - eventually dropping the price significantly.
If you keep on tracking it on a daily basis, you will be the first one to know about a new altcoin that is climbing high, and you can follow the price fluctuation. CoinMarketCap is one of the most reliable and easiest platforms to use, featuring all 800+ cryptocurrencies. These are the things/rules you have to look at while assessing the coin’s ranking:
Coin Liquidity
24h Volume This factor indicates how much value has been traded throughout a 24h period; it is expressed in USC and BTC. Higher 24h volume reflects a more established coin with a solid base, at least one functioning exchange (where the volume comes from) and perceivedvalue by the trading community. Try to choose a coin with at least 10,000 USD trading volume - it shows that the currency has already been traded and there is a certain percentage of the network that believes in the coin. There are success stories of investors buying a coin for few cents, with an incredibly low trading volume, but these are rare incidents. Do not be misled - you have more chances of success by sticking to averages, instead of chasing miracle trades.
Most of the time, these schemes are reflected in the trading history and price graphs in steep curves. If you spot this pattern, keep tracking it every few days over a week or two period - Pump and Dump scheme does not usually last longer than few days.
The coin liquidity is measured in both the volume percentage and the BTC volume. Some coins have minimal BTC amount. Meaning, even a purchase of few hundred could move a market into your disadvantage. To avoid that, try not to use exchanges that have a low volume trades. The coin liquidity goes align with ‘Wash Trading’ which can happen with both high and low volume coins. The exchange can artificially inflate the trading volume to appear more attractive to traders who always look for a higher liquidity. If you are not familiar with the exchange history, or you opted for a lesser-known exchange, watch out for the growth of volume without a corresponding increase in price. Why do exchanges do that? If the market does not move in the direction they want it to move, they will do their best to encourage the trade in order not to lose customers and the incentive.
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If a developer is releasing a new crypto-coin, there should be a history behind that person. Nobody who is brand new to the network will join with the new coin announcement. To come up with a successful idea behind cryptocurrency, it takes time. Hence, there should be a visible activity of a particular developer.
Unfortunately, wash trade has been known to exist even at the larger exchanges and sometimes it is a sign of a deeper problem. The exchange might not be doing financially well, and the market stagnation is not helping it. If you come across an exchange like that, it is the first sign to back out.
Market Capitalisation and Current Price
If you are not a coder yourself, then it will be impossible to judge from a complicated code whether the coin is legitimate. But there are other factors to look out for:
Market Capitalisation is calculated by the number of coins available multiplied by the current market price. However, it works only with the coins that have already been mined, not the future supply.
Regularity - constant updates about the coin, new features added to the currency on a regular basis.
Developers tend to issue a lot of coins at the beginning which can reflect a higher perceived value than it is in reality. Current price is an indicator of a perceived value but not much else. The price should never be the deciding factor behind the investment. The technical and future potential are the driving factors. If you are new to investing, you might be tempted by a low price, but you should not base your decision solely on that. Market capitalisation can also represent an inflated price due. If you see a coin with low daily volume but high market capitalisation, you most likely see a manipulation of that coins price.
Original Idea - a lot of new altcoins are just a minor improvement of Bitcoin. How do you know it is a gold mine? When it brings something fresh and revolutionary to the cryptocurrency market. Activity - if the developer genuinely believes in a product, he or she will answer questions, respond to comments and will be available to help. Core Wallet - a new altcoin means that no major wallets will be able to store it; keeping the currency on an exchange is never a good option, and a legitimate developer should release an individually designed wallet.
Developers’ Activity The truth is - anyone who knows how to code can design their cryptocurrency. And that, unfortunately, comes with a lot of scams. The majority of successful, or promising, coins are announced on forums and through a public software repository such as Github.
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White Paper
Centralised vs Decentralised
A ‘White Paper’ is a document released by a developer or a core team of a particular coin that explains to the readers what the new cryptocurrency is.
The core of cryptocurrency is being decentralised and free from any third party involvement, e.g. government. Bitcoin an excellent example of such currency. The public ledger purely controls it, and nobody has a sole ownership.
It should not only include the code and the nitty-gritty technical details - it has to explain to the audience what is innovative about the coin, what are the current limitations and what are the further plans. It is an exposition of a coin’s technology and innovations. White Paper can be difficult to fake because there are enough experts in the community who would quickly realise that a coin is a scam. Think of the White Paper as an educational or a university paper. You would want to find all the information, answers to your questions, plans and references to other work. That is what you should look for in a White Paper as well. The original Bitcoin White Paper from 2008 has multiple references to scholarly works, and after reading it, there is confidence in the future of the coin. Another good thing about the White Paper is that it can be modified and changed multiple times. What’s more - the more changes, the better. It sends a clear signal that a team is always working on improving the coin and its technology.
When you look at currencies like Ripple or IOTA, they are still a cryptocurrency but with a defined property. There is a core team of developers, CEOs etc. who are managing the company and the currency. Including, its circulation and distribution. A lot of cryptocurrency experts argue that centralised cryptocurrencies are not the real ones and the investor never owns them. However, investing in centralised ICOs and altcoins usually means investing in the technology behind it and believing in its capabilities. They can still be traded just like Bitcoin and long-term they can become profitable. The risk is the same for both of them decentralised cryptocoins often become a hackers’ pray, while centralised cryptocurrencies can lead into giving an ownership of your coins to a third party. Just like researching the core developers of decentralised cryptocurrencies, it is crucial to do a background check on the team or company that has released a coin. If your primary goal is to invest in cryptocurrency and make a profit, the centralised vs decentralised dilemma shouldn’t concern you as much.
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TOTAL SUPPLY 6,000 4,500 3,000 1,500 NO. COINS 0 3 DAYS
6
9
12
15
18
21
24
27
30
33
36
39
42
45
48
51
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[INSTAMINE COIN]
Instamine v. Premine A premine cryptocurrency is where a coin is being mined is subsequent blocks for a given period by its core developer. These coins are usually mined in secret, before launching the currency publicly to public, e.g. Ripple.
The instamined coined cannot be spotted straight away - you have to look at charts to realise that a coin is a scam. With instamines, though, there is no question mark - stay away from them. Miners would do that to put those coins on an exchange as quickly as possible, but also, they also trade them outside of official channels.
The instamine follows a similar logic, but it allows the coin to be released and programmed in a way that can be mined in a large quantity in a short period.
The bottom line is - look at the ranking and chart to know if a coin is instamine and stay away if you’re suspicious. But if it’s premined - put together all of the above aspects and try to understand the reasoning behind it.
Both of them have warning signs of a coin to be a scam - instead of using the traditional cryptocurrency mining methods, they have been produced in advance. At the same time, it is one of the most sensitive signals to recognise. Often, premined coins are a part of pump and dump scheme, where a coin just released is quickly added to an exchange, excited and pumped, until the premined coins are dumped, leaving investors with empty wallets or counterfeit coins. But, if you look at currency like IOTA, which s premined, it would be a big mistake to disregard it based on that factor. It works to its advantage to be premined, so there’s no risk of any corporation or central power to hold power over coins.
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CHAPTER 7
COIN LIFECYCLE - WHEN TO BUY AND SELL The golden rule of investing is doing it in stages and spreading an investment over time. It is never a good idea to spend at the very beginning of a coin’s lifecycle or when a coin reaches its hype. It takes a lot of research and community involvement to judge when is the right time to invest in an altcoin. STAGE 1: Pre-launch - It is the time to stand back, read and research as much as possible. Do not invest yet, do your research The announcement will likely happen on forum thread, start following it and see how it evolves (the coins with the most active communities will rise to the top) Ask questions to developers Read the White Paper (remember, you do not want invest in a cryptocurrency that does not have a White Paper) and if you do not understand something, ask the core developer Find out who are the core team members - cryptocurrency creators tend to stay anonymous but some of them are Doxed (they revealed their personality) and it is even better as you will be dealing with a legitimate group of people If a developer has a pseudonym, try to research their network activity and reputation
STAGE 2: Launch - Do not invest yet, instead engage with the community. It is still not the right time for an investment The coin should be announced on the official channel of the network. and there should be a set timeline of when the coin will be released or available to mine The core team should release a wallet and mining software Stay active on the network to see the reaction after the launch and how developers respond to any questions and how they resolve potential issues Message the developer yourself; you want to stay away from developers who don’t interact with the community directly Start tracking the coin on the exchange/ ranking platform STAGE 3: First 6 Months - It is time for your first investment (10%-20%). The coin has survived the initial stage of the first half, increasing in value and reputation Look for a coin that is available in an exchange as opposed to via a private network or directly from a seller Look for a market performance - rising volume but do not focus on a highly fluctuating price Stay within the coin community and watch out for any discussions or activities that will suddenly stop (for the first six months it should be an alive, daily updated thread) The core team should release the first major update to the coin, following what has been already planned in the White Paper The currency should start moving in the promised direction
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STAGE 4: First Year - time to make your first bigger investment (50%-60%). By this time you should have interacted with the community and familiarise yourself with the management style of core developers The core team should start looking into presenting the coin to the real world and hiring graphic designers, web developers, and marketing specialists It is a good time to observe how the team is dealing with a rising popularity and pressure to improve the coin - lack of funding is one of the main reasons for a currency to fail and the team to become frustrated Look out if the core team is trying to reach a wider audience, beyond forum, e.g. Social Media, advertising etc. The transaction value should keep on increasing and so the price; if the transaction value keeps going up but not the price, it is the first sign of pump and dump scheme During this time, you should see the coin beginning to differentiate itself on the market You want to make a big chunk of your investment before the coin becomes extremely popular and well-known in the community
STAGE 6: When To Sell - there is no golden recipe or advice that anyone can give; you have to set your targets of how much are you expecting to make Set yourself a goal of how much are you expecting to make in ROI Look at the trend and the growing price - is it heading towards your goals? Sell when the coin meets your expected price to avoid a further risk Follow the news about the coin and if you see anything alarming - start thinking about selling If the coin is getting a lot of bad press or attention, it is one of the first signs to sell Do not sell if the price drops or stays on a continuous down - that is the nature of cryptocurrency, and you have to be prepared to wait for it
STAGE 5: Final Investment - time to put the last investment (10%-20%). The point is becoming more and more prevalent across the public It is easy to spot by a massive increase in price and growing media interest Most well-known exchanges will start showing an interest in the coin The price will be changing as early adopters will start investing in the coin, while some will be already selling it
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//: T I P S F O R I N V E S T I N G I N C R Y P T O C U R R E N C Y
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Keep you cryptocoins off the exchange and always store them in a secure wallet! An exchange can get busted anytime.
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Choose your exchange wisely! There are more exchanges that you can imagine. Do not fall for one that is unknown just because it trades a coin you are interested in - both an exchange and a coin may be a scam!
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A cryptocurrency must solve a problem in life! You do not want to invest in a copy of an already existing coin. Choose one that is innovative.
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Do not invest in the new cryptocurrency in its first 180 days! Remember, you are a new investor, and you do not want to fall for a scam.
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Do not diversify too quickly. Start off with one lesser-known cryptocurrency and stick to it for a while. Gain your confidence. Do not panic and don’t sell as soon as the price dips! Cryptocurrency market is extremely volatile, and you have to be prepared for constant ups and downs. Do not spend too much time trading! Becoming an investor can be a passionate endeavour but you need to be tempered and wise not to get carried away!
Do the background check on forums and within private networks, e.g. Slack or Reddit. As an investor, you want to get to know the community.
Set yourself goals and limits. It is important to decide at the beginning how much are you willing to invest and what is your estimated profit. Spend what you can afford to lose. You have to prepared that a cryptocurrency investment may come with a significant loss. Do not put more than you can afford.
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Dis c lai m er The information contained within this eBook is strictly for educational purposes. Apply ideas contained in this eBook at your own risk. Your results are likely to differ than those of the author. We do not guarantee that you will make any money using the methods and ideas in this eBook. Any examples in this eBook should not be interpreted as a promise or guarantee of earnings. Any claims made of actual earnings or examples of actual results can be verified upon request. However, your level of success in attaining similar results depends on your level of devotion, time, knowledge and skills. Since these factors differ according to individuals, we cannot guarantee your success or income level. We have made every effort to ensure the accuracy of the information in this eBook at time of publication. However, we do not guarantee that all of the information in this eBook is correct or up-to-date. Therefore, we disclaim any liability to any party for any loss, damage, or disruption caused by errors or omissions, whether such errors or omissions result from information in this eBook, negligence, or any other reason.
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Copyright © 2017 by BiteMyCoin All rights reserved. This book or any portion thereof may not be reproduced or used in any manner whatsoever without the express written permission of the publisher except for the use of brief quotations in a book review.
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References Antonopoulos, M. A. (2016). The Internet of Money. Merkle Bloom LLC. Aziz, A. (2016). How to Day Trade for a Living (...). CreateSpace Independent Publishing Platform. Diedrich, H. (2016). Ethereum: Blockchains, Digital Assets, Smart Contracts, Decentralized Autonomous Organizations. CreateSpace Independent Publishing Platform. Duncan, J. (2016). Make Money Cryptocurrency Trading: The Basics. Teamtask Direct Marketing Ltd. Eha, B. P. (2017). How Money Got Free. London, Oneworld Publications. Lema, P. (2016). Crypto Success. Investing in Cryptocurrency for long term. Tapscott, D., Tapsctott A. (2016). Blockchain Revolution (...). New York, Penguin Random House. Tideas, B. (2015). Bitcoin Trading and Investing (...). Amazon Digital Services LLC
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