It would be hard not to have noticed all the attention that has been garnered around bitcoin throughout the last few months. And even if you don’t have much idea about what a cryptocurrency is or how a blockchain works, one thing you would have heard over and over again, is how the surging prices have been making people a LOT of money – and very quickly.
And of course, everyone wants a piece of the action.
Is it just a matter of buying some Bitcoin and waiting long enough to sell it later at a profit? If the price keeps rising as it has recently, then everything will be fine. Of course, the price could stop rising and you could end up losing money, so there’s an inherent risk – and a big one too. For those wanting to make money, as always, exercise the greatest caution before handing over any of your hard earned cash.
In order to get started, it’s a good idea to first understand some of the
jargon terminology used.
Altcoin is a cryptocurrency other than Bitcoin. As the first out of the block, Bitcoin is by far the biggest cryptocurrency, but hundreds of other coins exist. Some of the biggest altcoins include Ethereum (ETH) , Ripple (XRP), Litecoin (LTC) and Monero (XMR).
Bitcoin is the original and most popular cryptocurrency created in 2009. All transactions are conducted directly between individuals with no involvement by any central bank.
All transactions that occur in a network are recorded on a digital file known as the blockchain. This the key technology that allows cryptocurrencies to operate. The blockchain is available for anyone to view but is sealed using cryptography to prevent anyone tampering with it.
Cryptocurrency is the broad name for all digital currencies that use blockchain technology to work on a peer-to-peer basis. Bitcoin and all altcoins are cryptocurrencies.
Although the transfer of cryptocurrency between individuals is free and decentralised, the transfer of fiat (ie ‘real’ money) to cryptocurrency and back again generally requires the operation of third party exchanges. There are many exchanges that operate that charge varying fees and offer different services. The largest (and most beginner friendly in our opinion) exchange is Coinbase, who offer $10 worth of free BTC when you sign up and purchase (or sell) your first $100.
Acronym for Fear of Missing Out. This is the phenomenon that kicks in when there’s a sudden spike in price for Bitcoin or another currency. As people see the price rise they get on board and buy more themselves further pumping the price. FOMO is generally regarded as a poor reason to buy in the short term.
Fear. Uncertainty. Doubt. This describes the practice of commenting negatively about the prospects of either a particular coin or the entire cryptocurrency space (or indeed any business or industry). FUD is often considered a deliberate strategy to negatively influence the market price of a competitor.
Hodl means to hold onto your cryptocurrency for the long term, rather than to profit from short-term trades. The term “hodl” originated as a mis-spelling of the word “holding” in a Bitcoin discussion thread in 2013. Amusingly, the misspelled word caught on to become the common term for a holding strategy.
Mining is the process whereby transactions are verified and added to the blockchain. The process typically takes large amounts of computer (and electrical) power and involves solving a difficult computational puzzle. Miners are typically rewarded for their effort with coins.
When the price takes off, this is where it’s headed, apparently.
A wallet is where you hold your cryptocurrency. It’s essentially a collection of private keys but can also refer to client software used to manage those keys and to make transactions.
Are You Trading or Hodling?
Many people are investing in cryptos with a medium to long term strategy.
If you had spent $100 on BTC in 2011, then you would have seen the value of that $100 rise to well over $1 million today.
An investment of $100 in BTC in january 2017, would have seen the value of your investment grow to in excess of $1500 by the end of the year.
The price history of BTC however, shows periods when the price has dropped significantly. After a high price in November 2013, it took until March 2017 before the currency had returned to its previous high level. Those who stuck fat through those years are now raking the benefits.
That is what hodling is about. If you believe that your particular crypto has a long term future then hodl!
The incredible volatility of all the cryptos has opened up opportunities for savvy traders who are able to “buy low” and “sell high”.
Although similar in many ways to Forex or Share trading, there are also significant peculiarities that new traders are best to acquaint themselves with before going all in.
Keeping Your Coins Safe
Once you’ve bought your coins and watched as your fortune grows, you’ll want to make sure that your investment is kept safe.
So just like you might keep your cash out of plain sight or put your valuables in a safety deposit box, if you have a significant amount of money invested, you should lock it up and there are a number of ways to do that. You can create a wallet on your desktop or mobile device or store your coins even more securely in an offline device. You can buy specialised crypto wallets from Amazon for about $79 through to $200. This seems like a worthy investment if you’re holding a lot of value in your coins.
In all cases you will be given an address and a password.
Do NOT lose your password. It will be long and difficult to remember and if you lose it you will not be able to recover it as this Australian man discovered after throwing out his old computer
We’ll be writing soon about all the different ways of setting up a wallet and the hardware you can invest in to make sure your coins stay with you, so please come back and visit soon.
Over at Crypto Nite Life, they’ve written a pretty good write up on how to get started. We recommend you read it.
If you want to get trading (or simply purchase), we recommend the following reputable exchanges: