Cryptocurrency for Beginners: Part 2

byGotBackupGuy

492 followers

Updated 7 years ago

If you missed Part 1 check it out first. In this blog I will address two main questions: 1) Why are there so many cryptocurrencies? and 2) How can I buy and sell cryptocurrencies? (and why would I want to?)

What are "alt coins?"

Bitcoin got started in 2009, and it was the first of its kind. If people have heard of only one cryptocurrency (a currency backed by cryptography), then it is Bitcoin. A small percentage of people have also heard of other cryptocurrencies, such as Ethereum, Litecoin, and Dash. These are sometimes called "alt coins," and there are hundreds of them.

These "alt coins" started with the Bitcoin software as a model, and changed it in ways they thought were better. Why would they change from Bitcoin? Some will say that Bitcoin is the Model T Ford of cryptocurrencies--it works, it started a revolution, but it is old and slow (others will say that Bitcoin is the only digital currency that matters!). Some created their own coin for a specific, narrow focus, such as Pot Coin which (you guessed it!) is specifically for transactions within the marijuana industry.

It can be dizzying to try to understand so many coins, so why would you even care? Well, if you go to Coin Market Cap you will see just why people care--the cryptocurrency trading markets are extremely volatile and every day there are crazy gains (often >100%) (and crazy losses also). If you had invested $1,000 in Bitcoin at the beginning of the year you could have bought 1 bitcoin, now worth $6,500 (we won't even talk about if you had invested $1,000 back in 2009!).

Let me be clear: buying and selling cryptocurrencies is highly speculative! I am confident that most of the thousands of coins that are created will prove to be worthless. This period of time is being likened to the .com boom of the late 1990's, and some are predicting a similar crash. However, let me also make the point that blockchain technology will change the world as much as (maybe even more) than the internet. Do you remember those pre-internet days? I'm not just talking pre-Facebook or BG (Before Google), but pre-email and www. In those early, early days the internet made little to no sense to people (and most had simply never heard of it). Early uses of the internet were extremely clunky. Early companies that created internet-related products mostly failed in the long term. But from all that early confusion and mess great companies and life-changing technologies emerged, and fortunes were made along the way! I got into cryptocurrencies on the premise that this is a big wave, so I'm going to try to catch it.

Getting Started in Cryptocurrency Trading

1. Do not invest more than you can afford to lose. Do NOT sell your house or take a loan to buy cryptocurrencies!
   
2. Decide if you are buying for the purpose of trading, or if you want to hold for the long term (HODL! or "Hold On for Dear Life!" is a common exclamation seen on message boards)
3. If you are in the U.S. the most common way to get into digital currencies is by buying Bitcoin (BTC) or Ethereum (ETH) through Coin Base. This requires linking your bank account so you can move between $USD and BTC.
4. Once you have BTC or ETH on Coinbase your next step depends on whether you are just holding it for the long-term, or if you want to try trading amongst other cryptocurrencies.
1. If holding long term you should move your digital money off of Coinbase and into a private wallet so you have complete control. I recommend a hardware wallet, such as Trezor or Ledger (I can provide more details if you are interested).
1. If trading, you have to move your BTC or ETH from Coinbase to an exchange. There are many to choose from, and they do not all allow access to the same alt coins. My favorites are Poloniex and Bittrex.
5. Recognize that a 5-point bullet list is NOT trading advice and is far too little to really get you started! If you are already familiar with trading stocks, then the exchanges will not seem foreign, but if you are used to just putting your money in a bank or even a mutual fund then this will be quite confusing.
   
1. If you are feeling lost about blockchain technology and cryptocurrencies, Dash has short videos called DASH School that are very helpful.
6. Try it out, and ask questions! If you start with a small amount of money (whatever that means for you), you can start playing in the cryptocurrency space. You will learn by doing, and of course you will run into questions. I am happy to respond!
7. Lastly, think about your goals so you can develop an appropriate strategy. Maybe you want 1% of your investment portfolio in cryptocurrencies, or maybe you like aggressive investing and decide on 10-20%. Either way, what will your crypto investments lose 50% of their value? What will you do if they double in value? How much time do you want to spend trading?

Folks, this is a very deep, deep hole and I have simply shone a flashlight in to the top of it. If you decide to go exploring be sure to pack a lunch--you might be gone a long time!