With its obscure beginnings in January 2009, Bitcoins were more of a novelty than a revolutionary form of currency. Gavin Anderson paid $50 for 10,000 bitcoins and a farmer in Massachusetts, David Forster, paid 10,000 bitcoins for two pizzas from Papa John’s.
From less than $1 in 2009 to $3,476 in 2017, Bitcoins have indeed transformed the currency revolution, including the lives of women in far off Afghanistan. Be it day trading in bitcoin or investing in bitcoin for the long term; investing in cryptocurrencies isn’t the same as investing in stock markets. Cryptocurrencies are built on a technology stack, which makes them decentralized and anonymous. Once you have acquainted yourself with the words “Blockchain” and “Bitcoin”, here is how you can navigate through the cryptocurrency markets.
1. Identify the cryptocurrency and its relevant exchange
Cryptocurrencies are traded in their own exchanges, just like NASDAQ and the BSE Sensex. Not every exchange offers every cryptocurrency. Stick to the larger such as GDAX, Kraken, Bitfinex and Gemini for trading cryptocurrencies in large volume. You can trade cryptocurrencies in USD via bank transfers and credit cards on these exchanges.
Exchanges vary according to fees and user interfaces. Coinbase, a popular exchange for new investors offers a better UI but levies higher fees.
Then there are exchanges such as Poloniex, which offer over 80 crypto coins, but funding your account is possible only by Bitcoin or other cryptocurrencies.
2. Register yourself on the exchange
Registration on these exchanges is a long drawn process, as trades done over Blockchain cannot be cancelled. Personal documents such as driver’s licence and passport number are required in order to verify details and the account will be opened in 1-3 days’ time.
Large volume trades have fee waivers and discounts. Purchased tokens will be held in the exchange for you. That is when you need to transfer them into “cold storage” if you aren’t a day trader.
3. Wallet or “Cold Storage” solution
Purchased cryptocurrencies are not “safe” in the exchange unless they have been transferred to cold storage. Remember, cryptocurrencies are programmable.
Every time a quantity of cryptocurrency is purchased, the quantity is linked to a public key, or digital code indicating the amount.
There is also a private key tied to the public key, which indicates the ownership. If the private key were to be obtained by a hacker, that person can steal your cryptocurrency.
When you transfer your cryptocurrency into cold storage, you are not transferring the coins as much as transferring the private key, a unique digital code known only to you. This private key acts as your ledger and allows you to transfer coins that you own via the public key.
4. Find the right type of wallet or cold storage solution
There are several types of wallets and the most popular ones are: –
· Hardware – USB devices that can access the blockchain. Ledger Nano S is the most acclaimed in this league
· Desktop – An installed application that will access the blockchain. Exodus, Jaxx and Parity
· Web based – Cloud based solutions that you can access from anywhere. Ironically, private keys are saved on a central server and hence may run the risk of theft. MyEtherWallet is popular in this league.
5. Create and confirm a smart contract in the wallet
When transacting with cryptocurrencies, paste your wallet’s public key into the exchange website and send. If it is the reverse, paste the exchange’s public key into the wallet’s transaction contract and confirm.
On mobile wallet apps, it is possible to scan a QR code as well. Each transaction from the wallet will incur a fraction of the cryptocurrency.
This transaction cost deters high volumes of malicious contracts and provides an incentive for miners to confirm transactions in a block in the blockchain.
6. Right Time to Invest in Bitcoins
As with any market, nothing is for sure. Throughout its history, Bitcoin has generally increased in value at a very fast pace, followed by a slow, steady downfall until it stabilizes. Use tools like Bitcoin Wisdom or Cryptowatch to analyze charts and understand Bitcoin’s price history.
Bitcoin is global and not affected by any single country’s financial situation or stability. For example, speculation about the Chinese Yuan devaluating has, in the past, caused more demand from China, which also pulled up the exchange rate on U.S. and Europe based exchanges.
Global chaos is generally seen as beneficial to Bitcoin’s price since Bitcoin is apolitical and sits outside the control or influence of any specific government.
Bitcoins are always an excellent option for investment, regardless of the price and given the developments in technology and the global recession that has racked the world deep in debt, cryptocurrencies show the way forward.
Keep in mind these pointers the next time that you’re planning to invest in a cryptocurrency or wish to begin trading in them.