Answers to all your crypto questions.
What is Bitcoin?
The short answer: investment opportunity and/or a financial revolution. Bitcoin is a decentralized, encrypted, global payment network. It is deflationary and very secure, which is why millions of people and businesses are adopting this new technology daily. The value of your crypto currencies goes up as demand increases. Now you are your own bank.
Are there more than one cryptocurrency?
With the discovery of 'blockchain' technology, developers started creating new use cases: faster, cheaper, more robust, more decentralized, more functions even! So each new coin tries to fulfill a niche in the market and learns from the successes and failures of the previous technologies to create something unique. Some cryptos are just clones of others with small differences, others aim to apply the blockchain technology to a brand new industry and create a self-sustaining ecosystem, and then there are also pure scams. This is the unregulated wild-west out there, be careful! Ideally stick to the well-known ones, and thoroughly research any other currencies/tokens/ICOs you would like to invest in.
How do I get cryptocurrencies?
There are a couple of ways to get the cryptocoin of your choice. The easiest is probably to ask someone to send you some directly, maybe a friend or a client as payment for a good or service, this will arrive in your wallet directly. Alternatively you could purchase bitcoin or another alternative currency at an exchange, or meet someone locally to exchange in person.
Can I start my own cryptocurrency?
Yes, a lot of the technology is open-source, meaning you can freely use the code to make something brand new. An initial coin offering (ICO), like an IPO for a company. There are now hundreds going into the thousands of new currencies in the market. They usually start low (pennies sometimes) because it's risky, and initial investors reap big profits if the new concept catches on. Usually a hold strategy, meaning keep for a couple of months/years till they 'moon'. So it's almost a new way to launch a company, get investment from everyday people (launch your token), and as more people buy into your idea/values/vision your token price goes up and you are able to do more business. Kind of a Kickstarter for the new age. New ICOs are coming out everyday and people are democratically choosing the causes they support by contributing from the cryptocurrency capital pool.
Are cryptocurrencies a scam?
There are definitely some scams out there as this is largely an unregulated space. So be careful when investing in something brand new or that sounds to good to be true. Some of the bigger cryptos have now been around for almost a decade and are performing well in the real world. There is a lot of regular FUD (fear, uncertainty, doubt) that circulates about this brand new industry which spooks some new comers to the space. Here is a list of obituaries for all the times Bitcoin was pronounced dead.
Exchanges / Wallets
What is an exchange?
An Exchange is where you can buy and sell your crypto currencies on the global market. There are several thousand exchanges now and while the price differences do allow for a little arbitrage sometimes it is really just about the UI or the tools you like. There are a lot of very reliable exchanges on the internet where you can also trade your fiat currency of choice for the cryptocoin of your choice.
What is a wallet?
A wallet is where you can store your digital tokens. They can be software wallets for your phone such as Jaxx or Coinomi and desktop wallets such as Electrum or Exodus. They can be physical such as Trezor or Ledger, and you can even print your tokens to a paper wallet, or host them on the cloud with a service such as MyEtherWallet or FreeWallet.
Can I store my cryptocurrency?
So a physical wallet or an exchange? Both ideally. You will principally use the exchanges to trade currencies. Having an offline wallet on an old phone (Jaxx is a good multi currency wallet) for example is not a bad idea, especially if you plan on big holdings, exchanges can be hacked, you can lose all your coin. If you're hodling really long, you might even want to put them offline in a Trezor or Nano S wallet. For small holdings an exchange or other hot wallet is fine. And get on a couple of exchanges if you can, just in case… Also keep your keys in a safe place - they allow you to reclaim your wallet if lost.
This is what an Etheruem wallet address looks like: 0x99b59a1c9d68efc4233d1cc7e2fa7b0b6dd6f975
Prices / TRading
Why is cryptocurrency trading so volatile?
It has a lot to do with human psychology, so whenever there's bad news or negative publicity (China banning ICOs) people sell (price drops, people are trained to buy), and when there's good news or media attention like Paris Hilton launching her coin, (price goes up, good time to sell if you need to). Bitcoin's price resilience comes from its increasing popularity as a legitimate alternative to the failed Fiat money systems that come from Government acceptance, and regulation.
Do all cryptocurrencies fluctuate in price?
Bitcoin is the standard, the others are being adopted slowly, Ethereum is a front runner, then Litecoin, Ripple, Dash etc. Think of them as Bluechips. As more individuals, businesses, governments and robots (IOTA) use them - their price will go up. With all the geopolitical volatility the price will eventually rise as people will move their investments to purchase coins. The coins also do something specific, so Ethereum has smart contracts, Monero is totally anonymous etc. Do some research to see what makes the technologies different. Evidence so far suggests that Bitcoin is the gateway and then funds slowly funnel down to the other currencies in a democratic fashion.
Is this a good time to buy XYZ currency?
Depending on your time horizon yes probably. Almost all cryptos have a tendency to increase in price as their new technology gains acceptance. Hodling is a common strategy. Do a little research, sometimes a particular currency will have the the impulse and you might end up buying at the highest price and sitting on it for a while. Here is a list of the top currencies, stick with the main ones till you get a handle on what's going on.
Can I buy ETH when it drops to $100 or BTC when it gets to $500?
Both unlikely scenarios. Nonetheless, you can place limit orders to buy Ethereum and Bitcoin at $100 and $500 respectively. This way you won't have to wait for anyone to tell you when that happens, and you'll end up buying at those prices automatically. Some people saying prices might drop significantly in a week or 2, so ETH might drop to $200, maybe slightly lower, don't see $100 unless something really really major happens. BTC might drop to $2k levels by the same notion. All of them (much like stocks and everything else in life lol) have a propensity to get more expensive. Market crashes will do what you describe (e.g. ETH $100 levels, upto a 90% drop in price), and then the idea for 'limit orders' is a great one, cuz you'll actually get the price you want if it ever happens (i.e. have the setup in place). Your money is unusable (held with them) until you cancel the order or it is fulfilled though. If it were to crash it would be a good time to buy as everyone would be looking to get their money out and the market will likely rebound in the future, be prepared to hold for a little while (2 months - 2 years) for that to happen.
Do I need to know how to read charts?
Not necessarily. They can be extremely helpful in figuring out what's going on while everyone else is just freaking out. It you want to actually know what you're doing - it's probably a good idea to start getting familiar with them. There are only a handful of patterns you need to train your eye to see, check out our chart patterns cheat sheet.
What is a fork?
A fork happens when a large segment of the developers / miners agree on a proposed update, if there are disagreements, the chain splits. The main results are a price hike before the 'mutation', and a certain uncertainty as to which is still the original. Forks are usually announced in advance, and also get cancelled and moved around all the time - Segwit2x is the best example of that for bitcoin. People who hold coins at the time of the fork, are given an equal amount of the new forked coins. Soft-forks are temporary, to fix a hack/glitch. Hard-forks permanent, new clone of original currency created with 'advanced' features. The internet is very ambivalent about forks as some feel it weakens the currency, others say it's part of the evolution of this space. No spoons or knives yet.
What is mining in the context of bitcoins and crypto? Does mining Bitcoin increase the supply of Bitcoin?
The mining part is what compensates people for maintaining the overall ledger and computing the next block of transactions that will be added to the ledger (the chain), and so mining does increase the supply. There is usually a limited overall supply of all coin - like physical gold was is the rationale - so there are 21 million bitcoin, divisible to the 6th decimal in the total supply for example.
Can I just buy some NVIDIA cards and processors and make a few dollars every month just "mining coins"?
Mining is an alternate way to get into crypto, hardware and electricity intensive but necessary to keep the whole process moving forward. Miners returns are diminishing as the algorithms are getting more difficult, and the payout rate is halving every X bitcoin. Eventually once all coins are made they will just get transaction fees and no new coin. Competition is already steep and bigger/faster operations are coming up daily, some nations (Russia, China, Japan, Venezuela etc.) are setting up their own national mining facilities and subsidizing electric costs. There are now cloud mining operations too - you pay to lease their equipment for X years.
Investing / Using
What are some good investing principles for first time savers?
Hold some, trade some.
Keep increasing holdings regularly.
Buy low, sell high (90% of the population does not do that, only 10% of people make money).
Overcome FOMO - fear of missing out.
FUD = Fear, uncertainty, doubt (Shows up a lot in crypto - usually a buying opportunity is close).
Don’t sell your dog to get into this - should be part of a bigger plan.
Please keep in mind that these are all opinions - it is your money.
Google and youtube are your friends :)
Research research research - do your due diligence
So I have some bitcoin, now what?
Lots! Just to cover the regular things.
What are some tax implications?
According to Forbes:
“The IRS treats cryptocurrencies as personal property, not currency. Therefore, buying and selling cryptocurrencies is the same as buying and selling gold or stock. So, the traditional rules apply: (1) is it a business asset; or (2) a passive investment? If it’s not a business asset, then: (1) what did you buy it for; (2) how much did you sell it for; and (3) how long did you own it? Let’s assume for this article you’re not using your cryptocurrency for business purposes and you’ve bought cryptocurrency on a lark at a very low price. And now you’re potentially facing a large gain if you sell those coins. Given the taxes crypto investors may be subject to (currently, 39.6% for short term holdings, 20% for long term holdings, plus the 3.8% NIIT), and the IRS’s recent efforts to enforce tax payments on cryptocurrency gains, perhaps crypto-traders can look to traditional methods of tax planning for inspiration for solutions."
Here's an article from Coinbase on the topic.
And here is an article from the IRS.
Did we miss something?
Please shoot us an email at firstname.lastname@example.org. We'll give you a great reply, and add it to this list as well, maybe even do a full article about it for our blog - with a shout out to you!