This is a page dedicated to all of the regular people who are interested in crypto assets or trading them. It is for you who wonder “how to buy Bitcoins.” The goal of this article is to serve as a rough guide and to establish a bare minimum level of knowledge. Without which it would not be safe to wander out there.
After reading this article, you will have answers to the following questions:
- What, exactly, is Bitcoin?
- What are crypto assets?
- How to buy them?
- How to store them securely?
- Where to day trade?
- How to day trade?
And a select words of wisdom to keep in mind along the journey. This will be a long read, so buckle up. Get yourself a cup of coffee and we shall press on.
This article is divided into three parts.
- The basics – What Bitcoin is, why does it have value, what are other crypto assets or crypto coins.
- How to get Bitcoins or others cryptos – Jump here if you just want to know how to buy those damn things, though I suggest you read the first part to understand what you are getting yourself into.
- Words of wisdom for your future journey, overview of basics of technical analysis and fundamental analysis.
1. The basics of what Bitcoin is, what are crypto assets, and so on
We begin with the very basics, and move from there, step by step.
What do they mean when they say “Bitcoin”? What is it?
Bitcoin is at it’s heart internet program, that is concurrently run by several users. It is a just a ledger book of transactions. What the ledger keeps track of are referred to as “Bitcoins”, for which the ticker symbol, or acronym, is BTC.
The transactions in Bitcoin ledger are verified by the combined calculation power of all computers running the program. These computers are referred to as “miners”. The program is an extraordinarily complicated cryptographic calculation. In effect that means that Bitcoin transaction are final, irrevocable, and impossible to forge.
So a Bitcoin is a piece of code in the cyberspace. Which is to a large degree what your beloved dollars in your bank account are, too.
What are Bitcoins worth? Why aren’t they worthless?
Bitcoins, as any other thing in the world, gain their value from the immutable laws of supply and demand. The value of one Bitcoin is what people are willing to pay for it. At the time of writing, it is hovering around $6000. Quite a nice increase from it’s peak in 2010 at $0.39.
Bitcoin is completely electrical and it is not backed by any central authority. What people often mistake for a weakness is in fact a strength – no central governing body enables BTC’s price to be purely market driven. During times of financial crises, banks, who operate on what is known as fractional reserve banking system, don’t have enough money for people to withdraw. That is because they physically don’t have as much cash at hand as they portray to have. But your BTC’s are not held in a bank – you own, possess, and control them yourself. You are the bank.
One common question that I’ve run into is: “What? They are not backed by USD or EUR? So they aren’t real.” Which I hear as: “What? They are not backed by USD or EUR which in turn aren’t backed by anything real either? So they aren’t real.” Many people are happily unaware of the fact that USD and gold have divorced a long time ago. And to go even a level deeper, what value does gold have? Simply the amount that demand denominates it to have in squirrel pelts and barrels of apples.
It is a nice comforting illusion that we share that the money we spend is worth something instead of nothing. It is just a social contract. You can’t do anything with your money in your bank account if society takes a serious turn for the worse, no matter the number of zeroes at the end of your bank balance. Or if the bank simply says to. Actually, during times of serious financial crisis, BTC has shown itself to have more utility than several FIAT currencies (government regulated currencies). Google about the situation in Venezuela and Zimbabwe. If a State hits hard times, its currency will feel it too. And that means your savings.
One alternate way of thinking about it is that since the “money” is not backed by anything, it won’t fall even if the backing entity fails, as happens every now and then with FIAT currencies.
How many Bitcoins are there?
Same as with gold mining and gold, with Bitcoin mining more Bitcoins are discovered. However, there is a hard cap of 21 000 000 Bitcoins. After those have been mined out in 2040, there won’t be any more. Each Bitcoin is divided into 100 000 000 smaller units, referred to as “Satoshis”. Think of dollars and cents. And as the price of each BTC rises in relation to FIAT currencies, each Satoshi naturally increases in value too.
As more and more FIAT is pumped out each year, the price of a single unit of such currency goes down. So the value of your savings in your bank accounts depreciates. And the inflation is actually exponential in nature, if by each year it worsens by x percentages. Try to really think about the implications of that for a second. Do you get a salary raise of 5% each year? Didn’t think so. One way to guarantee against inflation is to buy gold or other non-inflationary assets, but it’s just tricky to spend them.
BTC is like gold in the sense that there won’t be any more of it (thus no exponential inflation that we know and love from FIAT), but with the ease of electronic payment. By its nature it is an deflationary currency. This is a huge point in favour of BTC.
In any case, if a few years ago someone would’ve said to you that there is a way of transferring wealth anywhere on the planet almost instantly, without trust in a 3rd party, and for free, or a very low cost, would you have thought that the invention has no value?
Some known problems include the slowness of the transaction when compared to a purchase of goods with FIAT and the cost of the transaction, as you have to pay a (small) fee for each time you use them. There are answers to these questions being implemented as we speak.
Btw, the name Satoshi is an homage to the creator of Bitcoin, Satoshi Nakamoto, whose real identity is not known. If you look at the url of this website, you will find another tribute to the man. We are all Satoshis when we take back the control of our finances from the central banks.
Where are they stored? Can they even be stored?
The key to understanding Bitcoin’s nature is… A key. To be more exact, two keys.
Public key and private key. One can be thought of as your address, the public key. That is the place in the eternal Bitcoin ledger which is public knowledge. Behind public key is the amount of Bitcoins.
To send from a particular public key (address), you need to have that address’s corresponding private key. Imagine it as the (only) key to that transparent box which is the store of your Bitcoins.
Technically speaking your address is derived from your public key in most wallets. This is done for security reasons. Once you spend from your wallet, that public key is revealed, however. Which is why many people say that you should not re-use addresses. But the only case in which this is a security risk is if the cryptography is broken.
One thing to keep in your mind is to never, ever, ever show your private key to anyone. Revealing your private key is the same as forfeiting the ownership of your coins. Revealing your public key is not such a big deal, really.
Whoever has access to your private key can move your Bitcoins in the ledger. And as you know by now, those transactions cannot be reversed. And all you know is where the Bitcoins are now, not who ordered them to be moved there. After all, it was your private key which enabled that transaction to take place!
So the coins exist in the blockchain, in a public address. To move them from any particular address, you need the corresponding private key.
These are both quite long strings of random numbers and letters.
What are the so called “alt coins” or “crypto assets”? All these futuristic sounding names that keep popping up such as Ethereum or NEO?
Bitcoin was a breakthrough and the entirety of its future implications remain to be seen. Some already call it a game changer in the (financial) world. However, in its current form Bitcoin is a store of value which can be moved about more easily than gold and without any 3rd party intervention. And I suppose that what drove the regular reader here is the fact that so far it has increased in price incredibly fast.
The idea of an immutable and decentralized ledger has wider range of application, however. More programmers came and either wrote their own coins from the scratch, or used Bitcoin’s code. There are certain similarities between them, key features include:
- Open ledger
This is not a definite definition. In short altcoins are “alternative coins” – alternatives to Bitcoin.
How high will the price go? How quickly?
No one really knows the answer to this. It is highly likely that the price won’t reach zero any more, since BTC has broken through to the general consciousness of society to a degree that there will always be people willing to buy it. So there’s is a floor for the price. Although if the floor is at $3000 and you bought in at $6000, it might not comfort you too much. Not to mention if the floor is at $500.
As for the ceiling, predictions range from
$10 000 0 to $300 000, $500 000, moon. Who’s to say. And the speed is a variable of adaptation, the more people buy and use BTC’s, the faster it appreciates. Take a look at the visualization here to get a grasp of how much money’s worth there is in the world, and make your own conclusion whether or not there is still room for growth for the crypto market.
For a regular guy the safest bet is to buy some, hold it somewhere secure, and forget about it. Just don’t invest more than you are willing to lose.
At this point, you could do worse than read these pieces on Bitcoin:
- Its wikipedia page, https://en.wikipedia.org/wiki/Bitcoin
- The Bitcoin Foundations manifesto pdf (its only 3 pages long, you can do it)
- Added February 5, 2018: My piece on extreme price volatility of Bitcoin, reassurance after crashes for people who look more at the market performance than the tech or ideology behind it: https://chadsatoshi.wordpress.com/2018/01/17/all-bull-runs-must-end-and-all-men-must-die/
If you drive long hours, sit on a bus every day, or just like to listen to podcasts when you work out, here are some good primers in podcast form:
- https://tim.blog/2017/06/04/nick-szabo/ Nick Szabo on the Tim Ferriss show
- https://www.forbes.com/sites/laurashin/2017/10/03/how-to-explain-cryptocurrencies-and-blockchains-to-the-average-person/ Forbes’ Laura Shin, links to the actual audio on top of the page
If you think I should address other questions in this first part, please send me an email at firstname.lastname@example.org, or comment below, and I will either add them in there or post a follow up article.
- You know know what Bitcoins are – a weird internet based program that works on cryptographic magic
- Where do they gain value – supply and demand (from guys like you)
- Where are the Bitcoins located – In the blockchain, they don’t exist physically
- What are alt coins – simply other cryptographically secured coins or assets
- Where is the price headed – only God knows, most likely not to zero and probably upwards
2. How does one go about buying Bitcoins? How about other cryptos?
Now that you have a baseline understanding of the what Bitcoins are (you didn’t skip part 1, did you?) you want to know how to actually get them.
What you need to do first is to get a wallet, or more precisely a public key with its private key pair.
Again, never reveal your private key to anyone. That is the only thing that enables you to control the Bitcoins.
You can create your wallet here: https://tools.bitcoin.com/paper-wallet/
You’ll notice that the long strings of text are accompanied by a QR code, which can be scanned with a smartphone to reduce the chance of typing the address wrong. Don’t try to be brave and type them manually, chances are that mess something up and end up losing your nerves. Remain calm at all times, it does wonders for your well-being.
One thing to know is that wallets often refer to programs that you have on your computer. They are the interface through which you communicate with the larger blockchain. You load your private keys into the wallet program and from there you can send them to other people’s public addresses.
After you 1) understand how the addresses interact, 2) understand what a wallet is, and 3) have created your wallet, you can move on to actually acquiring your bits.
NB! The following links to exchanges contain my affiliate link. That is to say that instead of the exchange or platform getting 100% of the transaction fees, they in their great generosity are willing to give me a small percentage of it for helping you find your way there. If you found this guide, or site in general, helpful, consider signing up through my links. Also, often you are also entitled to a sign up bonus. So everyone wins.
One easy way is to sign up to an exchange, wire some FIAT their way and make your purchase within the exchange. That way the exchange will actually even hold your coins. The real risk is that if the exchange goes under, is hacked or otherwise the victim of theft, you’ll lose your BTC. And on a more fundamental level, you won’t be actually in control of your BTC’s. You can withdraw them to your personal wallet at any time from the exchange’s wallet, though.
One other problem with this arrangement is the fact that you’ll be creating a direct link between your real life finances and your crypto assets by leaving a trace from your bank account to the exchange’s. Naturally you’ll be reporting your gains and paying income tax that your local authorities require you to, right? But your privacy will be compromised nonetheless.
If you are even more privacy oriented, you can make a cash purchase on www.localbitcoins.com where you meet a prospective buyer face to face. Take a break from reading this guide, visit their websites guide from here (opens to a new tab), and create your profile. Their guide does a good job at explaining the process.
Other site that works on similar principle is Paxful. You can pay with paypal.com, wire transfers or even Amazon gift cards there. Check out their site from here (opens to a new tab). Incredibly easy.
If you’d like to buy such cards with bitcoins, or other altcoins, I’d recommend https://giftoff.com/
One thing to make sure of is to enable 2-factor authentication, no matter which exchange you end up choosing. Once it’s on, your account cannot be used with just the password, it will also require authentication from your phone (or from a printed set of codes). I highly recommended that, as a safety measure. Vast majority of online Bitcoin theft can be avoided by 2-factor authentication. Actually it’s not a bad idea to open up accounts on several exchanges, play around and see what feels most comfortable for you.
If you don’t want to go the cash and face to face route, then just use one of the exchanges that accept FIAT transfers. Here’s a partial list:
- Bitstamp is one of the oldest exchanges and the first to have a license in the EU
- Catchy name, but the interface is a bit clumsy.
- Coinmama is nice and simple and offers a wide range of FIAT options.
- Coinbase is the biggest and perhaps the most trusted place to get your coins.
Personally I’d go with Coinmama.
One thing that is worth repeating here is that even though no one can really tell who is behind any particular transaction on the blockchain, if a person has linked their personal data to a particular moment on the blockchain, the anonymity is broken. Let us say that you have bought 2000 BTC with FIAT money that you wired to an exchange. At that moment a link is created. So if you value your privacy, for reasons nefarious or not, think about this. For these reasons I suggest buying with cash from www.localbitcoins.com, unless you are buying in the tens of thousands, in which case it is easier and probably safer to buy with a wire transfer. If you are rolling in money, then I suggest you use coinbase.
There are many, many other exchanges. You can find a list here https://coinmarketcap.com/currencies/volume/24-hour/
Be careful out there, some of the exchanges are not known for their quality. A friend of mine sent a payment to cex.io in June 2017 and by December 2017 still hasn’t received his bitcoins nor his money back, despite several emails and “open tickets” by the exchange. His experiences influenced the decision to finally write this guide.
To recap, you know the following:
- What a wallet is
- How to create one
- Private key security is important
- You can buy BTC either in person or through a wire transfer
3. How to invest and trade
By this point you know how to get those elusive BTC’s. But if you want to actually day trade, you need to use an exchange. Especially if you want to trade alt coins on top of BTC’s. You’ll remember that we covered alt coins briefly at the end of chapter 1.
As this portal deals in large parts with both technical analysis (TA) and fundamental analysis (FA), I won’t go into too much detail on them in this post. You can read through other posts and follow this blog to get a better understanding. I will be launching a detailed series dedicated to TA, beginning in the spring of 2018.
Price volatility on a single exchange can easily exceed the general price volatility of the crypto asset. Flash crashes are, if not common, then more common than in stocks. This high risk, high reward world can appear as threatening, dangerous and even repulsive. Alternatively it can be seen as a world rich with possibilities. With a steady hand and an educated mind, riches can be made. But there’s a flip side to every coin. There are always unintelligent people, emotional people or just plain unlucky people who tried timing the market one time too many.
What is TA? What is FA?
Technical analysis is the art of reading charts and trying to have an educated guess on the future behavior of an asset. There are two common misunderstandings here. The first one is a very profound one: Past behavior dictates future behavior. This is patently false. Nothing is certain. Which relates to number two: That any given analysis is the unflinching belief of the analyst. This, too, is false. The analysis from reading the chart is a statement of probabilities. What is more likely to happen than not, if the analysis is done correctly. It is not a statement of “this is going to happen for sure.” Keep that in mind when reading the analysis on this site too.
Fundamental analysis is getting to know the basics of any given project. The company behind it, the team, the tech, the vision etc. Fundamental analysis on crypto is a whole different ballgame from fundamental analysis in stock markets. Whereas technical analysis is more or less the same. Fundamental analysis is critical in order for you to invest in solid projects and avoiding scams and what are affectionately known as “shitcoins”. So get to know the projects before you invest in them. Take your time, do your research. You can’t apply the same metrics you would apply to a publicly traded company, so don’t even try.
One acronym you will run into is FOMO, which stands for “Fear Of Missing Out”. A knee-jerk reaction when you see a price spiking, causing you to shell your money into it… Only for it to dip back, usually to Fibonacci retracement levels. Followed by immediate regret on your part. This feeling will be a constant companion for you, if you do not keep your head calm.
Here are some other exchanges that are easy to use and comfortable to trade in, barring etherdelta:
- Binance is an extraordinarily smooth exchange and you never ever hear bad words from them. They are cheap and reliable, have a good selection of assets. it’s the place to trade and my personal choice. I urge you to sign up there and conduct your trading there.
- Bittrex is situated in the US, for all my freedom lovin’ readers might find it more approachable.
- Bitfinex is at the center of a very large number of questions relating to Tether. Don’t leave your cryptos on this exchange for any extended period of time.
- Etherdelta is a playground for cryptonaires. You can take a look, but don’t start trading there before you know what’s what.
You can also use the exchanges that accept FIAT transfers listed in chapter 2. However, with the wild fluctuations, opportunities for arbitrage present themselves from time to time. It is better to sign up to, and get to know the exchanges before you need to act as fast you can. Sometimes it really is a matter of seconds. So take a moment and sign up to those listed above, it is free of charge.
Words of caution!
There’s a verb “Poloniex’d” that refers to money being withdrawn from exchange called Poloniex vanishing into thin air. Google it. You have been warned. Though personally I have never had bad experiences with them.
Crypto trading isn’t as regulated as stock trading is, so there are methods of influencing the market which are banned in stock market exchanges. Also, beware of malicious websites that try to steal your login information. Never click links that google ads give you. Never click links that people you don’t personally know send you online. And always, always enable two-factor authentication!
- TA is applicable to crypto
- FA as such is not
- Vast majority of exchanges are safe and nice, but you should stick to the better known ones
- Keep your head calm and don’t believe everything you read online
That sums up our quick and dirty beginner’s guide. Godspeed and happy trading!
Consider returning to this portal for our free analysis and thoughts. The thing is that most of the analysis is on the spot, and require fast moves on the investors part. Maybe take the ultimate leap and bookmark us.
If you found this article helpful, do not hesitate to share it with your friends who are interested in Bitcoin. I tried to keep a level head while writing this, outlining the very real risks as well as potential rewards.
Lastly, I will include a small selection of websites that you can start reading and following that I have found to be helpful.
- https://coinmarketcap.com/ – To follow the market at a glance
- https://www.livecoinwatch.com/ – Same as above, but with automatic price refreshes
- https://www.cryptocompare.com/ – To get more detailed information on a particular coin
- https://www.tradingview.com/ – Best place for technical analysis
- https://cryptopanic.com/ – A news aggregator
If you are interested in ICO’s, I’d recommend you to follow these sites:
I have included here a very thorough list of technical reading. Copied straight from Nick Szabo’s blog post here. The reading list is highly technical. I consider number 4 mandatory reading for everyone interested in keeping up with their times. For simplicity’s sake here is the complete list:
- Sybil attacks: “The Sybil Attack” by John R. Douceur [PDF]
- Intrapolynomial cryptography: “Intrapolynomial Cryptography” by Nick Szabo
- Timestamping: “Improving Time Stamping Schemes: A Distributed Point of View” by A. Bonnecaze, P. Liardet, A. Gabillon, and K. Blibech [PDF]
- Bitcoin white paper: “Bitcoin: A Peer-to-Peer Electronic Cash System” by Satoshi Nakamoto
- Nakamoto consensus as anon & probabilistic Byzantine consensus: “Anonymous Byzantine Consensus from Moderately-Hard Puzzles: A Model for Bitcoin” by Andrew Miller and Joseph J. LaViola, Jr [PDF]
- State machine replication: “Implementing Fault-tolerant Services using the State Machine Approach: A Tutorial” by Fred B. Schneider [PS] [PDF]
- Ethereum: “Ethereum White Paper: A Next Generation Smart Contract & Decentralized Application Platform” by Vitalik Buterin [PDF]
- Asset registries: “Secure Property Titles with Owner Authority” by Nick Szabo