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7 Steps to Experiment in Bitcoin and Cryptocurrency

Dabbling in Bitcoin and Cryptocurrency

Bitcoin, a decentralized electronic currency that can be “mined” with high-spec computer hardware, has already made plenty of people incredibly rich.

There are countless examples online of people who got into Bitcoin early, and have effortlessly amassed significant fortunes. One particularly endearing story is one of a Norwegian man who spent less than $27 on the digital currency in 2009. He then forgot about the investment, only to find his coins worth nearly $1 Million just a few years later.

Those are now worth somewhere in the region of $20 Million.

With such eye-watering profits on the table, it’s little wonder that more and more people are becoming aware of Bitcoin and cryptocurrency. Nor is it surprising that there are now over 900 alternative cryptocurrencies (alt coins) one can invest in and trade.

 

What is bitcoin and cryptocurrency?

Dabbling in Bitcoin and Cryptocurrency

Explaining them in non-techie terms could be tricky. But in essence, Bitcoin and cryptocurrency use a technology called blockchain.

This spreads responsibility for mining the currency and processing transactions across thousands of computers, where people hold and mine Bitcoin. This means transactions can be anonymous, and don’t depend on a traditional bank.

Bitcoin itself was invented in 2008. It’s now possible to spend it on some retailers, large and small. Recently, some developers have even started accepting Bitcoin for properties.

Other currencies out there have various purposes (or “use cases”). Ripple (XRP) for example, is intended to disrupt international money transfers. It makes it possible to move money internationally in seconds rather than days.

Golem (GNT) is connected to a company that wishes to harness unused computer processing power to build globally distributed supercomputers. Many of these businesses are in very early stages of development.

Some people liken the current crypto boom to the early days of the Internet. They think that the Ripples and Golems of today may turn out to be the Facebooks and Googles of tomorrow. It’s possible this may be the case, but with hundreds of “coins” out there, it’s just as likely someone will find themselves investing in an Altavista or a GeoCities!

 

Why NOT Invest in Crypto?

Bitcoin and cryptocurrency investment is highly speculative and risky. Industry “experts” are polarised on its future. Famous programmer John McAfee thinks each Bitcoin may one day be worth $500,000, while JPMorgan CEO Jamie Dimon recently described it as a “fraud” that will “blow up.”

This difference of opinion alone explains why nobody should invest in Bitcoin or other cryptocurrency UNLESS they truly believe in it and are prepared to risk money based on that belief.

While many crypto fans think that Dimon’s statement on Bitcoin was in response to the fact he sees it as a threat to “old school” finance, that doesn’t mean untold riches are guaranteed to anyone willing to throw some money into cryptocurrency trading.

Short term volatility is also ever-present, making nerves of steel and a strong stomach essential for any potential investor. Individual coin values can rise and fall by 50 percent or more in a 24-hour period. Furthermore, as crypto is traded globally on largely unregulated exchanges. It’s possible to wake up to a significant fall in value.

Global events also have a huge impact. At the time of writing, Chinese authorities are in the process of forcing cryptocurrency exchanges to close. This essentially means a ban on trading in China. This has had a significant impact on the value of Bitcoin and other currencies. Any other country could do something like this at any time.

 Dabbling in Bitcoin and Cryptocurrency

 

The Flip Side

The obvious flipside to this is that people can and do make a LOT of money from crypto – either by getting involved in mining it (something beyond the scope of this article), holding long-term investments in companies they believe in, or day-trading.

Essentially, it’s all about doing (tons) of research, choosing coins you think have a future, and deciding a trading strategy.

It’s also about understanding this is a risky and speculative game. So never gamble more than you can afford to lose.

 

Steps to Getting Started

If, despite these extensive warnings, you think you’d like to give Bitcoin and cryptocurrency investment a go, here are some steps to get started:

 

1.) Research extensively.

If you’ve not got the time or inclination to do some in depth research about crypto in general, and the specific coins, DON’T get involved. You’d do as well to head to the nearest casino and make for the roulette wheel.

This introductory guide to how Bitcoin works is a good starting point. After that you’ll find huge numbers of Reddit threads, Facebook groups, and specialist websites where you can read up.

It’s important to maintain a sceptical attitude to anything you read. As there are plenty of people trying to hype currencies with NO future, there are also many folks keen to scam amateur investors.

 

2.) Choose your coins.

Before investing any money, try to drill down to a few coins that interest you. Read everything you can about them. Then, watch them closely for several weeks to spot their patterns. See how you’d do if you did invest money. This will give you a feel for the market.

 

3.) Work out how to get money in.

Most alt coins are traded in Bitcoin, so the first stage is to buy some. Sites like Coinbase and BitPanda allow you to convert traditional (fiat) currency to Bitcoin via bank transfer or card payment. You’ll want to watch the market and time your purchase so you don’t buy in too high.

Once you have your Bitcoin and cryptocurrency, you can transfer it to an exchange, such as Bittrex or Kraken. This is where you can then trade it for other alt coins. This part is the stock market-style “buy low, sell high”.

 

4.) Decide your strategy.

Dabbling in Bitcoin and Cryptocurrency

It’s best to determine your strategy in advance and know how much profit – and loss – is enough, or too much.

On the exchanges, you can set buy orders and “stop losses” to semi-automate your trading. This will ensure you don’t wake up to financial ruin. If you’ve not done this kind of trading before, be aware that there’s a LOT to learn.

A clearly-defined strategy will help you avoid impulsive moves. If you think you may have a tendency towards it, this kind of investment may NOT be a good move for you!

 

5.) Continue your ongoing research.

Research doesn’t end once you’ve bought your coins. You need to keep a constant eye on the companies you’re invested in, financial markets in general, and any global moves for and against cryptocurrency.

As already stated, if you’re not willing to put the time into research, this isn’t the right game to play.

 

6.) Trade and store.

If you’re planning to buy coins to hold for the long-term, you’ll want to store them offline. Look at offline or hardware wallets, such as Ledger Nano S.

You can keep your coins in online wallets, or even on an exchange. This isn’t something to do long-term, or with large amounts, as it’s extremely risky.

As people in China will be finding out at the time of writing, this approach can suddenly land you with a BIG problem if the government decides to turn off cryptocurrency.

 

7.) Work out how to get money out.

Presumably at some point, you’ll want to pull your money (hopefully including your profits) out. For this you need to use a company like Coinbase. They will buy your Bitcoin back (subject to fees). You can also look at crypto debit cards such as CryptoPay, where you can transfer Bitcoin direct and then spend it in Dollars, Pounds or Euros.

There are various ways to take your money back “out” of the system, but you’ll want to have them in place and tested in advance.

 

 

There’s obviously more that could be said about trading Bitcoin and cryptocurrency. It’s risky fun for many, and it is clear that more people will get rich over the coming years. However, some will fail to do their research and regret ever getting involved.

I’ve written a little about my own cryptocurrency trading, including details on some of my chosen coins. If you have a look, please don’t take it as investment advice! Cypto is something to only get involved in with your eyes fully open

A great deal of people are joining in every single day. It’s up to you to decide whether the risk of losing money is greater than the risk of missing out on a serious payday.

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