Bitcoin and Ethereum: Learn how to trade cryptocurrency
Since Bitcoin was introduced back in 2009, the interest for cryptocurrency, or crypto currency if you like it in two words, has only gone up. Up, up and so far up the early adapters laugh, a certain 10.000 bitcoin Pizza guy cries and even late adopters can still enjoy quite some profits.
The latter most certainly holds true with alternative coins, also known as ALTcoins, which pops up everywhere and get a value surge.
If you’ve considered trying your hands on the interesting and potentially extremely profitable world that is cryptocurrency, fret not, it’s not as intimidating and confusing as it used to be. And you can easily make a profit without mining for the coins, so there’s no need to go and buy 25 high-end graphic cards.
Disclaimer: Before I go any further, I want to point out that none of what’s written is to be taken as investment advise, and I am not a financial advisor in any way. This is merely a guide on how to actually get your hands on cryptocurrencies in an easy way.
Cryptocurrency is a digital currency
A very relevant thing to know before investing is exactly what it is you’re about to put money into. In this case it’s an online currency that’s really no more than a string of information on a massive database that can’t be altered unless certain requirements are met, just like any currency.
It’s a made up currency that tries to fill a certain role, backed by the community and those who use it. It’s not backed up by a government or tied to something with intrinsic value like gold.
The two largest currencies are great examples of those.
Bitcoin Is the first mover on the market and serves as an anonymous payment currency. The goal is to have a payment option that eliminates the middleman, like the banks taking transaction fees.
Bitcoin works as a decentralized network, where people can run a program to help sending blocks, or chunks of information from A to B through all letters in the alphabet.
Everyone who participates in helping it, receives a little fee for the help – that is the transaction fee of whatever transaction is made.
No one gets to see the full transaction, only tiny fragments of it, but the receiver gets the full result.
The ironic part is that the transaction of Bitcoins is limited to one megabit blocks, that has to be confirmed by the network, the miners, before it goes through.
That combined with the seer volume of transactions has caused the transaction fee of the coin to be extremely expensive. The total amount of Bitcoins is also limited to 21 million. No more, and with coins lost in trashed or lost hard drives, the total amount just declines over time.
Ethereum works much like Bitcoin as it’s operated on a so-called Block chain, but unlike Bitcoin, Ethereum works as a Smart Contract, where you can supply code to specify requirements that has to be fulfilled for a payment to go through.
This can help to remove legal middlemen who has to oversee a sale and confirm both seller and buyer fulfills their requirements.
Smart Contracts are fully transparent contracts that can be seen by anyone on the network.
It can be used as a secure way for people who doesn’t trust each other to secure a deal anyway, as they can see what a contract requires before it execute and passes the funds to where ever they’re meant to go.
A Smart Contract has to be confirmed several times through the Block chain, thus increasing security as it isn’t left to one or a few persons to confirm the contracts requirements has been fulfilled.
Where to trade it
It can be a jungle to navigate through all the websites where you can trade currencies. Some currencies are only traded on a few, select websites for instance.
To keep things simple, we’re listing 3 as a start.
Coinbase is a simple platform to easily buy and sell some of the strongest currencies on the market. If your only goal is to invest some money in the largest coins, then this is all you really need. You can join Coinbase here and get $10 in Bitcoin when you invest your first $100.
GDAX is a trading site owned by Coinbase. It allows you to trade the coins much like on the stock market. Since it’s owned by Coinbase, you can free of charge transfer your currencies from Coinbase to GDAX. If you plan on day trading, but choose to stick to the biggest currencies only, this is a good way to keep the number of websites you deal with to a minimum.
To be able to trade on GDAX, you need to verify two times with any of the following: Photo ID, Passport or Drivers license. If you only hold one of the three, you can’t use it. You can still use Coinbase though, as they require only 1 verification.
Binance is one of the largest trading websites out there when it comes to cryptocurrencies. It’s Chinese, but perfectly legit. You can’t buy currencies with money there, instead you have to transfer them to Binance from somewhere else, like Coinbase. You can join Binance here.
Now, keep in mind that there are some transfer fees involved, but if you buy your currency on Coinbase, transfers them to GDAX and then transfers to Binance, then GDAX pays all the transfer fees involved.
That is especially a good thing to take advantage of if you buy Bitcoin, as the transfer fee for those are very high at the moment.
How to trade it
The old way of trading coins like Bitcoin, Ethereum, Litecoin, Dogecoin and all of the other, many ALTcoins, was to download a program called a Wallet, then from there send and receive coins using a special, very long and random-looking keys.
A ‘Private Key’ for spending the coins and a ‘Public Key’ to receive the coins.
Think of the keys like this: Your private key is the pin code to your credit card. You do not share it with anyone who doesn’t need to know it. Ever.
On the other hand your public key can be treated like your phone number. It isn’t harmful information, and for most people, it’s already listed in a phone book.
Trading services for ease of buying and selling
Today, with the increased demand, companies have created services to make trading much easier by acting as the wallet, and providing an interface to easily manage sending, receiving and in general trading various cryptocurrencies.
Depending on where you decide to buy and sell currencies, the layout is different, but as an example, the buy window looks like this at Coinbase.com. They currently only deal with 4 currencies: Bitcoin, Ethereum, Bitcoin Cash and Litecoin.
You simple choose which coin you wish to buy, type in how much you’d like to pay, or how many coins you want, and press buy. Likewise when you want to sell them off again for a profit sometime in the future, hit the sell tab, choose which currency, type in how much you want to sell and you get the money on a wallet on their website.
To get the money to your bank account, you need a bank account linked to your Coinbase account.
If you want to either day trade or invest long term in other coins, you’re looking at Binance for that. Their trade layout is much more complex than just a buy/sell, but it’s a well of information if you know how to read it.
This is the window for OMG/ETH, or OmiseGO to Ethereum. I do my trades using Ethereum as it’s a cheaper coin and as such I get more for my money.
It can be a little bit daunting at first, but if you plan on doing short term tradings, this is definitely worth learning about.
Types of cryptocurrency
There are an ever increasing large amount of cryptocurrencies and different systems they’re built on, what their purpose are and how they work.
To keep matters simple, we’ll list just a handful of the coins with the highest market cap as of January 16, 2018.
- Bitcoin – 196 billion US$ Market Cap
- Ethereum – 104 billion US$ market Cap
- Ripple – 49 billion US$ Market Cap
- Bitcoin Cash – 32 billion US$ Market Cap
- Cardano – 16 billion US$ Market Cap
- Litecoin – 10.8 billion US$ Market Cap
- NEM – 9.4 billion US$ Market Cap
- NEO – 9.4 billion US$ Market Cap
- Stellar – 8.2 billion US$ Market Cap
- IOTA – 8 billion US$ Market Cap
The market is very volatile, so those values change rapidly.
Things to consider before you start trading cryptocurrency
Before you jump head first and invest all your life saving into a coin or several, there’s some things you need to know.
The definition of volatile is “liable to change rapidly and unpredictably, especially for the worse.“
This holds true in the world of cryptocurrency, where a coin may be worth 5 dollar one day and 150 the next day, or opposite, a 150 dollar coin may be worth only a few cents. The market is still very new, and with both good and bad news about the whole market and new money flowing in, the prices jump up and down very unpredictably. You should basically treat it a bit like gambling.
Never invest in something just because someone told you to
Before investing in something, you should read a little bit about it. The top coins, Bitcoin and Ethereum are pretty “safe” choices, they’re quite stable, but when it comes to altcoins, basically any other coin than the two big ones, there’s a bigger risk involved. They could spike up insanely just like Bitcoin did, or they may drop in value never to recover.
Read about the coin, and if it’s something you think could do well in the long run, sure, go ahead and put some money on it. But be safe and don’t take everyone’s word as truth.
Never invest more than you can afford to lose
This should be a given. Whenever you invest your money, either for a quick sale or with a long-term holding in mind, always consider your money lost as soon as you buy into a currency. This goes for regular stocks, forex and so on as well. The value could drop a lot and your holding lose a lot of value.
Don’t risk your mortgage on this, so only ever trade money that you can afford to lose.
Long term investing vs day trading
Long term trading is basically just investing in a coin with the hope that it increases well in value over time. It may not pay off very well in the short term, but depending on the coin and how it goes, it could double your money in either months or years. That would be higher returns than what you can find on the stock market or buying bonds.
Short term on the other hard is buying low and selling high, but in a much shorter span of time, either hours, days or weeks. It’s far riskier, but the potential return is much greater than if you just sit and hold for a very long time.
When you buy a coin, you don’t necessarily buy one full coin. As you could see on the buy image a little earlier, Bitcoins were being sold at 9,715 Euro each. That’s out of reach for a lot of people to just throw after a single coin, so they’re broken down into fractions. That also means if you begin to trade with it, start in the small. Like a tenth or hundredth of a coin.
In a few short steps
- Sign up on Coinbase.
- Link a credit card or bank account and buy any amount of any coin you like. Congratulations, you now hold cryptocurrencies.
- Optional step: Sign up on Binance and transfer currencies from Coinbase.
- Optional step: Use your currencies on Binance to invest in other coins.
It’s really that easy.