9 things to know before you buy Bitcoin (or other cryptocurrencies)

1. What is Bitcoin?

Seems obvious, right? But you’d be surprised how many people rushed to buy cryptocurrency before knowing how it works, and why coins such as Bitcoin might be a worthy investment.

Cryptocurrencies are digital assets which serve various functions within a ‘blockchain’ ecosystem, such as a medium of exchange, user rewards, or as a digital representation of ownership. These assets are secured by super-strong cryptographic security, and are generally stored on online ledgers which cannot be altered or tampered with, such as that used on the original Bitcoin blockchain.

Since the advent of Bitcoin in 2009, many different cryptocurrencies have emerged, representing various use cases within the emerging digital economy.

 

2. Don’t panic if the price drops

Those who ‘FOMO-ed’ (Jumping into something at any available price, for Fear Of Missing Out) into Bitcoin in late 2017 were likely also the ones who panicked when the price dropped in 2018. Worried that they had bought something that had no value, they sold at a loss, and are probably still wary of being ‘burned’ again. Through 2018 and 2019 however, even as prices plummeted across the board, crypto developers continued to build new projects, and strengthen existing ones. A great example of this are the DeFi (decentralised finance) start-ups that have been formed in that period. These protocols, which enable anybody in the world to have easy and permissionless access to financial instruments, already hold 14 billion dollars worth of locked value (according to the website DeFi Pulse). Price volatility is more a reflection of cryptocurrency having a young, immature market, rather than a lack of fundamental value.

 

3. You don’t have to buy one whole Bitcoin

Sorry to be Captain Obvious, but you’d be surprised at the amount of times I’ve heard people say that it’s too late to buy Bitcoin because they don’t have a spare 20,000 dollars. Bitcoin is divisible to 8 decimal places, and the smallest measurement of Bitcoin is named after it’s founder, Satoshi. True, there will only ever be 21 million Bitcoins in existence, but at a value of 0.00000001, there will always be plenty of Satoshis to go around.

 

4. Bitcoin is just one of over 7000 different cryptocurrencies

… and each of these projects has (or is supposed to have) its own use case. As certain projects corner their market niches, a large majority of the other cryptocurrencies will be banished to the pit of redundancy. Many of them have been already. But, with a bit of research or insider advice, shrewd investors can find some real diamonds in the rough, and come across projects that offer a much higher potential upside than that offered by buying Bitcoin.

Beware though, of another common misconception; just because an ‘alt coin’ has a lower price than Bitcoin, that doesn’t mean that it’s ‘cheaper’. Many cryptocurrencies have a much higher total supply of coins, which opens them up to larger levels of inflation.

 

5. The difference between centralised and decentralised exchanges

A few years ago, centralised exchanges (privately owned platforms for buying and selling cryptocurrencies) ruled the roost. They were faster and slicker; they offered more trading pairs and a better user experience. This comes with some caveats though. Users have to submit ID & personal information before they can trade. Like with banks, traders in the ‘wrong’ counties are blocked from using the exchanges altogether. And the biggest problem of all has been the high profile hacking and security incidents, where the storage of users’ private keys on central servers caused grave losses for both the owners of certain centralised exchanges, and for the traders who used them.

Recently, decentralised exchanges, which have no single owner, server or point of failure, have vastly improved their usability and increased their liquidity, offering a much improved user experience. Uniswap, the Ethereum-based ‘DEX’, recently overtook the no.1 centralised exchange in terms of trading volume.

 

6. Not your keys, not your crypto – storage and security

So you’ve figured out that your digital assets only truly belong to you when kept in a decentralised wallet, rather than a centralised exchange. Now what? Many new users are scared to move their crypto away from the platform in which they first bought it, but it needn’t be a nerve-wracking experience. First of all, when creating a new wallet, make sure that you have both a digital and a paper back-up for any passwords or phrases associated with it. If you lose them, then you lose your crypto – that’s the price we pay (at least at the moment) for complete sovereignty over our funds. Secondly, make sure that you’re sending the correct asset (for example Ethereum) to the corresponding address (not to a Bitcoin address!). Finally, double check the address once you have copied and pasted it into the ‘send’ box. Does it match up? Then you’re all set! Not difficult at all, once you get the hang of it.

 

7. Beware of Crypto Youtubers or Bloggers who want to ‘shill’ coins to you

Those friendly faces online that tell you about an amazing new coin with 100x potential? Most of them are being paid by the founders of the project, to help pump up the price of the coin by foisting it off to unwitting investors. The absence of regulation means that Youtubers are free to dispense investment advice without needing to declare their sponsors, and without being ‘certified’ advisors. Any crypto project that needs shillers and sock puppets to do their marketing for them should also be a red flag; it could mean that they’re planning to dump their holdings as soon as the price has been artificially increased, or that they have very little purchase in the industry. Not a great sign that they have confidence in their own long term business plan.

 

8. Do your own research before you decide to buy ‘alt coins’

What is the use case for this project? Is there a real need for it? What problem does it solve? Who are the team behind the project, and do they have the relevant skills and industry connections to execute their strategy? How do the token economics work? How many tokens are still to be released onto the market? What function(s) does ownership of the token give to the holders? Can you use it for voting on the platform? Can you stake it, for annual returns or dividends? How many exchanges is the token listed on? Will it be listed on many more? Are the team behind the project investing in developers? Are they building a supportive online community?

These are not easy questions to answer. But Coinmarketcap, CoinGecko, Medium, Reddit and Telegram are all great initial resources for project-specific information.

 

9. If in doubt, ask a trusted advisor

The crypto industry can be like the Wild West at times, but the most fool-proof way of entering this brave new world is to walk in the footsteps of those who have gone before you. You can avoid mistakes by benefiting from their hard-earned experience, access the fruits of their research and expert analysis, and get instant access to their network of industry contacts. With the emergence of platforms such as Blocksafe Crypto, the Wild West period is coming to an end, and help is at hand for those who reach out for it.

 

Article written by Sam Sherwood

Skills
Crypto exchanges
ICO
IEO
Investing
Legal
Regulations
Security
Trading
Wallets
Projects
BTC

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