(Both the article writer and the website editor hold cryptocurrencies)
Over the past year, cryptocurrencies have gone from a geek hobby to one of the fastest-growing classes of investments. Many people that formerly dismissed altcoins as a gimmick are now investing in them.
The prices of popular cryptocurrencies have exploded over the past year. The price of a Bitcoin grew by $3,642.71 or 600.1% between 4 September 2016 and 4 September 2017; the cost of a unit of Ethereum increased by 2,381.52% or $279.59 during the same period, and the value of a Litecoin increased by 1,529.72% or $60.78 over the same 12 months. So if you invested $1,000 in Ethereum at the start of the period, you would have had $2,381,520 a year later!
Recently China has attempted to regulate (or clamp down on?) the trade of crypto currencies. This caused a sharp pullback in cryptocurrency prices. In 13 days the price of Bitcoin dove by 50%, but soon recovered again as bargain hunters climbed back in.
For many, Bitcoin is the future of money. But a price of hundreds of dollars for a single Bitcoin is causing many people to explore other cryptocurrency options, as these coins are still to be found at discount prices. But does buying another coin at mere cents mean it’s a “bargain”?
At CoinMarketCap you’ll notice that there are some altcoins that are priced in mere cents. It would be easy to think that it is a bargain to grab Ripple coins at say, 17c per coin. After all it can go to $400, because Bitcoin has! This is where the number of coins in circulation comes in. Many more Ripple have been issued than there will ever be Bitcoin. So if the price ever matches Bitcoin’s, the market capitalization (the number of coins issued times a coin’s price) would be millions of times more than Bitcoin.
So the secret is not to look at coin price but at a coin’s market cap.
In the table above from CoinMarketCap, both GameCredits and BitcoinDark have a market cap at time of writing of about $105 million. The reason BitCoinDark is $81.97 per coin is that, for its market cap, there are fewer coins in circulation (just over a million) than the coins issued for GameCredits (64 million). Both coins can triple their market share, meaning BitCoinDark can go to $260 as easily as GameCredits going to $4.80.
…in altcoin trading is much easier than most people realize. To help you get started, here is a list of some of the resources that can help you get started.
The first and most important resource you will need to trade altcoins is a cryptocurrency wallet. A wallet is simply a digital account; similar to a PayPal wallet, that lets you store, buy and sell crypto-coins.
The best wallets for beginners are the major ones such as Coinbase. Coinbase’s wallet lets you buy Litecoin, Etehereum, and Bitcoin with MasterCard, Visa, and bank transfer payments. The best currency to buy first is Bitcoin because most other cryptocurrency transactions are made in that coin.
Wallets like Coinbase, or Bitpay, will let you get started but they have their limitations. You cannot make Visa or MasterCard transactions from these solutions or purchase many kinds of cryptocurrency through them. That means you will have to get a second wallet linked to a MasterCard or Visa account.
There are a number of these available including TenX, Change Bank, ShakePay, Uquid and Bitpay to name just a few. A big advantage to the TenX account is that it offers a mobile app and plastic Visa or MasterCard that you can use to make purchases at brick and mortar stores with several altcoins. TenX will let you spend Bitcoin, Ethereum, DASH, and several other altcoins. Bitpay offers a Visa that will only let you spend Bitcoin.
Another big reason to use Bitcoin is that you can buy Visa and MasterCard gift cards that can be used at Amazon, Walmart, and other major online retailers. There are many websites including eGifter and Gyft that sell such cards. There are also some retailers such as Microsoft, Dell, and Overstock.com – that take accept Bitcoin payments.
After you set up a wallet and buy some cryptocurrency, you will need to open an account at an exchange. The exchange account is similar to a brokerage account for stocks because it allows you to buy, sell, and trade cryptocurrencies.
It is best to open an account at one of the big exchanges such as BitTrex, GDAX, CEX.IO or Kraken. These are large and well-established exchanges located in the United States, Europe, or the United Kingdom that allow for trading in several different currencies.
CEX.IO lets you trade Bitcoin and Ethereum against major currencies such as pounds or U.S. dollars. It offers a digital wallet that allows for the purchase of bitcoin and Ether via bank transfer, Visa, and MasterCard. It also allows margin trading (trading on credit) for large transactions.
A big advantage to CEX.IO is that it allows you to buy blocks of Bitcoin for a specific price such as $100 or $1,000. Another is that it charges fairly low fees for trades usually .2% or less. Higher fees are usually charged for withdrawal but many exchanges offer free or lower cost cryptocurrency withdrawals.
If you want to trade lesser cryptocurrencies such as DASH you will probably need to use an exchange like BitTrex or Kraken. Kraken will let you trade many currencies that exchanges like CEX.IO will not touch. It offers a great place to see what the next big currency is.
Once you have an account you should start with small trades to learn the process. A good rule of thumb is to spend several weeks or months making modest trades before committing a lot of money.
A hardware wallet is a small electronic device similar to a USB drive that lets you store altcoins offline. The big advantage to such devices is that you can store a fairly large amount of cryptocurrency at a fairly low price.
Persons that invest in lesser currencies or initial cryptocurrency offerings (ICOs) may have no choice but to buy a hardware wallet. Most hardware wallets are small enough to carry in your pocket or purse and store in a safe-deposit box.
There are several popular wallets on the market now including the Trezor Bitcoin Safe, and the Ledger Neo. These can be found at Amazon and some other online retailers. The standard price for a top of the line model is around $100 apiece.
Disadvantages to hardware wallets include the risk of theft or destruction. Some of them also have serious limitations on the operating systems they will work with and currencies stored.
There is no such thing as a “paper wallet” for cryptocurrencies. The term actually refers to a piece of paper that contains keys that can be used to access altcoins. Despite the term, the currency is still stored in the cloud.
These keys consist of quick read (QR) codes that are scanned with a camera. The codes are the only way to get access to cryptocurrency stored in the cloud.
The advantage of this arrangement is that there is no digital version of the key that can be hacked. The biggest disadvantage to this method is that if you lose the paper – you lose access to the coin. Another threat is that the bad guys will be able to access and steal your altcoins if they get the paper.
Most people should avoid paper wallets because they are hard to create and have serious security risks. Hardware wallets and cloud storage will provide sufficient security for most users.
A Fork is actually a new version of a cryptocurrency such as the Bitcoin Cash Fork in August. Most users can safely ignore forks because they will not affect the altcoins most people use.
The best advice for altcoin traders is to conduct as much research as possible. The more you know about cryptocurrency the easier it will be to make money trading it.
The big question is: Can governments still stop the spread of crypto currencies around the globe? Let’s look at an example in a similar vein: Despite many countries having anti-piracy laws, peer-to-peer file sharing (with similarities to the blockchain that underlies cryptocurrencies) is keeping software piracy alive and well.
Our Play Portfolio
To put or virtual money where our virtual mouths are, we have decided to “buy” some cryptocurrencies and watch them rise or fall over the coming months. Occasionally we’ll update you on the size of our portfolio.
What to Buy?
The best place to get a comparative view of prices is CoinMarketCap, where an exhaustive list of cryptocurrencies are displayed, along with their market caps, dollar values, historical price graphs, and more. For our portfolio we chose:
- Bitcoin (mainly as benchmark)
- Ethereum (the crown prince)
- Ripple (faster payments and wants to get in with the banks)
- LiteCoin (scrypt algorithm)
- Ark (bridging blockchain technologies, 8 second transaction time)
Remember, we are not giving you buying advice. This is a hypothetical selection of crypto currencies that will either have you kicking yourself in a year from now because you missed the bus, or you’ll laugh at us for investing in a sinking ship.
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