Ultimate guide to bitcoin trading and altcoin trading
Table of Contents
Understanding Cryptocurrencies
The first thing you need to understand is the basic idea of what cryptocurrencies are and how they work. Cryptocurrencies like bitcoin are mostly unregulated, except for some. This means they have no central governments or organizations governing them. This means no one to police fraud or regulate the currency this is all handled by the technology. The blockchain is maintained by the users on the network that logs and update the ledger with transactions taking place around the world. Some users decide to keep complete copies of all the transactions and record them for the entire network. These users compare their different copies of the transactions that have taken place to agree on the correct order of transactions. They are then “hashed” with a cryptographic function either by brute force computing for a proof-of-work coin or by nomination for a proof-of-stake coin, we will explain these a bit later.
Mining
Mining coins is how transactions are recorded and how more coins are created. This is why it’s called “mining” because it is the only way that new coins are created, like how a government would have a mint where they would print money. Except
that this money goes to the person that “mined” it not the government.
In the beginning some people used computer CPUs to do the mining for bitcoin and this was somewhat effective. Later they moved to GPU based mining that was a lot more effective as GPU’s were a lot better at the type of computations required for mining. These days most serious miners have purchased specialized hardware that is much more effective in mining.
There are two types of coins and two types of mining. But only one of them is the one where you will see huge computers or data centers dedicated to mining. This is proof of work mining and this is how bitcoin works. This is where computers “guess” how to solve a cryptographic hash function with a specific value. When someone solves the hash function they are awarded a certain amount of coins for solving the function. This is the incentive to do the huge amount of work it requires to complete the function.
Proof of stake is different from this in that the person to complete the hash is usually elected by the system. You can read more about this in the next section.
Types of Cryptocurrency Verification
Proof of work VS Proof of Stake
Proof-of-work coins like bitcoin determine who owns what and what transactions have occurred by having computers create a proof of work for the coin. This happens when a computer develops a hash for a ‘block’. When this happens, it is the next block in the blockchain and locks in a group of transactions. This means it is extremely hard to cheat the blockchain as there is a significant amount of computing power around the world that is processing towards this. An individual trying to cheat the system would have to have more computing power than all the other miners combined to do it. Therefore, the proof of work system means that it is extremely difficult for anyone or any country for that matter to beat the system.
Proof-of-stake currencies are coins that determine the ownership of a coin in a similar way but with a significant difference. Rather than the blockchain requiring computers to “guess” hashes until someone wins. Proof of stake uses a few different methods but the most popular is by randomly selecting someone in the blockchain to complete the next block hash. This means that it is still very hard to crack but doesn’t require enormous amounts of electricity to keep the coin going.
Developing a crypto trading plan.
Developing a cryptocurrency Trading Plan. Your roadmap to future profits.
As with any trading on an open and active market, trading success is directly related to the quality of your trading plan and how well you use it. You might say a good trading plan is like your road map to better returns.
If you had just touched down in a foreign country and wanted to find your hotel, there are several ways to go about it. You could ask someone and hope they knew the hotel and how to get there, hoping also that they would not send you on a wild goose chase or worse yet, set you up to rob you. You could hire a taxi to take you and pay whatever fee they charged for whatever route they may take you. You may decide to ” wing it ” and follow your nose with a tourist map. All valid ways of getting to your hotel, each presenting a different level of risk.
If, however, you had prepared beforehand by asking around, studying maps and Google images of the city, pre-booking transfers, etc. you would have known beforehand of most of the possible risks, have a fairly good idea of the direction, distance to and look of the hotel, therefore mitigating most of the risks described above. All before you even left home.
OK, so relating this to trading……….
You could ask your friends and acquaintances, and listen for “tips” and trade these. As with the first suggestion above this carries the greatest risk of failure.
You could just hire a broker and pay them to trade for you. Not only is this expensive but as with any “autopilot” system you are at the mercy of an external decision-making machine that, with fees considered, has only ever made average returns.
You could ” take charge ” and make your own decisions but unless you have some sort of an idea as to what, why, when and how, this is a little better than using the dartboard method. You may as well pick numbers in the lotto or bet on horses by choosing names that you like the sound of.
You could, however, develop a set of rules by which you’ll trade. Why and when you’ll enter a trade, how much you’ll risk on any one trade, and when you’ll exit the trade. It doesn’t need to be complex or perfect. It is not “carved in stone” but constantly evolving as your trading knowledge grows. This will be the roadmap for future profits.
Understanding cryptocurrency trading. (How it works, what affects it, what you should know).
Cryptocurrency prices are very unpredictable and volatile by nature. The coins are not controlled by any central government so the values can fluctuate violently. The value of each coin is dependant on a lot of factors. Some of the biggest ones
are scarcity, utility and popularity of the currency.
The more scarcity there is of a coin the more valuable each unit becomes, this is why bitcoin has become so expensive is because there are not that many of them out there.
Utility refers to a coin’s usefulness. Coins have different levels of utility, bitcoin is not a super useful coin with its slow transactions and a limited number of coins it’s not a “new global currency”. On the other hand, Ethereum has extremely high utility because of its smart contract features, faster transaction times and more currency in circulation.
The last point is popularity, the more popular a coin is the more people will want to trade it and the more it will be worth it. Coins can become more popular for many reasons some foreseeable some not. For example, if a large international company wants to use a currency for some reason usually when they show interest in the coin the price will rise. Another is hype from the media or just around the internet. Beware some of this news is real and some are completely fake.
Choosing what cryptocurrencies to invest in. Building a portfolio.
Choosing the coins, you invest in is extremely important. Bitcoin has the largest share of the market at the time of writing of this article. But there are a lot of other coins with different technologies built into them that are intended for a lot of different purposes. One of the methods for investing in Cryptocurrencies is finding small coins that have an innovative technology built into them investing in some of the currency and waiting for government companies or just the public to start using them and bring up the value.
If you have a longer-term investment plan you should understand the currency that you are investing in. You should know how it is produced, if it is ‘proof of work’ or ‘proof of stake’, what industry the coin is targeted at, what technology there is behind it and what innovations this coin has that sets it apart. This is what I would call Cryptocurrency fundamental analysis, and is similar to understanding a company for share trading.
Everyone that invests in crypto should have a portfolio that they have planned for and stick to. A portfolio will help you to minimize risk and still get good returns on your investments. All the best traders in the world stick heavily to the portfolios. They created them with a goal in mind and it stops them from making emotional decisions when the market goes crazy or falls on its face. You should work out how long you want to invest and what will give you the best outcomes and build a portfolio that will give you a good outcome while minimizing your risk. When you create the portfolio, you should also include times where you will review it. We will cover all of this in a later post.
Choosing a wallet to store your crypto coins in.
One more thing you will need to think about and set up when investing in cryptocurrency is your wallet. Having somewhere to keep your coins that is secure but also backed up is almost more important than your trading. When trading shares all your money and stocks are securely held in a bank account and exchange and you never really need to worry about taking care of them.
This all changes when you start investing in cryptocurrency, there are exchanges where you can keep your coins and some people may want to do this but there are downsides to this and you should be aware of them. Choosing a wallet is something you should do after considering the benefits and downsides of each option.
Online Wallet
An online cryptocurrency wallet, like www.cryptonator.com store your private keys online. This means that they are all accessible from any device you want to access them from. You just need your login details and that’s it. You can also set up second-factor authentication on almost all of them for more secure access to your crypto. Online wallets are very good for many reasons but they also come with one major downside.
Pro’s |
Con’s |
| Simple login access – No need to store private keys that can be lost. |
Security – Despite online wallets being very secure with all their features like multi factor authentication they are a big target for hackers. |
| Redundancy – Because there are a lot of users on the site and it is built for fault tolerance there is little to no chance that you will lose your coins due to a hardware failure. |
Control – Exchanges keep private keys and do not allow the investor access to them this can cost the investor some control of their wallet. |
| Ease of Access – These websites can be logged onto from anywhere with any device. |
Online wallets are extremely attractive targets for hackers as they holt millions of dollars’ worth of cryptocurrency and all a hacker need to do is find a single weakness in a site to get access to the wallets of thousands of people. If this isn’t scary enough these online wallets are not backed by a government or insurance company that will give you your money back if it’s lost. So, if your exchange is hacked then all your money is gone. This is why most cryptocurrency investors keep their money in one of or both of these options.
Local Wallet
Local Wallets are programs that you run on your computer, mobile device or both that store your coins and private keys locally. They are good because you have ultimate control of your currency. You know where everything is stored and how.
This is the option that we would say is more for advanced traders but we suggest that if you are serious about your crypto investing then you should use local wallets instead of online wallets.
Hardware failure is one of the biggest dangers of local wallets. Because the keys are stored on your local machine they are liable to failures and destruction. Because the private keys are only stored on the machine of your hard drive fails or is destroyed then you will lose all your money. This is why having backups is extremely important. Having a wallet that synchronizes between your devices is a clever idea. Otherwise keeping backups of the keys on USB drives, or on paper is the best way to make sure you don’t lose your money.
| Pro’s | Con’s |
| Control – You keep possession of the keys and the coins. This means that you are safe from any hacks of online wallets that may occur. | You control security – It can be easy for you not to think about a security flaw that could be exploited by a hacker. Like having a virus on your computer or having a compromised phone. |
| Security – Having a wallet on a personal computer itself gives you a lot of security as computers and phones are generally quite resilient to hackers online. | Failure risk – All the veteran crypto traders have stories of a few bitcoin on a formatted hard drive somewhere that they forgot about. |
| Less of a target – Because your wallet is only your own then this makes it a much smaller target than having it online combined with thousands of others. |
Hardware Wallet
Hardware Wallets are usually small USB sticks that store your private keys on them. This means that they are almost impossible to hack, because even if your computer had a virus on it or someone had hacked into your computer the hardware wallet requires you to push a button to allow a transaction to go through. These are the ultimate for people that want to keep their coins secure. If you are trading any large sums of coins you will want to get one of these hardware wallets. Remember the golden rule, don’t lose your money.
There are many different wallets on the market at the time of writing of this article, some cheaper ones that don’t have a screen on them to some others that have very high build quality, but they all essentially do the same thing. They allow you to separate your money from your computer. So that you “have to be here to physically push this button” kind of security that no hacker can get around. This is a massive piece of mind when you may have $1000, $10,000 or hell $1,000,000 on there that you don’t want to just disappear.
Really if you’re serious about Crypto you just need to have one of these things… There is no real argument you just have to!
Keep your crypto coins secure.
There are a lot of ways to lose money, you could drop it when you get out of a car, you could get robbed blow it at the casino. Similarly, crypto can be lost in many ways too. Seriously pretty much all the ways you can lose normal money is also a way you can lose crypto. But if you follow a couple of simple steps then you should be fine. But hey we do not guarantee, that you won’t lose your money even if you do all this stuff, ok. Seriously there are so many ways we can’t fix them all for you.
DON’T LOSE YOUR MONEY! Always think about security!
Data Loss
Redundancy, Redundancy, REDUNDANCY! Just in case you didn’t understand this the first three times this means keeping your cash in more than one place. Oh, and we don’t mean on two hard drives in the SAME COMPUTER. We mean keep a copy at your parents’ house on the other side of the country in a safe… We have all heard the stories of the person that threw out their computer only to realize that there was a 1000 bitcoin on there! Data loss is a real issue and what makes it worse is that it makes security harder. It completely goes against having good security. Because the more places you have your keys the more likely they are to be stolen. But keeping all your currency in one place it just as likely to mean that it can be lost due to well losing it, in the case of a hardware wallet. Or destroyed in the case of a house fire, or stolen in the case of a phishing email. Oh, yea right Phishing emails that’s the next one.
Phishing emails and hackers
Don’t click the link. I mean seriously just don’t do it…
There is a lot of spam out there these days, and phishing emails are getting better and better at looking legitimate. Oh, what’s that the exchange you buy your bitcoin off is giving you 10 free bitcoins… Ah no. Go to their site in your browser if you want to see if that offer is real. Then you know where you have really gone. Just follow the one-step below and you should avoid most of the phishing emails that will inevitably be coming your way.
Never click a link in an email. There are very few times that you will ever need to click a link in an email. Maybe to reset a password but that’s about it.
Hackers stealing cryptocurrency is becoming a big deal these days because it is a lot harder for a hacker to steal money from a bank that has millions of dollars put into complex security. Then an online cryptocurrency exchange that has millions of dollars in near untraceable currency with running costs in the 10s or 100s of thousands of dollars kept on a cloud storage platform. Think about your security and take it seriously.
Where to buy bitcoin and altcoin, local and international exchanges.
You can buy cryptocurrency from a lot of places. But the most commonplace for people to turn their hard-earned cash into that crypto goodness in via an online exchange. These exchanges hold substantial amounts of coins to buy and sell it for normal currency. Most exchanges require verification of ID before you can begin to trade, but there are some that require minimal identification. These exchanges support a range of different coins, some have only a few and others support many many forms of cryptocurrency. One of the most popular and easy to use exchanges online is coinbase.com a large online exchange based in the US.
TAX
We do not provide tax advice please see your local country’s tax law regarding trading cryptocurrency.
Now that’s out of the way, tax is one of the last things that people want to think about when they get a winning investment. But unfortunately, this is something that all investors need to be aware of and follow. We all want to make money but you don’t want the tax department coming after you for unpaid taxes or even worse tax evasion. So always check your tax obligations before cashing in your investments.
The moral of the story is to learn about your tax or talk to someone that knows about it. Don’t just bury your head in the sand. You will regret it in the long run.
Trading and Analysis
Do your research on what you’re investing in. You should know how the coins work, at least at a basic level, what purpose the coin was created for. What is the possible size of the market, and any other relevant information? This will give you a good understanding of what changed in the global market will do to the price of your currency and how stable or unstable it is likely to be.
Also looking at the charts and reading the trends looking for entry points and exit points having an idea of the overall market and how the coin you are investing in is affected by others in the market. This all sounds like a lot of work and it can take a while but if you do it right it will pay you many times over in the future. We will expand on this more in a later post.
Selling
Selling can be done via a few methods but by far the easiest is via an online exchange. This is a website where you can trade your cryptocurrency for local currency and back again. They usually charge a small fee but if you have factored this in and you’re not making heaps of transactions then it should be minimal.
The other option is more of a DIY option where you can find someone else that trades cryptocurrencies and meet with them, or exchange online. This can work for some people that don’t mind meeting others or that had friends that also trade cryptocurrency but for most people the exchanges are the easiest way to cash in your coins.
