Bitcoin and Crypto Currency

The following article reflects personal opinions and is in way legal or financial advice.

On January 9th, 2009 in the midst of the previous global recession a “little research project” was released to the world. The idea was to create a cryptographic internet currency controlled only by it’s code hence being untouchable by centralized entities such as governments and central banks. Both institutions that have a terrible track record of monetary responsibility. Instead everyone could hold a copy of the ledger, become their own bank and transact value with one another freely and without a middle man. The name of this little project, Bitcoin.

Today the name Bitcoin is synonymous to the idea of crypto currency. The idea has taken off and spread far and wide. Besides Bitcoin the market is flooded with thousands of other currencies. Bitcoin itself has reached astronomical valuations and also seen massive drops in it’s valuation. The market is subject to massive criticism and propaganda both pro and con. Governments and other major institutions have taken notice of these new asset classes making the market even more complex and hard to grasp.

While I’ve known about Bitcoin back in 2011 I’ve ignored it until after the big bubble in 2017. Of course, knowing about it this early I could have been one of these early adopters making millions if not billions in just a few years of holding this brand new asset. Back then I simply assumed that Governments would crush this project and any investment of money, time and effort into it was a waste. Oh boy, was I wrong and yes, I regret my overly careful realistic approach back then.

Governments didn’t take notice for far to long and the times in which a single entity would have been able to destroy the Bitcoin network are long gone. Bitcoin and the crypto market are here to stay. It’s a risky game and while some get rich others lose everything.

With this article I’d like to summarize my thoughts on the market aimed based on questions I get from total newcomers to the crypto market. In doing so I hope to give you a foothold and prevent you from drifting into hype driven scammy projects as well as understanding the meaning of some of the fundamentals driving the market.

Why so many coins?

Bitcoin is the Number one assets by market cap. Market cap stands for how much money (measured in regular fiat currency) is bound into the asset overall. Websites like Coincodex deliver an estimate of how much money flows though each of the projects. At the time of writing Bitcoin has a valuation of roughly 210 billion USD. Not bad for a project a bit more then a decade old.

Bitcoin is of course only one of many projects by now. Younger projects like Etherium or XRP are similar implementations of the same idea, namely blockchain technology. These projects added their own innovation to the technology. Both these projects have their own use cases and are actively used by developers, financial institutions and even governments.

I’m a big proponent of use cases. If a project and it’s token/coin is in active use by a diverse group of entities it has a fundamental value. Bitcoin itself is often used as a store of value equivalent to gold. Etherium can be used to put so called smart contracts on top of. These contracts can contain an almost infinite number of instructions on how to deal with data. The original idea of Etherium was to create a “new internet” that would run without servers and decentralized. XRP is aimed at banks to transfer value in mere seconds without the need for the antique and horribly expensive SWIFT system.

Smaller projects quickly become obscure and a great many of them neither bring any innovation of their own nor do they see any use case. I’m of the firm belief that at least 95% of the entire market is aimed at inexperienced investors falling for massive marketing and hype campaigns in order for the creators of those projects to cash out. Sounds like a scam? It is. Personal opinion.

In a sense this makes the market quite easy. Look at use case (see more about that later on), innovation and the projects track record. Quickly the market shrinks to a few coins to focus on. Stay away from the rest.

This is not to say that small and new projects are all scams or worthless. If you find the promises made be a project appealing and your research yields strong enough fundamentals it may be worth investing into it. Without a doubt there are gems to be discovered that can make you rich. Just make sure that every cent you put into such a project is money that you’re willing to lose the moment it’s invested. Chances are that you’ll never see it again, let alone make a profit.

Bitcoin vs. Bitcoin Cash vs. Bitcoin SV

Don’t be fooled! There is only one Bitcoin and it’s the one on top. Bitcoin Cash was created as a fork from the original Bitcoin project. Other then that it has nothing to do with Bitcoin. This is very important to keep in mind as the original Bitcoin is the coin big institutions are interested in. These other so called “Bitcoin” projects have nothing to do with the original projects. All they do is call themselves Bitcoin something to fool investors into thinking that they are part of the original legendary project. Personal opinion.

Worse yet, some people behind Bitcoin Cash started their own crypto currency exchange and called their Bitcoin Cash project just Bitcoin without the Cash added and re-branded the original Bitcoin as Bitcoin Core. This lead to investors accidentally purchasing Bitcoin Cash but what they wanted was Bitcoin. It’s practices like this that make these projects borderline criminal to me. Again, personal opinion.

If you want Bitcoin, buy Bitcoin. It’s better to hold small fractions of a project that is well established, receives a lot of attention and shows strong fundamentals then owning multiple full coins that have shaky or no fundamentals at all.

Fractional ownership

Most projects allow you to own fractions of a whole unit. You may buy 0.05 Bitcoin and 0.3 Etherium tokens. There is no need to spend almost 12.000$ or whatever the price of Bitcoin may be in the future to enjoy market exposure.

Of course it feels better if you have a whole Bitcoin, a whole Ether, a whole whatever. But this is not a space for your feelings but simple math. If the entire market goes up by 20% on average it doesn’t matter if you have 20 coins that are 20% more valuable or 2% of a single coin that is now 20% up in value. The same goes for stocks and other fractional assets too.

Don’t fall for the idea that you need to buy full units of each leaving you with the idea that you can only afford lower value projects. You can bet on any project with any budget.

What makes Bitcoin special

Bitcoin has a special place in the market. It’s the grand daddy of the crypto market. It was the first and it’s name is known throughout the world. How many people have heard of Bitcoin? Probably most of the people you know. But what about Lite Coin, Etherium or Cardano? Probably nobody. This “marketing” is priceless.

Aside from it’s household brand status this project has much more to offer. A crypto currency depends on the strength of it’s network. Some smaller projects suffered from successful attacks before. So called 51% attacks have been carried out against some of those which makes me wonder how any of them still retain any trust and credibility. Bitcoin on the other hand has a huge network of miners and nodes making it extremely difficult to attack. The project is very decentralized and pretty much impossible to shut down. Every day Bitcoin survives it gets stronger.

It’s decentralized nature goes so far that the creator is completely unknown. There’s no office unhappy government regulators can send angry letters to. Nobody can be held responsible for it and the open source protocol is freely accessible on every level. Everyone can run a node, mine for coins or contribute to the code.

Not may other projects followed this strategy. A great number of them has a CEO, a well known creator, co founders or other points of failure. Even if the projects themselves are no longer bound to them, their words have great meaning in the community. One wrong word and the price may fall, one big hype campaign and prices sky rocket. Personally I prefer the route of an unknown creator. I sometimes wonder who really created Bitcoin and what he, she or they think about their creation now.

But to make Bitcoin a solid investment we need more. We need use case and adoption. Luckily for any investor both exist. Use case is versatile. For one thing it acts as a store of value. Especially during times of crisis Bitcoin becomes more scarce and prices go up. This is similar to gold but doesn’t come with the same problems gold and other metals have attached to them. It’s easy to obtain, doesn’t weigh anything and can be held on exchanges, in some banks and even on a private wallet on a computer, USB stick (e.g. offline wallets) or even a slip of paper (see paper wallets for that).

Another popular use case are still payments. Sending Bitcoin takes hours at worst and costs much less then SWIFT and other transfers. It’s popularity means there may be a good chance other people will accept it. There’s also no way for anyone to stop payments making transactions more efficient and less of a headache.

Adoption has risen massively as well. Large institutions like BlackRock or Grayscale have a huge appetite for Bitcoin. At the time of writing Grayscale alone gobbles up a large fraction of newly minted Bitcoin every day. These investment giants have hundreds of Billions of dollars under management and buy significant amounts of crypto currency. To me, this is a very clear sign that Bitcoin will not go away.

It’s confirmed news like this and the overall stability and design of the system that makes the fundamental a solid go for me as a small investor. I still think of Bitcoin as a very high risk investment but I don’t lose any sleep over it even on it’s worst days.

Which coins should you buy?

It’s impossible to answer this question. Nobody knows the future and today’s high flying projects might be completely forgotten by tomorrow. It’s up to YOU to find out which projects convince you. YOU are in charge of your money and your investments. YOU have to find out what’s good and what isn’t. Be prepared to be wrong. Cut out the hype. NEVER blame others for your losses. It’s all up to YOU.

I am a big fan of Bitcoin and Etherium. I like other coins like XRP and ADA. I bough into these projects based on my own research and predictions. I have clear goals for all of these. Like when to buy and when to sell. But I’m also prepared to lose it all. I will be upset but I’m mentally prepared to a complete crash of the market.

If you decide to get into the market then you have to adopt a similar mindset. If not, the stress could break you in two.

As for the coins to buy. Look at the fundamentals. Is there a use case? Who else is a confirmed buyer? Do they implement innovation unique to them? Do the creators of a project have a track record? If so, did they create other projects before? Have they been successful? What promises have they made in the past? How many of these promises have been realized? What’s the coin’s valuation? Is it a privacy coin that could be banned by most countries?

These and more questions are essential to learn about a coin. Read about each of them before buying anything. Know what you are getting into. Never follow hype.

Where to get Crypto?

Crypto is fairly easy to get. You can use popular exchanges like Kraken, Binance, Coinbase, Bitstamp and many more. Try to go with a large exchange that is able to operate within your country. Some countries and even states within them are a bit iffy about crypto. Make sure that your countries laws don’t cause any trouble. Ensure that your bank won’t block your account if you trade crypto.

I personally stick to older and larger exchanges with a proven track record of handling conversions well both ways. I have accounts with all of them, complete with KYC (Know your customer) to ensure that I have more then one way to buy and sell crypto assets. And I don’t trust smaller exchanges to deal with fiat transactions or to hold my assets long term.

Where to store Crypto?

Many exchanges offer custody of the crypto you buy with them. There is no need to transfer them anywhere. If you choose to do so you can simply leave them there and sell at some point in the future. Some offer you to trade against other currencies and assets.

If you’re in it for the long haul and don’t care to trade or at least not with all of it you can move your assets to a wallet. Before you do that, understand what a wallet is and how to secure it. Desktop wallets are very popular but are exposed to the inherent risks of your computer. If there’s a way into your computer an attacker could steal your private keys giving them control over your assets.

Offline wallets like the ones from Ledger proved to be a solid alternative. Private keys are never exposed. They stay within a simple USB dongle and cannot be removed. And yet you can use them to sign transactions in their application or other compatible wallets. If you go for such an offline wallet make sure to buy them from a trusted source. Never buy second hand. Cases of tinkering are known losing to the loss of small fortunes.

If you do go for your own wallet always make sure to keep your recovery phrases. Write them down with pen and paper. Never photograph them, never keep them on a computer or on a phone. Lock them away in a secure location. Make sure you don’t ever travel with your offline wallet and your recovery keys at the same time and don’t keep them in the same place. Ideally lock the recovery away in another place or a bank vault. If you lose your key and your recovery phrases, your assets are lost forever.

Sounds scary? It is! I think it’s very important to point this out. Once you know what you do it’s not difficult at all. But always be careful when you learn these things. I keep most of my assets offline without problems. But when I learned about it and performed my first transaction I was scared to death.

Bottom line

This is my longest article on this site to date and it barely scratches the surface. I love the crypto market. It’s highly profitable but also highly dangerous and in many ways stupid.

Some major players act like little children. Massive hype campaigns market crap projects. Social networks are flooded with toxic people. Major news doesn’t move the price while total nonsense can pump or dump it. Personal opinion. And yet I am convinced that this technology is here to stay. Strong project will succeed in some way. In 20 years blockchain and crypto currencies will likely be deeply embedded into our lives. There will be a few winners, some of which haven’t even been created yet but also many many losers.

Compare it to the internet back in the late 1990s. The market was all just hype, hope and empty promises. But some solid players endured and you sure as hell know their names today. Crypto gives us a similar chance to invest in tomorrows big names today. Names that will dominate finance and large parts of many other industries. We will see use cases for blockchain nobody even imagines right now.

And this is what excites me about this market. There is a lot of money to be made or lost. But I’m also one of those who still belief in the idea of a more decentralized infrastructure, a tamper proof database of truth and a way to exchange value, thoughts and ideas freely and without the possibility of censorship. Sounds too optimistic? Probably. But I also think that we should aim for the stars in order to get to the top of the tree.