Part 1 – Getting Started
I am sitting here in the middle of the longest crypto winter to date and thinking, “how can a total beginner get started with Bitcoin and make money now?” For most beginners this task can be daunting and seem outright impossible. Afterall the price compared to the US dollar is dropping, the media is telling us that Bitcoin is dead, my mother says it’s too risky, and my dog won’t even touch it. Add to it the fact that Bitcoin’s technology is an enigma to most people and it seems the world is dead set against adopting Bitcoin and all other cryptocurrencies.
Good. That’s exactly the way I like it. This gives the ~0.5% of the world population who understands crypto time to accumulate more before the next price and demand hike. You better get it now if you want it because this train is leaving the station with or without you.
The best way to get started with Bitcoin now is to understand the basic concepts of cryptocurrency, buy a fraction of a Bitcoin (some Satoshis that you are OK with losing), and then figure out how to protect your hard earned money before you start making gains. That’s it! It is actually that simple and can be accomplished within a day. Let’s look into what that means and what you need to do about it.
What is Bitcoin and cryptocurrency?
Obama probably said it best, “everybody’s walking around with a Swiss bank account in their pocket.” Now that doesn’t exactly describe the technology behind Bitcoin or how it works, but it does boil this idea down to a significant use case that everyone can understand. We could write on this topic for days, but let’s get the basics out of the way for a start. Although if you are already familiar with Bitcoin then feel free to skip to the next topic.
Bitcoin is simply a computer based ledger of monetary transactions that can never be changed. To ensure that the transactions cannot be changed, each transaction is sent with a secret private key or seed that can be spent only once. This private key is used to sign the transaction and provide proof that the transaction has come from the owner of the wallet. The Bitcoin network then links a group of these confirmed wallet to wallet transactions every 10 minutes into what we call a ‘block’.
Once a block is confirmed by this distributed network of computers the process repeats and links each block into what we call a ‘blockchain’. This chain of blocks is encrypted in chronological order via cryptography to make it secure. The Bitcoin blockchain becomes more secure with each block that is added. After 1 – 2 blocks (within 10 – 20 minutes) the computing power it would take to change the previous blocks is so high that it is basically unchangeable or immutable. The longer the chain, the more you can trust it’s validity. Other cryptocurrencies have copied this model and then added their own twists on this process for new features, such as the shorter block confirmation times used in Litecoin (2.5 minutes Instead of 10 minutes).
Another basic, yet very important, feature is that the Bitcoin network is made up of a group of computers that are decentralized. One organization, such as a bank, does not control the network and therefore it does not have a single point of failure. Also, Bitcoin is not simply ‘printed’ by this network, it has a complex set of mathematical codes (an algorithm) which must be solved by the computers in the network to confirm the transactions and blocks. We call these computers ‘miners’ because they use their computing power to solve this algorithm (a kind of giant sudoku puzzle) to keep the blockchain going and mine Bitcoin. The computers which successfully solve this puzzle within 10 minutes are rewarded with a set amount of freshly mined Bitcoin and then a new form of the puzzle appears with each future block.
Finally, Bitcoin is designed so that only 21 million Bitcoins can be mined and this makes the supply finite. In other words, with a planet of 7+ billion people, most will not be able to own a whole Bitcoin themselves. This is just one of the features which increases its value as long as people want to use Bitcoin to make transactions.
Of course there are many other details behind each of these points, but in essence this technology allows us to securely transfer value between our virtual Swiss bank accounts (our private wallets on our phones or computers) without trusting a single entity, organization, or person.
Why is Bitcoin and cryptocurrency important?
Again this is a topic that could take days to discuss, but let’s take on just a few of the main points for now.
One of the best parts of this system is that nobody can prevent us from using Bitcoin to make transactions. This makes Bitcoin censorship resistant. Today banks can choose to freeze your account or block you from even making one if they don’t like your political views or your social class. This feature does not make governments or the rich happy because it removes some of their power to control the general population. Over the last 10 years the world’s elite have tried to hack, break, and tarnish the idea of Bitcoin without success. Currently government regulators are trying to slow cryptocurrency adoption by not creating clear usage guidelines, but they are simply delaying the inevitable. Pandora’s box has been opened so even if Bitcoin does not survive, other similar or improved versions of cryptocurrency will no doubt be created.
Freedom of Speech:
The internet and the printing press struck fear into governments in our recent past. Anything which allows the general population to communicate freely without censorship, especially across nations, scares the crap out of the powerful because it takes away their sense of control. Voting with your wallet is a form of speech that is hard to ignore, but Bitcoin takes this literally. The cryptography used to secure transactions is comprised of letters and numbers and can be hidden within messages, emojis, or images (see steganography for details). Under the US constitution at least, this literally protects Bitcoin as a form of freedom of speech.
I already mentioned Bitcoin’s finite supply, but this is important because it heavily contrasts our current financial system. Over the last 100 years governments have increased their power to create money out of thin air by printing more and more of it. This consistently devalues most traditional currencies by 2% per year or more. If you are holding cash as a form of savings then this makes it impossible for you to pass the true value of your savings onto the next generation. Our governments are basically stealing our generational wealth to keep their power, finance wars, and make the elite even wealthier.
Some Use Cases:
Digital Collectable – This is how most people felt about Bitcoin when it started. Many viewed it as a cute form of magic internet money that only nerds used. At that time you could barely even buy pizza with it. This point makes a strong case that Bitcoin will never truly go to zero value in price as long as two people or more have a utility for it.
Remittance – The ability to send Bitcoin and other cryptocurrencies across borders freely is one of its best use cases. The traditional banking system mainly uses SWIFT to allow people (and sometimes stops people or other governments) with bank accounts to send money across borders. Western Union is another good example, but these types of methods rely on several middlemen who slow the transaction process down significantly and take a large cut of the cash value. Bitcoin and other cryptocurrencies allow us to bypass these leeches quite easily and efficiently.
Speculative Asset – This is the use case some of your friends and the media are talking about. CNBC and some people you know are likely in a love/hate relationship with Bitcoin here. Like with stocks, people often get addicted to short term price predictions as a way to make a quick buck. The problem is that most of them don’t understand what they are analyzing and this leads to outright guessing.
Are you a wolf or a sheep? If you take the time in the sections above and below to understand the essential elements of cryptocurrency and trading, you will have a very good chance at being a wolf who makes money over the long term. On the other hand, if you don’t have the patience and discipline to increase your knowledge base, then you will be a sheep who herds with the crowd until you fall off a cliff. If you are a sheep, you will lose money and no one will be able to help you get it back. Ever.
Digital Gold/Store of Value – Security and stability. These are two words that some associate with Bitcoin while others don’t think these words fit Bitcoin at all. The reason for this difference of opinion is due to the eye of the beholder. If done right, Bitcoin can be ultra secure today as long as you become your own bank and you alone control it. If you allow someone to hold it for you then all bets are off. As for price stability, Bitcoin already has some South American and African currencies beat, but compared to the US dollar the price fluctuations can make some people have a heart attack. Over time Bitcoin’s case as a Store of Value will become less subjective and more objective as more value is added to the network and price stabilizes. At that point the US dollar will seem like the more volatile currency.
Digital Cash/Medium of Exchange – Ever since the world proved you could buy pizza with Bitcoin, it has been viewed as a solid way to make quick and private transactions for virtually no fee. Over time this use case has fluctuated in utility. For example, in late 2017 fees for small transactions were quite high. Currently, the speed and number of transactions compared to major credit cards are also somewhat limited and slow. This will change as new technologies, such as the Lightning Network, are perfected and implemented but it will take time.
Want to know more? I encourage you to go down the online rabbit hole and do your own research (DYOR). This often leads to a better understanding and with each step it will increase both your level of interest and awareness. In schools we are not usually taught about finance, financial history, or technology at a deep level so a lot of these concepts feel somewhat foreign to most people. If you take just 15 minutes a day to build your personal knowledge in this space, you will be rewarded over the coming decade and beyond.
In the coming days, I will be sending out an e-mail to our subscribers with a list of a few links to get you started.
How can I get some Bitcoin?
You’ll be happy to know that this section will be short and sweet. Understanding Bitcoin is the hard, dense work that can be painful for some, but is essential for all. Now you get rewarded by finding out how to get your hands on some and load up your digital wallet.
Way back in 2009 when Satoshi Nakamoto mined the first Bitcoin, it took a lot less computing power to confirm a block and get some Bitcoin. With some technical knowledge and patience, you could mine Bitcoin simply with your laptop or desktop. For Bitcoin these days are long gone. In 2019 most profitable mining operations are done at an industrial scale since the market has matured. This means that for most people mining is not practical or cost effective anymore. For this reason, mining is not where most beginners need to spend their time if they are looking to make profits. On the bright side, if you really want to understand and educate yourself with how cryptocurrencies work in general, you can still use your laptop to mine some altcoins (alternative coins, aka shitcoins). Mining Monero (XMR) or its’ forked coins (the family of coins that use Monero’s code base, originally Bytecoin’s code base) is a great way to get in-depth knowledge and learn a few basic computer commands. See XMR-Stak open source projects for more details.
For most newcomers, this is the quickest and most straightforward way to get started. Just choose your preferred method to buy your first fraction of a Bitcoin (or Satoshis) and just hold onto them. Depending on the method you choose to acquire your Satoshi, this could take one day or up to two weeks. If you choose to hodl (a misspelling of ‘hold’ from the early day which stuck) your Bitcoin then it is best if you do not check the price regularly. Price declines of 80% or more in USD do happen, so only choose this strategy if you are comfortable losing the original dollar value you put in or do not plan on spending your Bitcoins for several years.
After you have held onto your Bitcoin for enough time to get comfortable with it then you might consider trading it for some altcoins or selling some after a price increase to take some profits off the table. Like with the stock market, it takes several months or years to learn how to trade cryptocurrencies effectively and confidently. If you choose this method to grow your Bitcoin then learning about risk management to preserve your original capital is essential. There is a lot of opportunity to make money here since the price volatility is high compared to traditional assets, but that also means the chance to lose money is also very real. Be careful and make an effort to learn the basics before trying this.
As the market develops and cryptocurrencies are more widely adopted, the ability to earn them will become more mature and popular. At the moment companies such as Starbucks are researching how to accept cryptocurrencies at their stores, but have not yet done so since the market is still immature. Moving forward, having your employer pay you in Bitcoin or accepting it as a form of payment for your business will be very appealing for the general population. Until then this method will be reserved only for those who understand the technology and have the foresight to begin implementing it.
How can I protect and make money with my Bitcoin or other cryptocurrencies?
Awesome. You made it to the part that got you interested in the first place. If you soaked in the basic information in the first two sections then congratulations because you will deserve the profits that you make. OK, so how do you make money with cryptocurrency you ask? The answer is simple, but it will definitely take time to master so I have dedicated my second blog post for this topic. I have included the answer and a sneak preview below, but stay tuned for the details.
The first and most important step to start making money with cryptocurrency is to discover how to protect your hard earned money against theft and price fluctuations. On the technical side this includes some basic application downloads and troubleshooting which can be done in minutes. On the trading side it is learning basic risk management, how to get started with trading in a short time while avoiding common mistakes, and how to make gains that will compound over time. Once you get the basics down then it is time to flesh out your long term strategy.
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