How can I get involved?
Now you understand a little more about cryptocurrencies, you may be wondering how you can get involved. In this chapter we will discuss a little more about mining, wallets, buying crypto, getting paid in crypto, investing and trading. Plus a couple of other opportunities that I think deserve discussion.
I will be covering crypto mining in great detail in another report, but here is a brief rundown on how you can get involved.
Before you consider mining crypto, one of the first things you will need to know is: will it be profitable? This is a difficult question to answer, seeing as the value of any given cryptocurrency changes frequently, but the short answer is – mining can be profitable.
There are two main costs involved when mining crypto: electricity and equipment.
Equipment is a one-off cost, if you already have a reasonably powerful PC with a decent graphics card, you may already have everything you need. Note that electricity is an ongoing cost which must be taken into consideration when mining.
The graphics card in your PC is designed to make very fast calculations to render 3D graphics in real-time, the same power can be utilised for the calculations necessary to mine cryptocurrencies. As a general rule of thumb, the faster your graphics card, the more efficient it will be at mining – however, more powerful graphics cards require more electricity, which is why it is important to factor in electricity costs.
Electricity costs are calculated in terms of kilowatts per hour (KW/h) and you usually pay a set amount per KW/h – say $0.12 – which is known as the unit price. This means that every kilowatt you use will cost you $0.12 per hour. Your utility bills should give you an indication of your own unit price. If you are serious about mining, your PC will usually be running calculations 24 hours per day. Some gamers run mining software while they’re not using the PC.
There are plenty of profitability calculators online which can give you an idea of whether your PC is likely to yield profit. Most allow you to input details of your graphics card, processor and electricity unit price then calculate the profit based on current rates of exchange.
Once you’ve determined whether you can make a profit mining with your PC, the next step is to choose a cryptocurrency to mine. As we’ve already discussed, some coins are designed to be mined with dedicated mining hardware (ASICs) while others are designed to be mined using more typical PC equipment. Sites like whattomine.com can help you work out which crypto will be worthwhile based on your own mining set up and electricity costs.
For many coins, there is a lot of competition for the block reward – there are thousands, and in some cases hundreds of thousands of nodes on the network all trying to find the solution to the mathematical problem which means the probability of your individual machine solving the problem can be close to zero. For some people this puts them off mining altogether, however, this issue is a relatively minor one and developers have come up with an ingenious solution.
If the level of competition and difficulty of mining a coin are too high, this effectively prices individuals out of the market. To solve this problem you can join a mining pool. A mining pool is a network of individual nodes which share their processing power: when any of the individual nodes in a pool successfully mines a block, the pool shares the reward among all the participants. The easiest way to think of mining pools is like a lottery syndicate, everybody shares the cost of buying multiple lottery tickets and any winnings are shared between members of the syndicate – but in the case of crypto mining pools, there is no ticket to buy, each participant provides processing power. The reward is usually divided in proportion to the amount of processing power each node supplies.
Now you understand how a mining pool works and have chosen a coin to mine, you download the necessary mining software and install it on your computer. We will not go into the details of installing or choosing software in this report as each will come with installation instructions and often a community forum where you can ask questions.
With your software installed, it will be necessary to run it, then enter your wallet address (discussed in the next section). Your computer will then become a node on the network and your mining journey has begun.
Although we have covered the basics and getting started, there is a lot more to know about mining and increasing your return on investment (ROI) – I will be covering these elements in another report.
Before you can store your cryptocurrency, you will need to store them. Cash is stored in a wallet, likewise Bitcoin and other cryptocurrencies are stored in a digital wallet. A digital wallet doesn’t actually store physical coins – so how do they work?
As you already know, although you own Bitcoin, it merely exists as code in a public ledger – each entry in the ledger contains among other things, the amount of Bitcoin sent or received, who sent them and who they were sent to. To identify sender and receiver, names and addresses are not stored in the database, a Bitcoin address is used instead. Your Bitcoin address is a unique identifier which also serves as a public key.
Public key is a term used in cryptography which describes a method of securing information. In simple terms, a ‘public key’ is used to encrypt the data, while a ‘private key’ is combined with the public key to decrypt it. Using this system, the public key can be shared across the network along with the data. The data can only be decrypted by the intended recipient who has the private key.
A digital wallet holds your private keys, which are used to access your Bitcoin address – almost like a password that is combined with your username to log into a website. Only you have access to your private keys, which means only you have access to your cryptocurrency.
There are a few different kinds of wallet:
Software wallets – these are small computer programs that you run on your own computer, your keys are stored on your own computer and you can back them up to an external device such as a USB key.
Online wallet – these wallets are cloud based, and give you access to your private keys on any device. Access is protected by password, however, this solution relies on the company to secure your data and also to stay in business. If for any reason access to your online wallet is discontinued, you may no longer have access to your keys. Some online wallets are connected to exchanges and allow you to buy and sell crypto in addition to storing your keys.
Mobile wallet – these are apps which you install on a mobile device and can often be used to make mobile payments where cryptocurrency is accepted. Most mobile wallets are provided by exchanges and online wallet companies to make accessing their services easier on the move.
Hardware wallet – these dedicated devices are often similar to USB keys, they store your private keys and can be kept with you. There is of course a risk of misplacing a hardware wallet or having them stolen, which is why some investors store them in safety deposit boxes.
Paper wallets – a private key is simply a code which is used to decrypt data, therefore it is entirely possible to print it and keep it in a file (or more sensibly, a safe). Copies can be kept at other locations to protect against fire and other risks.
Just a word of warning, without your private keys, you will have no access to your crypto – it is important that you keep control of them and protect against data corruption, hacking and losing them. It is always a good idea to keep a hard copy of your keys in a safe place at a different location, so that even if a fire destroys your computer and backups at your home, you still have another backup elsewhere.
The most important piece of advice I can give you is this: never let someone else have control of your digital wallet. When someone else has access to your private keys, you give up control of your security. If you are storing your Bitcoin with an exchange or in the cloud, it is possible they could be hacked, shut down or in some cases, refuse to give you access to your own money. It has happened in the past, and it will likely happen again – by keeping control of your own crypto wallet you reduce the risk of losing your crypto.
Buying and selling crypto
Once you have your own digital wallet, you can buy and sell crypto. Buying and selling is usually done through an exchange where you can link to your bank account or purchase using a credit card.
To buy and sell, you will need to register with your preferred exchange – here are a few of the bigger exchanges:
Once you have an account, you can buy crypto with your own local currency using your payment method of choice. Alternatively, you can exchange one crypto for another, for example Bitcoin for Litecoin. It can take a short while for the funds to appear in your wallet, depending which cryptocurrency you are buying and the speed of processing transactions in the blockchain.
Bitcoin, Ether and Litecoin are usually the most widely available for trade. If you want to trade smaller cryptocurrencies (altcoins) you may need to find an exchange where they are traded against larger cryptocurrencies. The coinmarketcap website will allow you to identify where you can trade altcoins: a Google search will reveal other results.
The current price of Bitcoin at the time of writing is around $13000 USD, because it is a digital currency you don’t have to buy a full Bitcoin – you can buy just a small fraction – this is the same for most other digital currencies. Named after Satoshi Nakamoto, a one hundred millionth of a Bitcoin is known as a “Satoshi”.
As mentioned before, it is important to protect your coins. Keeping a balance at an exchange, while convenient, may expose you to unnecessary risks from malicious activity. Wherever possible, store your coins in the most secure manner.
Getting paid in crypto
If you want to accept Bitcoin for products and services online, the process is quite simple. You will need to use a payment processing provider and open a Bitcoin account with them.
There are three main providers: BitPay, Coinify and BitcoinPay – each offer different services and have different fee structures, before you sign up to one of the services you should familiarise yourself with their terms and make sure they meet your requirements.
Once you have an account with one of the providers, you will need to enter details to remove some transaction restrictions – these restrictions are in place to protect the service from criminal activity and being shut down by authorities. Restrictions are usually removed when you provide name, address and ID, or for businesses, further details of incorporation.
Most payment processing providers give you instructions on how to integrate payments with your website, or provide apps so you can accept payments in person. More advanced developers will be able to use APIs and code their own integration, however, providers offer plugins to integrate their services with most major online shopping carts.
When you receive a payment, you have the option of converting into your local currency and depositing it into your bank account – alternatively your Bitcoin can be kept in your own wallet.
Technically, investing in crypto is the same as buying – however, investors usually buy an asset with the assumption that it will appreciate in value over a period of time. There are long term investments and short term investments. In most cases, investors are not concerned with day to day fluctuations in the price of an asset, they study a trend and invest in the asset with a set timeline in mind.
With Bitcoin for example, there is a finite amount of coins that will ever be mined, for this reason investors believe the price will continue to rise in the long term. Other factors may affect the price of a digital currency such as wider acceptance in the marketplace.
Keep up to date with news and watch how it affects prices over the long term. I recommend spending some time learning how to minimise your risk while increasing your return on investment. As with all investing, there are risks involved – if you plan to invest in crypto, I highly recommend doing your research and only invest what you can afford to lose in order to limit your exposure to risk.
Although I have a history as a trader and I enjoy trading with crypto, my main aim is to invest in the technology. If you like trading, you can certainly do that and most of the big exchanges will let you trade. Once you have an account with one (or more) of the exchanges, you have everything you need to begin trading.
Trading with crypto is very interesting because you are not subject to the normal opening and closing times like you are when you trade stocks and shares – this means that crypto trading can be done 24/7.
Each exchange may show price differences between coins, which leaves you with arbitrage opportunities.
Trading specifics are outside of the scope of this report, but if you want to learn how to trade, crypto is a great way to get started – I recommend starting with a very small initial investment to learn the ropes and not to get carried away.
Once again, it is important that you only invest what you can afford to lose. Crypto trading is highly speculative and the sheer number of coins available across the various platforms make it difficult to decide where to put your focus as a beginner.
Yes, multi-level-marketing has hit the crypto-sphere too. There are a few MLM programs that have emerged on the crypto scene with cryptocurrency as their main focus. Due to their nature and rapid expansion, you are likely to hear about MLM opportunities all over the internet.
In typical MLM style you can attend seminars where there will be someone on stage telling you how you can make millions and get a special deal if you sign up right now, and if you sign up friends and family you get a cut of their package fees too.
Whether you like MLMs or not, a couple of things on their website were enough to put me off, the main one being “The company does not warrant that product descriptions or other content is accurate, complete, reliable, current, or error free.”
That’s all I’ll say here – do your own research.
Ok, that’s that covered. Now that cryptocurrencies are gaining popularity and gaining widespread attention, more MLMs will appear – you may even know some people involved in them. Before you consider jumping in, do your own research and remain vigilant.
Initial Coin Offering (ICO)
ICO is a play on the concept of the IPO (initial public offering). An initial public offering occurs when a startup company wants to raise funds to grow, so shares in the company are created/offered in exchange for investment. With an ICO, you are not purchasing shares in the crypto company itself, you are purchasing the coins or tokens which it has created.
These tokens can have many purposes: some are used in their technology to pay for things (from characters or upgrades in a crypto based game to a crypto based rewards program), or they could be coins which are destined to be listed on exchanges and can be traded or spent on goods or services with traditional vendors.
The ICO stage, much like an IPO, usually offers these tokens at a price expected to be much lower than it will be when the company allows access to them for everybody else. So speculating via ICOs has become a common and profitable strategy for some investors.
The 3 main things I look for in an ICO:
The team – are they known, respected, experienced people with relevant skills and recent successes? Usually consisting of a development team, advisors, CTO and marketing team.
The utility of their proposition – are they creating something new and useful or just jumping on the crypto bandwagon in an attempt to make some quick money?
The stage of their project – is it just an idea and a white paper, a proof of concept, or do they have a live deployment with actual customers already using their technology?
You should always do your own research into an ICO and not just jump into something on the recommendation of a friend or others who are raving about it online.