Adventures in Crypto - Introduction

Introduction

Being a technology guy in finance of course the current enthusiasm around cryptocurrencies is interesting. Enough has been written about what cryptocurrencies are and the uses of blockchain and the underlying technology including here on BrokerDealer.

With the current surge in Bitcoin, and to a lesser extent Ethereum following Bitcoin, evangelists are claiming an upcoming revolution while the sceptics are calling it a bubble. As always reality is a bit of both.

Dimon on bitcoin: If you're stupid enough to buy it, you'll pay the price one day from CNBC.

In general the sceptics are right that there is no real world value supporting the price of the current generation of cryptocurrencies. In other words, it’s just the market, very similar to the Dutch Tulip mania of 1636-37. On the other hand the success does show there is an appetite for these products than cannot be ignored. Unfortunately as with many topics these days, the discussions seems to be between the far ends of the spectrum. It's entertaining, but will not lead to new and constructive ideas. The real innovation or revolution (by lack of a better word) will come from creative and informed people who are willing to think outside the box wile staying inside reality.

In this series I’ll take a look at different aspects of cryptocurrencies, starting with this light introduction.

Bear in mind, that the crypto gold rush is similar to every other gold rush; the people selling buckets and shovels make a lot of money. If you want to start trading, mining or using cryptocoins, being aware of costs is important. For example a bitcoin transaction is not cheap for smaller transactions. Small transactions are relatively expensive and larger transactions relatively cheap. Another thing to think about is the speed of transactions. Speed depends greatly on how busy the network is. Bitcoin transactions sometimes complete within an hour but can take many hours at times. This time also depends on how many confirmations of the block the transaction is in is required. Some systems and traders will accept a transaction as done earlier than others. This combination of speed and cost currently make Bitcoin unsuitable for micro payments for which it is sometimes pitched.

Before you head off, tools of the trade

Before you start your own adventure in crypto, you will need to familiarize yourself with the tools of the trade.

Wallets

Cryptocoins are stored in Wallets, this is like your bank account. There are many examples around for PC, mobile, as hardware and on the Web. There is a lot of choice around. To get started a free mobile app makes sense, at a later stage you may want to opt for one of the hardware options. For some people it will suffice to just use their broker account as wallet, functionally that actually is the same or very similar. Wallets provide “storage” of cryptocoins independent from brokers and exchanges, or more accurately it provides a way to derive your balance from the blockchain. Most people will at some point have some kind of wallet.

Exchanges and brokers

When you get started you want to be able to buy and sell currencies. For obtaining cryptocurrencies there are some instant options like BTCdirect or Shapeshift make sure these options match your needs and make be aware of the cost before you start. You can also use a broker, of which there are plenty around. You can also deal directly with an exchange such as Kraken and Poloniex. Some of these exchanges are OTC platforms where trades are settled directly. Be sure to check how the exchange actually works, terms and conditions as well as cost and of course who is behind the exchange. Make sure it suits your needs and preferences.

Not a lot of shops accept bitcoin, and even less will accept other cryptocurrencies. And you also may want to be able to take out cryptocoins if you want to protect yourself against the high volatility. For this there are a number of options. You can trade it into a fiat currency with your broker or exchange. There are other options such as crypto debit cards and there even seem to be bitcoin ATMs, I must admit I have not checked if these machines are actually there.

Read up

This piece is a very light introduction so make sure you have read up on cryptocoins. While going on the web make sure you cross check information you find to make sure the information is accurate.

Any product or service mentioned in this article are purely examples and are in no way endorsements or reviews positive and negative in any way.