bitcoin

Simple Guide to Bitcoin in 2018

This is a simple guide to Bitcoin in 2018. I’m sure you’ve already heard of Bitcoin, but have a lot of questions and doubts. I’ve followed Bitcoin for years before finally investing in 2017. I tried to remove all of the hype and focus on the important things. Because of all that I’ve read, I give recommendations on what to buy and what to avoid.

Why trust my recommendations? I’ve spent the last decade traveling the world and doing whatever I wanted. I see a lot of potential in Bitcoin to make money, and everyone can participate. My own money is behind the recommendations in this article.

This guide is simple, but long. That’s because I want you to be informed about an important topic.

What is Bitcoin?

Bitcoin is a cryptocurrency. It’s digital money instead of paper money. And Bitcoin is run by everyday people instead of governments.

There are many cryptocurrencies, but Bitcoin was the first and is still the biggest. We will briefly cover some other cryptocurrencies below.

Why should I care about Bitcoin?

Cryptocurrencies can replace banks!

All of the trillions of dollars held by companies like Visa, Wells Fargo, and PayPal becomes public money. That means goods and services are cheaper because there’s less transaction fees, no overdraft fees, and no fees for keeping your money in one place. Banks charge you if you overdraft, they charge you if you have less than $X in your account, they charge you annual fees, etc. Bitcoin doesn’t.

Where can I buy Bitcoin?

Coinbase is the largest trading platform. And it’s very newbie friendly. I use and love it.

coinbase-account-dashboard
I made $3K USD in a month just by clicking the “Buy” button.

Coinbase offers 4 different cryptocurrencies for sale: Bitcoin (BTC), Bitcoin Cash (BCH), Ethereum (ETH), and Litecoin (LTC).

Should I buy Bitcoin, Ethereum, Bitcoin Cash, or Litecoin?

Short answer: buy Bitcoin (BTC) and Ethereum (ETH). I have invested in both 50/50.

Buy: Bitcoin (BTC) is the oldest cryptocurrency and has the largest amount of users. The core people believe in Bitcoin like a religion. They will never give it up, they will never leave it. They are constantly making improvements to it.

Buy: Ethereum (ETH) is “smart money”. What if your bills paid themselves? What if your money automatically gained interest? Ethereum is a actually a network of computers working together to solve problems, and ETH is the currency these computers use to get paid. This cryptocurrency is a good bet to succeed because the founders are geniuses, backed by other geniuses.

Avoid: Bitcoin Cash (BCH) is a copy of Bitcoin with two big differences: lower transaction costs and controlled by a few investors (2/22/18 update: transaction costs are now higher than BTC, making this coin effectively useless). This cryptocurrency will probably not succeed because the power is held by a few individuals and the same limitations of BTC also apply to BCH. The individuals behind BCH also did shady things like pretend it’s the actual Bitcoin and put out fraudulently false performance records. They even bought the @Bitcoin Twitter handle and pimp BCH regularly. Insider trading rumors also haunt BCH.

Avoid: Litecoin (LTC) is a Bitcoin copy with a few [ultimately] meaningless changes. It’s not serious threat to win the cryptocurrency wars from what I can tell. The creator pumped the coin up to high levels and then sold off all his holdings in it. If the creator doesn’t believe in it, who will?

Update (2/18): the problems of transaction costs and speed of BTC have been fixed, making both Bitcoin Cash (BCH) and Litecoin obsolete and likely to drop in value.

It’s better to think about cryptocurrencies and their purposes rather than thinking about them like you would paper money

  • Bitcoin: bank account
  • Ethereum: escrow
  • Monero: unmarked bills in a paper bag
  • Ripple: cash

We can pay with US dollars in many ways: cash, check, credit, debit, wire, PayPal, Venmo, etc. Think of cryptocurrencies in the same way. You use Bitcoin for a bank account, Ethereum to buy a house, Ripple for buying stuff at Target, and Monero for paying your “doctor” for “medication”.

When should you buy Bitcoin?

  1. Now
  2. When it loses a significant chunk of value

Don’t buy it when it’s rising, buy it on the dips.

Just buying it blindly and holding it is fine too. The latter is called “Dollar Cost Averaging” and is a concept from stocks. The crypto community prefers memes, so they say “HODL” (a purposeful error of “buy and hold“).

Where can you spend Bitcoin?

Here’s a list.

Cryptocurrency is still very young. Other vendors will pop up “Soon”. When Amazon or Target or another big platform enters the market, it’ll be too late to buy Bitcoin as the price will skyrocket literally overnight. And right now the the market cap (total value) of Bitcoin is over $200 billion. Someone like Jeff Bezos of Amazon is going to say “I’d like a piece of $200 billion”.

Why do you think Bitcoin will increase in value?

The internet has forever changed old systems. College, mail, phones, TV, entertainment, politics… practically everything! Governments have controlled money for centuries. And that will change.

There’s too many smart people working on this and agreeing that it’s the future. Silicon Valley is jumping in head-first into block chains (the technology behind cryptocurrencies) because it frees up all of the money in the banking systems and governments. Trillions of dollars will be up for grabs!

You know the scene in The Social Network where Sean Parker says “1 million dollars isn’t cool. You know what’s cool? A billion dollars.” If that movie were released today, a “billion” would be replaced by a “trillion”.

Cryptocurrencies have real issues right now (high transaction fees, long wait times for transactions), but those issues will eventually be solved. Mark Zuckerberg of Facebook announced 2018 as the year he looks into cryptocurrency. There’s a lot of talk how banks will move into cryptocurrency in 2018 as well.

Think you’re too late to buy Bitcoin? Wrong. You’re too early. And that’s perfect if you want to make money.

What are “altcoins” like Monero (XMR) or Ripple (XRP)?

Not everyone agrees on the best way to make a currency. Some coins, like Litecoin, are copies of Bitcoin with small changes. Monero is a privacy focused currency where X person sent Y person Z money. Ripple is purported to be the legacy banks entry into cryptocurrencies.

There are 100+ different cryptocurrencies. Most are too risky for me to talk about.

Who makes Bitcoin?

I don’t think it’s necessary for the average person to understand the technical details of how it works. The following is greatly simplified. The original Bitcoin whitepaper is pretty complicated!

Bitcoin is made and stored on internet-connected computers all around the world. You could even make Bitcoin on your computer. A Bitcoin is produced when the computer solves a hard math problem. This math problem could take your computer months of time and thousands of dollars in electricity! The math problem is solved and a Bitcoin is made. This is called “mining”, just like a person would mine gold.

“Mining” is the reward for keeping your computer doing transactions and storing records for other people.

A slightly cynical, but correct, view of this process:

Is it worth it to mine Bitcoin?

Not really. Huge data farms have converted to mining cryptocurrencies and made it unattractive for the average person. You need to buy special hardware, be part of a mining pool, spend thousands of dollars in electricity, and it still won’t be profitable until a year down the road.

If interested, you can look here for more about bitcoin mining.

Is Bitcoin safe?

When PayPal was just starting up, traditional bankers asked them: “What do you do about fraud?”. PayPal was confused because there was hardly any fraud at all. The bankers just smiled and said “Just wait”. In less than a year, 25% of all PayPal transactions were fraudulent! Fraud and fraud prevention are big industries which add huge costs to goods and services. These could be greatly reduced by cryptocurrencies.

Each computer storing the “ledger” and mining Bitcoin checks for fraud on each other computer out there. Millions of computers all making sure none of the others cheat the system. A traditional bank has to have one computer hacked for the whole system to fail. Millions of computers need to be hacked at once for Bitcoin to fail.

Which cryptocurrency will win?

Right now it’s not clear because it’s so early. There will likely be multiple cryptocurrencies which will be used for different purposes. That’s why I like Ethereum. Because while ETH might not be used for buying normal products, it likely will have purposes such as escrow or contracts.

What about other cryptocurrencies? I hear shitcoins gain 100x in a day!

Since you’re reading this simple guide to Bitcoin, the answer is No.

Should I invest in Bitcoin?

Yes and no.

Are you just looking to buy Bitcoin for $1,000 USD and hope to cash out with $10,000 USD a month later? No, you shouldn’t invest in Bitcoin.

Are you looking to become financially free with dedicated and deliberate investing over the next 10 years? Yes, you should invest in Bitcoin.

When should I sell Bitcoin?

Plan to hold your cryptocurrency at least a year. If it goes up significantly and you want to take some profit, go for it. But this is a long term play.

During my time as a professional poker player, I learned one big lesson: don’t gamble with the rent check. Please don’t invest in Bitcoin if you can’t afford to lose the money.

How high will Bitcoin go?

Some people predict a Bitcoin will be worth $100K USD. Or even $1,000,000 USD. Some people predict doom. No one knows.

How should I store Bitcoin?

Decentralization (getting your money away from banks and government) is an important idea behind cryptocurrency. Coinbase and similar are considered “hot” storage because they’re potentially vulnerable to hacks and fraud. “Cold” storage is keeping your money in a crypto wallet.

Trezor is the wallet that I use. Careful! If you lose this crypto wallet and your passphrase, your Bitcoin is gone! Just like losing your wallet.

Remember the tulip bubble of 17th century Netherlands! Now is the time to panic!

Normal people love to exclaim how the cryptocurrency phenomenon is similar to the tulip investment bubble in 17th century Netherlands.

Yes there are real questions and problems with cryptocurrency. But comparing a 17th century plant and economy to a cryptocurrency is ridiculous.

Secondly, the tulip bubble probably didn’t even happen. It was likely just a meme.

Plus, not all bubbles are equal:

What about Bitcoin prices crashing?

USD and Euro crash all the time and nothing happens!

From 2014 to 2015, the Euro lost 40% of its value against USD. 40%! In 5 short months, 4/2017-9/2017, the USD fell 20% against the Euro. There were no riots in the streets, and no mass panic.

usd-vs-euro
Does this look stable to you? Values of USD vs Euro. Source.

The European Union printed more money during 2014-2016 to purposefully devalue their currency so outsiders would invest in the EU because it was cheap to buy European goods with USD, RMB, Yen, etc. When the economy came around, they stopped printing money and the value of the currency [compared to USD] rose again.

So all Europeans salaries during 2014 immediately dropped by 30% in value against the dollar! The same thing happens in the US. And we continue to let the government control our money?

Forex is a trillion dollar industry where people make money off of traditional currency fluctuations. The same people who claim Bitcoin is too volatile are the same ones making money off of USD price movements every single day. Hypocrites.

The value of our money moves up, down, and sideways all the time and we don’t really notice because we don’t exchange currencies very often. The only reason I notice is because I visit ~10 countries every year. The value of USD jumps up and down like a sugar addicted child.

Inflation

USD is always losing value. Remember when grandma bought her house for like 1,000 bucks in 1920? That’s inflation. The government prints more and more money to pay its bills. That works out great for them and bad for you. This is how the rich get richer: assets like stocks and real estate keep pace with inflation and USD doesn’t. The average person gets paid in cash (salaries are cash, hourly is cash). If grandma kept that $1,000 in 1950, it’d be worth $1,000 now. But she could sell her house for $200,000 or more. Assets gain value. Cash doesn’t. Converting cash into assets is important to making money.

Bitcoin is a fight to keep your money because it doesn’t suffer from inflation.

In 2017, USD lost:

  • 33% vs stocks
  • 1,000% vs cryptocurrencies
  • 15% vs real estate
  • 20% vs the Euro

Cash. Got. Crushed. Your salary or hourly rate is paid in cash. Your buying power dropped by double digits in the past year alone!

The dollar gets weaker every single year, no matter what. Maybe crypto is too volatile for you. But inflation eats at least 4% of your salary every year. Get your money out of USD and pay down debt, put it into your home, into stocks, or into crypto. Don’t let inflation wreck you.

A good read about crypto in 2018, including a list of people to follow if you want to keep up-to-date

95 crytpo thesis for 2018.  (Don’t worry if you don’t understand all of it)

A more in depth resource for specific cryptocurrencies that I don’t mention here.

For the brave, here’s everything you could possibly learn about cryptocurrencies.

Conclusion

No one can predict the future. If this money means something to you, DON’T invest in Bitcoin. It won’t be worth the stress on your mind even if Bitcoin goes up in value.

But if you’re looking an investment with huge potential, head over to Coinbase and join the fun!

(P.S. Signing up with the link above gets you a free $10 when you deposit $100!)

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