Bitcoin can be a great way to store your money in times of uncertainty. But your Bitcoin is only as safe as the method that you use to store it.

The best way to store Bitcoin, or any cryptocurrency, is a hardware wallet. It provides the perfect balance of convenience and security because you are in control of your private keys, but you can still pay through apps. 

If you don't know what some of those things mean, don't worry. I'll explain the key concepts, how Bitcoin storage works and my pick for the best storage solution.

What is Bitcoin?

Bitcoin was the first digital currency to solve the biggest issues with decentralized currencies. 

In previous attempts to create a decentralized currency, the primary roadblock was that account balances were stored in files. These files could simply be duplicated to multiply an account balance and create new money out of thin air.

Obviously not a good thing.

The designers of Bitcoin came up with a better solution. They used “mining” or making computers solve complex mathematical problems as a way to “unlock” Bitcoin in the system.

Mining also helped to verify transactions and create a ledger that could not be duplicated or hacked.

If you are new to Bitcoin and cryptocurrencies, then be sure to read this cryptocurrency guide. It will explain the differences between the various types of cryptocurrencies and go more detail on how they work.

There will only ever be 21 million Bitcoins in existence, so there's a limited supply.

This is what makes Bitcoin much more valuable than other cryptocurrencies that have a larger maximum supply, or have no maximum supply.

You don't have to buy whole Bitcoins, you can use very small fractions of a Bitcoin to do transactions.

So even if Bitcoin goes to $50,000, you can still buy that $15 t-shirt you've been wanting.

How Do I Buy Bitcoin?

You'll need to buy some Bitcoin before you store it, so let's start there.

The process of buying Bitcoin is very simple.

You buy Bitcoin by going to an exchange like Coinbase. Setup an account and purchase some Bitcoin with your credit card or bank account.

The Bitcoin you buy will be held in your Coinbase wallet until you're ready transfer it to your own wallet.

Get the complete step-by-step guide to buying Bitcoin for the first time here.

How is Bitcoin Stored?

Before we get into storing Bitcoin, there are a few key concepts that you should understand.

Bitcoin is stored in a wallet.

These wallets come in different forms, each type of wallet has benefits and drawbacks. I'll get more into specific wallet solutions, later in this post.

The important thing to understand is that a wallet is basically a database entry on the Bitcoin blockchain and is made up of a private key and a public key.

• Public key: This is the code that you give to others so they can send you Bitcoin. It's like the physical address of your home or your bank account number, it tells people where to send your packages or send your fiat money. You also use this code to check your wallet balance.
• Private key: This is the “password” for your wallet. Do not give this away to anyone! Once you use the private key, it's generally best to withdraw all of the money out of the wallet and use a new wallet, especially if you're using cold storage. If you use another solution, then you don't have to worry about withdrawing all your money because the software will take care of it for you.

It's important that you control your private keys. Some storage solutions don't give you the private keys to your wallet, so you should not keep a large amount of money in those wallets.

Where Can I Store My Bitcoin?

There are many different solutions to store Bitcoin, but there are 2 primary types of storage.

1. Cold storage
2. Hot wallets

Let's take a look at each of these solutions individually.

Cold Storage

Cold storage is a method of storing Bitcoin offline. It's called cold storage because the private keys are stored offline. It's like that long-term chest freezer that people have in their garage. 

Deep freeze baby. 

One cold storage method is a paper wallet.

But wait?

You might be wondering: How can a digital currency be stored on a piece of paper?

Well, you aren't actually storing the currency on a piece of paper, you're only storing the public and private keys. It's like storing your website passwords in a notebook. 

The benefit of this storage method is that you don't need any electricity to store your Bitcoin, it's can't be hacked online and it's very portable.

On the downside, the paper can get damaged or lost easily. If you don't use the right type of paper and ink, it's also prone to smudging or fading.

You can learn the best practices for creating a paper wallet for Ethereum in this tutorial.

The process is similar for Bitcoin.

What is a Bitcoin Hardware Wallet?

A hardware wallet is a type of cold storage.

The private keys are kept offline on a dedicated hardware device such as a Ledger, which looks like a USB stick. Here are a couple of examples, next to a phone, for size comparison.

These types of devices generally provide multiple layers of security and allow you to recover your wallet, even if you lose your device.

So hardware wallets provide the best of both hot and cold wallets. They allow you to safely control your private keys, but also make it fairly easy to create transactions.

Hot Wallets

A hot wallet is a wallet where the private key can potentially be exposed to the internet. The wallet is password or security protected obviously, but there is always the chance that a hacker could crack the password and get access to the private key of the wallet.

Therefore, you don't want to store large amounts of Bitcoin in a hot wallet for a long period of time. 

The benefit of this type of wallet is that it's easy to log into a website and create a transaction. It's very user friendly.

So if you're doing transactions it's fine.

But it's not a viable storage solution. This applies to:

• Web wallets
• Exchange wallets
• Desktop/mobile wallets

What is the Best and Safest Bitcoin Wallet?

In my experience, the Ledger line of hardware wallets is the best way to store cryptocurrency like Bitcoin.

I have the Ledger X and I love it.

I did a lot of research before I bought a Ledger and it really is the best solution out there. 

They use a custom hardware solution that includes a custom secure chip and super secure operating system to store your cryptocurrencies. You definitely don't want to trust your money to an operating system like Windows.

It supports over 1,500 different cryptocurrencies, including Bitcoin, so you're covered. If there's a currency that they don't support, it's probably not worth having.

The device has an ingenious 2-button system for entering data and navigating through the menus.

A Ledger X does cost a fair amount of money, a little over $100 at the time that this was first written. But it's totally worth the cost.

Think of it this way…you can basically open a bank for $100.

Where else can you do that? 

The Ledger X solves some of the shortcomings of the previous version, the Ledger S.

I like that the X now has a battery and gives you an option to connect via Bluetooth on your mobile device. The buttons are also easier to use on the X.

But the most important difference between the X and the S is that the X can hold way more information. Each cryptocurrency on the Ledger has to have an app installed.

The S can only hold about 4 apps, while the X can hold up to 100 apps. This is a huge difference! 

That was my only complaint about the S, the small storage size.

It was otherwise a fantastic device and if you're only going to store a couple of cryptocurrencies anyway, it's more than enough.

It's also about half the price of the X, so that's also something to consider. 

You can't go wrong either way, but I prefer the Ledger X.

How Do I Check My Bitcoin Wallet Balance?

Hardware wallets like the Ledger X come with software that allows you to easily check your wallet balances. Ledger makes this easy and adds another layer of privacy to your cryptocurrency storage because you aren't logging on to a website (which could be tracked) to get your balance.

Here's an example of the Ledger Live screen.

Hot/web wallets also allow you to login to your account and check your balance.

But if you're using another cold storage solution like a paper wallet, then the balance of any Bitcoin wallet is available online. That might freak you out a bit, but it's not as bad as you think.

I'll get more into why that is in the next section. But for now, let's just focus on how to check the balance of a wallet.

Here are a few websites that you can use to check your wallet:

• Blockchain
• Bitcoin

To check your balance, simply copy and paste your public key into the search bar at the top of the page and hit enter.

Do NOT enter your private key! If you do, you're basically giving your money away.

From there, you'll see the balance of your wallet.

Wallets are Not Like Bank Accounts

One thing that you have to understand about Bitcoin wallets is that they are not like bank accounts. With a bank account, you get one account number and you keep that number for the entire time that you own that account.

But with a Bitcoin wallet, the “account number” or the private and public key combination is essentially “disposable.”

The wallet can receive multiple payments, but once you withdraw from the wallet, you should with draw the entire balance and use a new wallet. Whenever the private key is exposed online, you should assume that someone can get access to it.

You can just get another wallet by creating a new one, or using a hardware wallet like the Ledger to do it for you.

This is another reason why I like using Ledger. It streamlines the process of working with wallets and makes it almost seamless.

Is Coinbase Safe to Store Bitcoin?

Coinbase is reasonably safe.

But just like any other hot wallet, you should get your cryptocurrency out of your Coinbase wallet as soon as possible and put it into a wallet where you control the private keys. 

If you really must store some crypto there to do a few transactions, make sure that it's an amount that you're willing to lose.

As I mentioned in the hot wallets section above, you do not own your private keys at Coinbase and you never know if they get hacked…until it's too late.

They are a solid company, but should be cautious when using any web wallet.

To get $10 of free Bitcoin when you buy at least $100 of cryptocurrency at Coinbase, click here.

Conclusion

Bitcoin and other cryptocurrencies have given us the ability to take control of our money and become our own bank. But by reclaiming our power, we also have to accept the responsibility that comes with it.

This means keeping our private keys safe and using wallets that give us control of our Bitcoin.

In my opinion, the Ledger X is the best storage option out there. But don't take my word for it, do your own research and find out for yourself.

Disclaimer: Some links on this page are affiliate links. We do make a commission if you purchase through these links, but it does not cost you anything extra and we only promote products and services that we wholeheartedly believe in. TradingHeroes.com is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com.

The post Best Way to Store Bitcoin in 2020 appeared first on Trading Heroes.

As traders, we make money by identifying potentially profitable situations in the markets. This might be identifying chart patterns, playing a certain type of news event or understanding the fundamental dynamics behind price movements.

So when it comes to cryptocurrencies, it is helpful to think two steps ahead and imagine what the cryptocurrency landscape will look like, 5 years from now.

Sure, all your buddies are making 400% returns on those crapcoins now. But will they still have those profits in a year?

Will Bitcoin still be king?

Or will there be many cryptocurrencies happily sitting around the campfire, singing Kumbaya?

Nobody really knows and I'm the last person who you should be listening to, when it comes to making predictions about the technology behind cryptocurrencies.

However, I would like to give you some ideas to think about before you make your next investment or trade. This is based on my current understanding, personal experience and research on the cryptocurrency markets.

As you know, things change quickly in the cryptocurrency world, so what I think today, might change tomorrow. But if we stay informed and keep an eye on the big picture, then we should be able to see changes coming, much sooner than the general public.

This is one of those big picture ideas:

The cryptocurrency markets will consolidate dramatically.

Here's how that might happen…

Bridging the Gap Between Fiat and Digital Currency

Money as we know it, or fiat currency, has been masquerading as digital currency for quite awhile. Systems like Fedwire, PayPal and ACH have allowed you to transmit fiat currency digitally.

But even though it's digital, there are still so many rules when it comes to when and were you can send that money. If you are in the US, have you ever tried to send money to someone in Nigeria, via PayPal?

Good luck with that.

The promise of Bitcoin and other cryptocurrencies is to give anyone the ability to send money to anyone they choose, regardless of location, nationality or bank affiliation. But having so many different cryptocurrencies available can cause a problem, because you will have to exchange the currency you own for the currency that your counterparty wants to get paid in.

For example, let's say that you own $1,200 worth of DASH right now. But you want to by a new pair of pants from a website that only accepts Ripple.

On most exchanges right now, you will have to exchange your DASH for Bitcoin or Ethereum, then trade the Bitcoin/Ethereum for Ripple. That's two additional transactions and that can make your pants pretty damn expensive.

The Need for Seamless Currency Exchanges

This is where Interledger-type solutions come in. This protocol would make the exchange of digital and fiat currencies completely transparent to the two parties involved. I recently went to an Interledger Meetup in San Francisco and it made me realize that this type of solution is necessary and will probably be available very soon. Interledger has a working prototype and similar projects probably do too.

It was a fun event.

…and the fact that they had wine didn't hurt.

A post shared by Hugh Kimura ?? (@tradingheroes) on Nov 9, 2017 at 7:33pm PST

I also realized that when this becomes available, then there should be a fairly rapid consolidation of cryptocurrencies, leading to most people in the general public only holding 2-3 primary currencies to pay for things in real life.

Here's why…

Take a very specific use case token like Storj. You will only have it if you want to store data on the Storj network, or you want to make money by renting out your drive space to people on the network. Right now, people are buying it for pure speculation. But they will need to sell it at some point because you can't buy a new TV on Amazon with Storj.

Something like Interledger should make the process of turning Storj into US dollars, fast and easy.

Therefore, the value of these types of coins will probably drop in value very quickly when something like Interledger goes online: 

• Coins tied to very specific services like: Sia, Storj and Civic
• Coins that have very high transaction costs
• Coins that have very slow transaction speeds

Which brings me to Bitcoin…

Have You Actually Used It? Bitcoin Fails as a Real World Currency

With all the hype surrounding Bitcoin at the moment, not many people have actually stopped to try and buy something with it.

Let me tell you, it's pretty shit. 

I tried to buy a Ledger Nano S from the Ledger website and the transaction timed out. But I was still charged for the transaction.

…and it cost me 15% more than if I bought with Paypal…which I will never get back, even after the refund.

I'm not the only one who believes this. The founder of Bitcoin.com has sold all of his Bitcoin and says that it is useless.

It's important to understand the shortcomings of Bitcoin and other cryptocurrencies because it is the reason why an Interledger-like solution might lead to a consolidation of the cryptocurrency markets. 

Why Something Like Interledger Could Lead to Cryptocurrency Consolidation

In a nutshell, Interledger works by creating a network of trusted dealers who do currency exchanges. Transactions run through this network, when an acceptable “path” is found. It may take multiple “hops” to finally exchange the source currency for the destination currency.

For example, let's say that you want to spend your Monero to buy a new M6 straight from the factory, in Euros. 

The transaction might look something like this:

• Dealer A: Accepts Monero from you and coverts it to Ripple
• Dealer B: Accepts Dealer A's Ripple and converts it to USD
• Dealer C: Accepts Dealer B's USD and coverts it into EUR and sends it to BMW

Obviously, the more dealers the transaction has to go through, the more transaction costs there are and the more expensive the transaction gets.

Therefore, these networks will probably start to rely on a select few currencies to keep the transaction costs low. On the customer side, people will probably want to keep the same currencies on hand because they know that it will lower their transaction costs, through the network and person to person.

So the coins that will probably win out are the coins with the fastest transaction time and the lowest transaction cost. 

Hint: It's not Bitcoin.

But it could be, if the Lightning Network can create a solid product.

So many possibilities

Conclusion

Interledger is not the only group that is trying to do this. There are other teams working on similar solutions.

It's not important to know all of the details, but it is important to understand how these solutions will affect the overall cryptocurrency landscape. The ICOs that survive may not be as valuable as you think they will be, simply because it will be so easy to exchange for them, only when you need them.

The real winners in the cryptocurrency world should be the solutions that actually deliver on the promises that Bitcoin was supposed to provide…cheap, fast, monetary transactions to anyone in the world.

Which cryptocurrencies do you think will be the ultimate winners? 

The post Why the Future of Cryptocurrency is in Consolidation appeared first on Trading Heroes.

The idea of buying cryptocurrency can be daunting. After all, it's not like going to a bank and opening a checking account.

But for most people, setting up a cryptocurrency account is actually easier than going to a bank. This guide will help you purchase and send Bitcoin for the very first time.

I'll also show you the benefits of using cryptocurrency and give you a basic idea of how it works.

To buy Bitcoin for the first time, open an online account with a reputable cryptocurrency exchange. Link a payment method to your account, such as a bank account, PayPal or debit card. Most exchanges will require you to verify your identity (KYC or Know Your Customer) before you buy. Once you're approved to buy, click the buy button in your account and enter the amount of Bitcoin you want to buy, in your local currency. 

More detailed steps and tips are provided below.

The Benefits of Using Cryptocurrencies Like Bitcoin

Before we get started on how to buy Bitcoin, let's take a quick look at why Bitcoin is useful.

The biggest benefit of Bitcoin is that it's decentralized. 

That means that no central authority controls it, so gatekeepers cannot control who you send money to or receive money from.

You don't have to pay a bank a huge fee to screw up your money wire, or wait 7 days for your money to be sent between banks.

Your cryptocurrency will be sent within about 30 minutes or less and you don't need to ask anyone for permission.

How Bitcoin Works (Layman's Version)

Now that you understand the benefits, you're probably wondering how it works.

I won't bore you with the unnecessary details, but the Bitcoin blockchain is a database. This database stores all of the Bitcoin transactions ever done on the blockchain.

Banks use their own databases to store your account information. But that database is stored on their servers.

The Bitcoin blockchain is stored on thousands of computers across the world.

This may seem unsafe, but it's actually safer.

Every time a transaction happens on the Bitcoin blockchain, all of the copies of the database get updated. You can think of it as the database getting backed up on thousands of computers.

If someone wanted to alter Bitcoin transactions, they would have to change at least 51% of all of the copies out there.

This is because the Bitcoin network is built to use the version of the blockchain that most of the computers on the network agree on. So the more copies if the database there are, the harder it is to hack the blockchain.

Just like with your online bank account, the “password” to each wallet, also known as the private key, is only known to the owner of the wallet.

So although the database is on multiple computers, the passwords are secure.

Now that you have a little background on Bitcoin, let's jump into how to do your first Bitcoin buy.

Step 1: Find an Reputable Exchange in Your Country

To get started, find the best exchange in your country.

It might take some time to do the research, but it's worthwhile to deal with a reputable company.

Coinbase is one of the top websites to get Bitcoin in the US.

You can also check out Binance if you want to exchange your Bitcoin for tokens on the Binance network.

If you are in another country, check to see which websites are available to you. Before you open an account do your due diligence and find out which services are reputable.

Step 2: Get Verified

Any reputable website will have to verify you, in order to keep accurate records of your transactions. This is to comply with Anti Money Laundering (AML) laws.

In order to get verified, you will usually have to send in a copy of your driver's license or passport. Other information may be required, but that is generally the minimum.

To withdraw money, you'll probably have to give up a social security number.

That's just the way it goes for any type of financial account, even your bank account.

Step 3: Connect Your Debit Card or Bank Account

Now it's time to connect your debit card or bank account to your Coinbase account.

If you have a debit card that gives you miles or rewards, this can be a great way to do some travel hacking.

Coinbase also now offers PayPal and money wires and funding options.

Adding your bank account or debit card to your Coinbase account is just like adding your credit card to an ecommerce website.

Step 4: Buy Bitcoin

You are now ready to buy some Bitcoin.

If you're using Coinbase, simply enter the US dollar amount that you want to purchase.

Then click the Buy button.

That's all there is to it!

Congratulations, your account will now show that you own some Bitcoin.

How to Store Your Bitcoin Safely

After you celebrate your first Bitcoin purchase, it's time to think about securing your investment.

Never keep your Bitcoin at an exchange or in an online wallet. Your account could be hacked or if the company goes out of business, you could lose your Bitcoin. 

When you put your cryptocurrency into a hardware wallet or non-custodial app, you control the private keys, or passwords.

I would suggest using a hardware wallet like the Ledger Nano. It will greatly reduce your risk of having your Bitcoin stolen.

To get more information on how to store Bitcoin safely on a Nano, read this post.

How to Send Bitcoin

To send Bitcoin to someone or to pay for something with Bitcoin online, all you need is their public key. 

This is like an account number for a traditional bank account.

The public key can be really long and difficult to enter into a website or app, so QR codes are an easy way to enter the key.

Just scan the QR code with your mobile phone or laptop camera and the public key will appear on the screen for you to use.

A QR code looks like this. It's a fancier version of the barcode that's used in stores.

Once you have the recipient's public key entered, enter the amount of Bitcoin you want to send them and hit the Send button.

How to Buy Altcoins With Bitcoin

Now that you have some Bitcoin, you might want to buy some other cryptocurrencies too.

Having some Bitcoin makes it super easy to buy altcoins.

First, do your research and identify the altcoins that have the most potential. If you want to learn about what to look for in potential altcoin investments, read this article.

Once you find a coin that you want to invest in, sign up with an exchange that has the coin you want.

Then send some Bitcoin from your Coinbase account by following these steps.

1. Select your account
2. Click on the send button in your Bitcoin (BTC) wallet
3. Enter the recipient's public key, also known as the public address
4. Enter the amount of BTC you want to send in US Dollars
5. Click the continue button to send your Bitcoin

The Recipient Address will come from the exchange that you signed up with.

In your exchange account, find your Bitcoin wallet address.

Then copy that address into the screen above. Click on the Continue button and verify the transaction.

Be patient, the transfer can take up to an hour.

Once you have transferred your Bitcoin to your exchange, you can buy any altcoin that is available on that exchange.

Cashing Out Your Bitcoin

If you want to turn your Bitcoin into cash, then the easiest way is to simply use Coinbase to convert your Bitcoin to your local currency.

You just have to connect your bank account to your Coinbase account.

When you are ready to cash out your Bitcoin, simply convert your Bitcoin back to cash.

Avoid PayPal

There are some companies that allow you to buy Bitcoin, but you cannot actually transfer it to your own wallet. You have to sell the Bitcoin and turn it back into fiat currency on their platform.

Remember, that if you don't own the keys to your wallet, you don't actually own the crypto in the wallet.

So avoid using services like PayPal, that don't allow you to move Bitcoin into your own wallet.

There is also the chance that they don't actually own all of the Bitcoin that they say they have on their platform.

If you cannot transfer the Bitcoin off their platform, then they don't actually need to have it.

They could be acting like a “bucket shop” that only accepts trades, but doesn't actually own the underlying asset.

I'm not saying that PayPal is doing this. All I'm saying is that companies that don't allow you to move your Bitcoin could be doing this.

Beware.

Conclusion

That wasn't so bad, now was it?

Once you make your first purchase, I think you will find that it is easier than you thought it would be.

Remember that getting Bitcoin is the easy part.

Keeping it safe can be a little more difficult.

But if you take the right precautions, your Bitcoin will stay safe until you are ready to cash it in.

Disclaimer: Some links on this page are affiliate links. We do make a commission if you purchase through these links, but it does not cost you anything extra and we only promote products and services that we wholeheartedly believe in. TradingHeroes.com is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com.

The post How to Buy and Send Bitcoin for the First Time appeared first on Trading Heroes.

As traders, our job is to take advantage of opportunities in the markets. Sometimes, these opportunities come in the form of entirely new markets.

I've been interested in cryptocurrencies for a few years now, but I've been very reluctant to trade them, much less write about trading them. I felt that there was just too much risk.

Especially for the average trader.

…and quite frankly, I didn't understand them well enough myself.

The first time that I saw them as viable for trading was when I went to this conference. I saw Chris Dunn talk about trading Bitcoin, but I was still skeptical that it would stay around for the long-term.

…until recently.

I credit my friend for talking to me about it on Twitter and opening my eyes to the potential in trading this emerging market. I'm not sure if he wants to be named, but you know who you are. I sincerely appreciate the education and helping me see the light!

This is a perfect example of the benefit of staying in touch with other traders on platforms like Twitter.

Anyway, as I have done more research and have actually started trading them, I have found that there are tremendous opportunties. With some coins, it's potentially like being able to get pre-IPO shares of Microsoft.

But there are also big risks.

Remember, the dot-com bust?

There will probably be losses of that magnitude too. That's just how these new technologies work.

So in this post, I want to share with you my knowledge of the cryptocurrency markets and give you a total beginner's guide to trading them. Be sure to bookmark this page because I'll continually update the information, as things change.

For you crypto veterans, this will be very simplified, but my goal is to make this information as easy to understand as possible so new traders can make an informed decision about the opportunities. Once people get the general concepts, then they can geek out about the details.

This is the future of FX trading. So in addition to USD/CHF, CAD/JPY and EUR/GBP, we also need to be aware of XLM/USD, ETH/BTC and XRP/LTC…

What is a Cryptocurrency?

Let's start at the beginning.

You may have heard many things about what a cryptocurrency is, but you may still be searching for an understandable definition. I hear ya, I was in the same boat for a long time.

Instead of getting too technical, here's the easiest way to think about cryptocurrencies:

A cryptocurrency is basically money on software platforms.

It's important to keep in mind that the teams/companies that are behind these cryptocurrencies are not only creating a new form of currency, but a new software platform. To demonstrate how this works, let's take a look at other software platforms that you are probably already familiar with.

Examining how these platforms work will help you understand cryptocurrencies. 

Here are a few software platforms that many people use:

• Windows: A software platform for personal computers
• Dropbox: A software platform for storing and sharing documents
• Fedwire: A software platform that sends money between financial institutions

On each of these platforms, a type of money is used, in exchange for using the platform:

• Windows: You pay US Dollars (or your local fiat currency) to buy a license for Windows to use on your computer. If you buy a computer that already has Windows on it, the license fee is included in the purchase price.
• Dropbox: You pay US Dollars (or your local fiat currency) to buy a subscription to use the software for a month or a year, depending on which plan you buy.
• Fedwire: You pay a transaction fee to use the system and you send fiat currency itself.

Each of these systems also have a database connected to it:

• Windows: Database is stored on your local computer
• Dropbox: Database is stored on the Dropbox servers
• Fedwire: Database is stored on the Fedwire servers

Cryptocurrencies essentially replace the US Dollars (or your local fiat currency) that you use to purchase these software services. The “database” that cryptocurrencies give you access to is based on blockchain technology. 

More on blockchain technology in the next section of this guide.

But wait, what are the software services that you are getting? Isn't a cryptocurrency like Bitcoin just a currency, like US Dollars?

Not quite.

The goal of cryptocurrencies is usually to improve on some type of existing software system or network. When you send money via PayPal, Fedwire or Western Union, you are basically sending fiat money electronically, similar to Bitcoin.

However, that's where the similarity ends.

Platforms like PayPal have severe limitations on what you can and cannot do. For example, you cannot send/receive money from certain countries (like Nigeria).

Cryptocurrencies like Bitcoin want to make financial transactions more open and accessible to everyone around the world.

Other cryptocurrencies solve other problems, which we will explore later in this guide.

Is Cryptocurrency Real Money?

Yes.

Since this is a new concept to most people, it will take some time to become widely accepted. This is where Bitcoin has been instrumental in paving the way for this new technology.

Websites like Newegg take Bitcoin, along with the other traditional payment methods. Here's what the checkout screen looked like after I added a drone to my cart.

Risks of Cryptocurrency Trading/Investing

Now that you understand the basics, what are the risks of trading these cryptocurrencies? There are quite a few, but here are the top three.

1. Some Technologies Will Fail

Remember that cryptocurrencies are basically software, created by people or companies. So just like Webvan or Pets.com in the dot-com bust, some of these technologies will fail.

…and they will fail spectacularly.

Right now, there is a lot of buzz around certain cryptocurrencies increasing several thousand percent, in a few months. This has a lot to do with ignorance and hype.

Just like when people found out that this new thing called the “internet” would change the world of business.

Did it change the world?

Of course.

But was there a lot of dumb money that overhyped the first wave of internet companies?

Totally.

So just remember, trading cryptocurrencies is kind of like trading a software stock. Some of the software will change the world.

Others will explode in a giant ball of fire.

There are also a lot of scam coins out there, so be careful. Like penny stocks that are just a company on paper, almost anyone can create a new cryptocurrency.

Learn how to separate the scams from the deeply underpriced currencies. Then use proper risk management and play the odds.

2. It Requires Technical Savvy

Let's face it, cryptocurrencies were created by super nerds. Like with Linux, there is still quite a bit of technical know-how that is required.

You don't need to know how to code, but if you are “not good with computers” you may want to stay away from cryptocurrency trading, at least until they start building more user friendly interfaces.

Don't get me wrong, I'm not calling anyone dumb. I'm just saying that if you don't possess a certain skillset, then you shouldn't get involved in that area. This could cause you to lose a lot of money, very quickly.

For example, I don't know how to sew, so I don't make my own clothes. If I did try to make my own clothes, everyone who meets me would think I'm a weirdo for wearing fucked up pants.

You get the picture.

So if you aren't so tech savvy, but still want to get involved, find someone you trust to trade for you.

3. There's a Lot of Broker and Technology Risk

Since this is emerging technology, there are still a lot of unknowns with trading at scale and how brokers and the software will react to certain surprise events. If you think that Forex brokers are risky, then you should consider cryptocurrency brokers at least twice as risky.

Not just because they could be shady, but there a still so many unknowns with the technology.

However, I would still trust the bigger cryptocurrency exchanges over a lot of offshore binary options brokers

So the lesson is: Don't keep too much of your coinage at the exchanges.

Move them off to your own wallet as soon as possible.

I'll get to wallets later in this guide.

What is a Blockchain?

Simply put, a blockchain is a database.

However, there is one huge difference between how you probably currently think of a database and how a blockchain database works.

In most cases, a traditional database sits on one computer or in one location.

Even if a company has redundant servers around the world, the data might only be backed up between 3 to 5 locations. On top of that, these companies collectively spend billions of dollars a year on cyber security, to protect this data.

With a blockchain database, the data can be backed up on potentially thousands of computers all over the world, for a much, much lower cost. The information in these databases is heavily encrypted and sometimes files are broken up into pieces, so even if one piece is exposed, it will not expose the entire file.

If the information on one server does become compromised by hackers, the other copies of the databases have to “agree” that the compromised data was a legitimate change to the data. If the other copies do not agree, then the change is rejected and it is changed back to match the others.

Obviously, this is an oversimplified explanation of the technology, but I hope that you are starting to see the benefits.

Instead of just one point of failure, like on a single server, you now have multiple copies of the same database all over the world that is almost impossible to crack and will “fix” itself in the case of a hack. This can also save a ton of money on cyber security software and services.

Example

Let's say that a hacker gets into your bank's computer tomorrow and transfers all of your money to his account, then deletes any trace of the transaction. With today's technology, you would probably be screwed.

But with a blockchain currency like Bitcoin, if one server was hacked and a fake transaction was inserted into the database, then it wouldn't match the transaction record on the hundreds other copies of the database. This transaction would be seen as a fake and rejected.

Your money would be safe. 

This is one of the many reasons why blockchain technology is so exciting.

The Characteristics of a Currency to be Aware of

Although cryptocurrencies are all based on blockchain technology, they are not all created equal. Here are some differences that you need to understand to make informed trading decisions:

• Transaction processing speed
• Total supply currently available
• Will there ultimately be a limit on the total number of currency available?
• Will there be an unlimited supply of currency?
• Is there a real-world need for this software/currency?
• Real world adoption of the technology
• Any big investors in the project?
• Does the use of the software make sense?
• Do the founders have a reputable background?

These are just a few of the characteristics that you should look at. But once you start digging into these details, you will begin to see which projects could work for their intended purpose and which ones are probably scams.

This understanding will also allow you to assess the long-term viability of these different currencies and which ones will be more desirable in the future.

Example

Tether is a cryptocurrency that wants to be the proxy for fiat currencies. So there is a Tether USD version, EUR version, etc. But each one is pegged to the value of the currency, so you can never make any money trading it.

It is purely to provide stable and liquid transactions. So one USD Tether will always be worth about $1.

If you didn't know this and bought a bunch of it, thinking that it's cheap compared to Bitcoin, you will tie up your money in an asset that will never appreciate. Sure, you won't lose money either, but you would have lost out on other opportunties.

So understand the nuances of each crypto, it's very important.

What are the Different Cryptocurrency Use Cases?

Almost every currency software has a different intended purpose and individual implementation, with inherent strengths and weaknesses.

It's like Windows vs Mac.

…or iOS vs Android.

Here are a few examples of the different types of cryptocurrencies and what they are designed to do. This is not an exhaustive list, just a sample.

Note: I don't necessarily support these currencies, I'm just using them as examples of the different use case niches within cryptocurrencies. 

Worldwide Financial Transactions

• Bitcoin
• Litecoin
• Tether
• Ripple
• Stellar Lumens

Application Platforms

• Ethereum
• Storj
• Siacoin
• MaidSafe

Private Financial Transactions

• Monero
• Dash
• Zcash

Specialty Currencies

• GameCredits
• ReddCoin

Take a look at these different use cases and figure out which ones make the most sense to you. Then understand how each software implementation works and think about what will probably do well in the future.

To see our extensive list of cryptocurrency sectors, read this post.

How do You Buy Cryptocurrencies?

First have to go to an exchange or service that will allow you to purchase cryptocurrencies. Some of the bigger exchanges are:

• Coinbase
• Kraken
• Bitfinex
• Binance
• LocalBitcoins

Many of them will allow you to use a credit card or link a bank account. As much as possible, do not store your cryptocurrency at the exchanges because they can be hacked. See the cold storage section in this post for details on how to store you coins safely.

It's easy to get Bitcoin, Ether and Litecoin. But if you want the smaller altcoins, you will have to do an exchange.

How to Buy Altcoins

First buy Bitcoin or Ethereum because those are the coins that are most easily transacted against the smaller altcoins. When in doubt, buy Bitcoin. If you want $10 of Bitcoin for free, use this link (while supples last).

Then find out where the altcoin that you want is traded. Go to Coinmarketcap and click on the coin you want to buy.

Next, click on the Markets tab for that coin. For example, here's where you can get NEM. The Source column will show you the exchanges where this coin is being traded.

Notice how most of them are traded against Bitcoin or Ether. 

Open an account at the most reputable exchange on the list. Once you are in your account, find the “deposit” wallet address for the altcoin you want to buy.

Here's an example from Poloniex. Copy this wallet address.

Next, login to the account where you bought your Bitcoin or Ether. If you bought it from Coinbase, then you can go to: Accounts > Send and paste the deposit address into that field.

Enter the amount you want to send, then click the send button.

It may take some time for the transaction to go through, so be patient.

When you see the balance in your destination exchange account, you are now ready to buy altcoins. Here's what it would look like when you have a Litecoin balance at Poloniex. This can be found in Balances > Deposits and Withdrawals in Poloniex.

Now go to the Exchange area of the website. In Poloniex, it would look like this:

Then click on the BTC tab. These are the currencies that you can exchange for Bitcoin. Click on the altcoin that you want to trade. Here's and example from Civic (CVC).

Next, scroll down and look for the buy/sell box. Enter the amount of altcoin that you want to buy. If you want to trade all of your Bitcoin, click on the link at the top with your total balance.

Click the Buy button and you are all set. The trade might not happen right away, so check your Orders > My Open Orders page to see the status.

The exact process will be different at different exchanges, but the basic idea is the same for all exchange.

How do You Store Cryptocurrencies?

With fiat currency like US Dollars, you can store them at the bank or in your wallet. It's pretty straightforward.

But with digital currencies, there are a few wrinkles that you need to get your head around, but the idea is similar. Let's take a look at how cryptocurrency storage works.

You store your cryptocurrencies on the blockchain in a “wallet.” This is simply an address on the blockchain. It's like how the website address tradingheroes.com directs you to my website, on the internet.

Each wallet has a public address and a private address. The public address is the address that people send funds to. The private address is the “password” that you use to access and send your funds.

Never expose your private key until you are ready to spend your funds, otherwise you will probably lose all the money in your wallet.

Here's an example from a Bitcoin paper wallet:

Now that you understand the basics of cryptocurrency wallets, let's look at the different wallet options out there. Here are the different ways that you can store your loot:

• Online wallet: This is probably the easiest way to store your money. But it is also the least secure. So it's not a good long term storage solution, but it is fine for buying things and funding your trading accounts. Exchanges like Coinbase also have their own wallets built in.
• Mobile wallet: You can download a mobile app like Mycelium to store your spending money. It is more secure than an online wallet, but if your phone ever breaks or it gets hacked, everything in your wallet will be gone.
• Desktop wallet: Similar to a mobile app but just for desktop computers.
• Hardware device wallet: These are hardware devices that are built especially for storing cryptocurrency keys. They are safer than the options above, but they are still susceptible to the things that can damage all electronic devices.
• Paper wallet: You can also store your private key on paper, like in the picture above. This is the most hacker proof, but it is also the least convenient. If you are going to go this route, be sure to store them in a safe place (like a safety deposit box) and don't actually use paper. Use something like this to make sure that your money isn't lost to something as simple as a spilled beer.

Cryptocurrency Tracking Apps

Before I wrap it up, you will probably need an app to track cryptocurrency prices on your phone. So here are a couple of apps that might work for you.

• Blockfolio: A simple app that allows you to add a watchlist and add trades so you can track your portfolio, ala stock trading apps. The most useful thing about this app is that it displays all currencies on your watchlist in the currency of your choice. Some apps insist on displaying the value in Bitcoin, which is annoying.
• Coincap: This app allows you to display currencies by market capitalization, volume and other ranking factors. They also have cool charts. Very useful for seeing what is being actively traded. Also displays prices in your currency of choice.

These apps are not for storing or trading currency. They are just to check the markets.

What Can Affect the Price of a Cryptocurrency?

There are many things that can affect the price of a cryptocurrency…sometimes very quickly.

Here is what you need to be aware of when you trade cryptocurrencies.

Of course, there is no guarantee that these things will move the market. But based on what we have seen so far,

Exchange Listing

This is a big one.

When Coinbase added Litecoin to their already limited list of cryptocurrencies that can be bought, they made it easily accessible to the average person.

Their interface is the best I've seen so far. It makes it so easy for the non-technical person to buy Litecoin.

Soon after the Coinbase launch (marked with the arrow, in the chart below), the price of Litecoin started to skyrocket and it has never looked back.

Now, you might be thinking that this could simply be a coincidence.

…and it could.

But it is very, very likely that exposing Litecoin to Coinbase's user base helped boost the price.

So when a large exchange announces that they will start listing a cryptocurrency that you are trading, take notice.

Watch exchanges like Coinbase, Bitfinex, Poloniex or CEX.

It could give it the boost you have been looking for.

Software Upgrades

Over the past few years, there has been a lot of discussion in the Bitcoin community about upgrading the core software functions of Bitcoin. The primary discussion has been around the transaction speed of Bitcoin.

If you have ever funded your trading account with Bitcoin or tried to buy anything with Bitcoin, you will understand what I mean. For a digital currency, the transaction time is a little slow.

It can take about 30 minutes or more, to do a single transaction.

Upgrading this speed has been hotly debated and finally led to the creation of Bitcoin Cash. After the split of Bitcoin Cash, Bitcoin has taken off to new highs.

There will be countless other software changes across all cryptocurrencies, so make sure that you understand the implications of those changes. 

Public Hype

Just like fake tweets can affect the price of a stock, any type of hype can affect the value of a cryptocurrency.

Good or bad.

So before you dismiss something as just hype, remember that hype moves markets too. But if you do trade hype, be sure to close your trade out long before the hype has a chance to cool off.

Otherwise, it could be a very expensive lesson. 

Wallet Improvements

Since you are reading this post, you probably want to start actively trading cryptocurrencies. But there are many other people who are investors and want to buy and hold for the next few years.

This is where storage becomes an important part of the cryptocurrency valuation equation.

Unlike traditional fiat currency that can be stored in a bank, your trading account, or your mattress at home, cryptocurrencies need to have a compatible wallet (or cold storage solution) to be stored safely.

Remember that cryptocurrency is simply software. So the wallet software needs to be able to work with the cryptocurrency software.

It's like trying to use the Windows version of Microsoft Office on a Mac.

That simply won't work.

Therefore, if a cryptocurrency doesn't have a good wallet yet, that will prevent less technical investors from buying the currency.

But as soon as one is available, then it makes the currency much more accessible to the masses.

…and thus, more valuable.

If you find that a cryptocurrency does not have a good wallet solution yet, that could be one signal that it is undervalued.

Looking for opportunities to buy, immediately after the launch of the first high-quality wallet, could give you a nice short-term profit.  

Platform Applications

Some cryptocurrency platforms, like Ethereum, host other applications. These applications, in turn, can have their own currencies or tokens.

If one of these DApps or Decentralized Apps does very well, this can have a positive effect on the underlying platform currency.

The value of the tokens should theoretically be independent of the value of the platform.

However, not everyone understands this and the success of one DApp can drive the price of Ether…at least in the short term.

So if you are trading a platform cryptocurrency, watch promising apps on the platform closely. 

Government Regulation

Finally, government regulation can have a huge effect on the value of a cryptocurrency.

One example is in Venezuela, where the police have been arresting Bitcoin miners on made-up charges. This has forced miners to go underground or start mining Ether instead.

But this could happen in any country. Any decision by the NFA or SEC could affect the value of certain cryptocurrencies. The SEC has already banned certain Initial Coin Offerings (ICOs), due to the potential pump and dump situation that could happen with those coins.

Be aware of current trends in government regulation and steer clear of currencies that could get red flagged by government agencies. 

Conclusion

So that is the Trading Heroes Beginner's Guide to Trading Cryptocurrencies. I hope that it answered any questions that you may have had about trading currencies like Bitcoin or Ether.

There will be more detailed posts on specific currencies and how to do some of the things mentioned above.

If you have any more questions or comments, leave them below.

Happy Trading!

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The post The Total Beginner’s Guide to Cryptocurrency Trading (Bitcoin, Ether and More) appeared first on Trading Heroes.