Given the huge volatility and risks involved, buying cryptocurrency could be the worst investment decision you ever make. For me, it is a bit like the dot com boom: many people recognise that this technology may change the world and are just throwing money at any opportunity to profit from the change. At the same time, historically owners of cryptocoins like Bitcoin have made massive returns and it is interesting to understand how to buy cryptocurrency directly if you want some exposure. This article starts with a basic intro to cryptocurrency, then goes on to show you 3 ways you can obtain them yourself.
Before you read any further, look at these two tweets from a bitcoin analyst as a caution before investing any money:
— Chris Burniske (@cburniske) August 12, 2017
6/ After every bubble there's a crash
In those 3 periods #bitcoin's drawdown:
June 2011 peak to trough: -93%
April 2013: -71%
Nov 2013: -85%
— Chris Burniske (@cburniske) August 12, 2017
A Short Introduction to the CryptoCurrency Market
Bitcoin, the most well known cryptocurrency, is a ‘cryptocurrency and digital payment system’ invented in 2009. This is a basic introduction for newcomers:
In very early days bitcoin was easily mined on a personal laptop and worth next to nothing – in 2010 someone bought 2 pizzas for 10,000 bitcoins. Towards the end of 2013, bitcoin entered it’s first major boom and the price rose from around $130 a coin to over $1,000 per coin. After this first boom, the price fell back to around $200 – $400 from late 2014 and was ‘stable’ for about 18 months before entering a new boom phase in 2017. Bitcoin is sometimes written in shorthand as ‘BTC’.
Ethereum is a more recent competitor to bitcoin, released in 2015. It’s focused more on ‘distributed computing’ and ‘smart contracts’ rather than digital payments. Ethereum has the backing of various banks and companies through the ‘Enterprise Ethereum Alliance‘ agreed in March 2017. As I understand it, Ethereum is more technically advanced than bitcoin and has the backing of more 3rd party developers/ enterprises. There’s 2 types of Ethereum:
- Ethereum Classic
This article explains the difference between the two. In short, there was a disagreement within the developer community and they split the original in two (a ‘fork’). The non-Classic version is by far the most popular.
Ethereum entered into its own first boom around March 2017, rising from around $15 per ‘ETH’ to around $392 per ETH in June 2017. One driver of this growth was that Ethereum became the coin of choice to raise capital for new cryptocoin projects – ‘ICOs’ (the crypto equivalent of an IPO). These ICOs raised hundreds of millions of dollars in funds, which had to be paid for in Ethereum. Now these companies are selling off the ETH raised in ICOs to pay for their own development, which will perhaps be ongoing downward drag in the price.
After a recent Bitcoin fork there are now also two types of Bitcoin: the original and ‘Bitcoin Cash’ which is meant to allow more speedy/lower-cost transactions. Since the fork the original Bitcoin price has risen to over $4,400 per coin while the new offshoot has fallen to under $300.
You can view a list of all the active cryptocoins on https://coinmarketcap.com/. This ranks each coin by market value, i.e. the price of one coin multiplied by the total number of coins in existence. In practice this may overestimate the total market cap, as many coins may have been lost, perhaps up to a third of all bitcoin. If you click into a particular coin you can see the price history and some links for more information. You may be shocked to see the total number of coins and their volatility!
How to Get Some Yourself
Here are three ways you can get some cryptocoins yourself. There are many additional ways, but these are options that I’ve used myself and should be enough to get you started.
Method 1: Bitcoin ATM
If you are fortunate, you may have a bitcoin ATM close to you: check this bitcoin ATM map. I tried one of these in London in 2014 – it was a slightly out of place ATM machine inside a standard newsagents. The staff member didn’t really know what it was and I had to call the owner when it didn’t work properly. Hopefully things have changed by now. Once you have bitcoin you can trade it on an exchange like Poloniex or Bittrex for other coins, just be careful about transaction fees. If you want a fast transaction, Bitcoin transaction fees can be very high.
Method 2: Coinbase
Coinbase is a website which offers an easy way to buy bitcoin, ethereum or litecoin via your bank account or with a credit card. I’ve read some bad reviews which put me off using Coinbase for a long time. However, I have used it myself for small amounts and had no problem.
There is an approximate 4% fee to buy cryptocurrency with your credit card. I was worried that my bank (Halifax) would also charge me the interest charges for a cash withdrawal if I used my credit card to buy, but fortunately they didn’t.
Coinbase have a referral scheme for new users. This is my Coinbase referrral link:
If you buy or sell $100 worth of cryptocoin after joining via this link then we would both receive a bonus $10 worth of bitcoin.
Method 3: Steemit
This is an unusual method that you probably won’t see elsewhere, but it is one way I have been getting cryptocurrency ‘for free’. Steemit.com is a social media site which pays out its own cryptocoin for upvoted content. You just need some time and patience to convert this to other cryptocurrency. The method is:
- Register with Steemit with a phone number and wait for a few days for them to verify your account.
- Post any sort of content or comment on other posts and get upvotes. If you have used the website ‘reddit.com’ it is very similar.
- Depending on the number and weight of your upvotes you are rewarded for each post.
- Wait 7 days for the rewards to be paid out from each post.
- Half of the rewards are paid in SBD, a currency theoretically pegged to the dollar which you can send to an exchange and trade for other coins like bitcoin or ethereum. The second half of rewards are paid in ‘Steem Power’, which is almost like network reputation and determines the value of your own vote. It takes 13 weeks if you want to ‘power this down’ into SBD.
With this method you are creating your own coins by publishing upvote-worthy content. The Steemit network itself has been described as a bit of a ponzi scheme – where a large percentage of the total value was given for free to the creators and their friends. However, if it goes wrong you lose time rather than money. I have made a few hundred dollars worth of cryptocurrency via this method. Rather than writing posts manually I wrote a python script to create posts based off web APIs and can make anywhere between $0.05 and $45 each time I run them. If you know any basic python programming it is really easy to make bots for this network and the entire blockchain is queryable via MySQL or MongoDB.