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Bitcoin

What is Bitcoin? (the beginners’ guide)

chanman · Aug 21, 2017 · Leave a Comment

what is bitcoin

Since starting this blog and dabbling in Bitcoin and Ethereum, friends of mine have asked me to hold off with the dollar cost averaging stuff, and go back to the very beginning.

Questions they’ve asked:

  • What is Bitcoin?
  • Why is it trending now?
  • Why should I buy one now?
  • How do I get one?
  • How should it be viewed in your portfolio i.e. is it an asset?
  • How is it different from normal currency?

In this post, I’m going to answer the first question:

What is Bitcoin?

Bitcoin was created by a Satoshi Nakamoto. Nobody knows who he or she is.

The idea was to create a new currency, one that was fully online and digital and that was fully decentralised.

Problems with normal currency

The problems with normal currencies stem from their dependence on third parties.

Normal currencies are controlled by that country’s government and central bank.

So Pound Sterling is controlled by the UK Government and The Bank of England.

Third parties can devalue a currency

The UK Government can print money. Since 2008, they’ve pumped shitloads of new money into the system. This over supply devalues the currency. It buys less now than it did then.

Third parties charge you unnecessary fees

You have to pay fees to move money into other currencies and to move money across borders. Why should you pay £25 to move money to The Philippines in addition to the money you lose on exchanging one currency for another?

Bitcoin aims to solve all these problems. How does it do this?

Well Bitcoins run on something called a Blockchain.

Blockchain is a system or network of ledgers. A ledger is like a register.

The network has the effect of decentralising how the currency operates.

These ledgers record every single valid transaction in Bitcoin that is made. So if I send you a Bitcoin, this transaction is first verified by other ledgers in the system, then the ledgers get synced with the verified transaction. This is truly peer to peer.

We don’t need a bank or institution to tell us that the transaction was made. Other users verify that the transaction happened and then this transaction is recorded on all the ledgers in the blockchain.

There is no need for a bank to verify a transaction. There is no need to use a bank to send or receive money.

I can send money to you in The Philippines peer to peer. I send you a Bitcoin and you receive it. All in minutes or even less. For me to send you money that you could use, you would have to open up a Western Union account, send GBP to be converted to Pesos, then you would have to open up a Western Union account too to receive it. Not so with Bitcoin.

Essential further reading and viewing for ‘What is Bitcoin?’

https://bitcoin.org The official Bitcoin website

https://www.weusecoins.com

https://99bitcoins.com

https://www.investinblockchain.com/what-is-bitcoin

How and why to dollar cost average building your Bitcoin position

chanman · Aug 15, 2017 · 2 Comments

So you want to start building your Bitcoin position?

How should you go about it? Should you just whack your full investment stake in one go?

In this post, I’m going argue that you shouldn’t just whack it all in, and instead I’m going to argue that you should dollar cost average your Bitcoin investment.

What is dollar cost averaging?

This is a way of building a position and making sure that your overall price that you entered a position isn’t too high. (assuming that you want to go long) or too low (assuming that you want to go short).

Example: buying Rolls Royce stock.

If you have £1,000 that you want to invest (i.e. buy/go long), then you could invest that whole £1,000 into Rolls Royce now. Looking at the price in the chart below, the current price as at 14th August 2017 is 904.50p or GBP 9.045.

Now you could put the whole £1,000 into RR at this price.

But what happens if the price starts to fall in the next month, say it drops to 800p? That’s a drop of 11%?

Well, this sort of thing does happen. 11% lower than you got in for? You’re not going to be happy. You’re going to wish that you got in at a lower price. However, you couldn’t have predicted that the price was going to go down anymore than you could have predicted that the price was going to rise following your purchase. But there is a way that you could have lessened the blow of the price drop:

You could have dollar cost averaged your entry into this position.

The easiest way to see this is to imagine that you split your total investable stake (£1,000) into equal chunks say (four lots of £250) and invest at pre-defined intervals (say £250 every week). In our decline case for RR above, this might look like:

Week one: invest £250 at 904p

Week two: invest £250 at 860p

Week three: invest £250 at 835p

Week four: invest £250 at 801p

First step is to calculate how many shares each weekly investment would buy you, then you add up all the shares you bought to arrive at the total RR shares bought.

Then you divide the total investment made (£1,000), by the total number of RR shares (118).

You get an average price of £8.47 or 847p.

Here’s the steps in spreadsheet form:

dollar cost average Bitcoin

So thanks for the maths lesson Chan, why does this matter?

Well, if the price is now at 800p (£8.00), then your loss from your average price at £8.47 is less than it would have been had you gone all in at 904p (£9.04).

Fair enough however, the price might have only gone up from 904p (£9.04), and then you’d be sore that you dollar cost averaged with a rising price, therefore reducing off your gains.

This matters even more with Bitcoin and cryptocurrencies

Smoothing out your entry is even more important when trading in volatile things. In our context, volatility refers to the price movements of Bitcoin and other cryptocurrencies.

Look at the price movement from Bitcoin 2017 to date:

dollar cost average bitcoin
2017 YTD Bitcoin price from coinmarketcap.com

The green line above is the price of Bitcoin in USD. Look at the volatility!

From mid-July 2017 to 15 Aug 2017, Bitcoin has risen from USD 2,000 to past USD 4,000. That’s 100% in a month!

You don’t see moves like that in normal stocks like Rolls Royce above.

This extreme of move plus the speed of the move is why dollar cost averaging is so important when building your Bitcoin position.

So if you have £10,000 to invest in Bitcoin (going long), don’t just pump it all in at today’s price. Split it into four £2,500 chunks and invest these in weekly intervals over four weeks and see what your average price for your Bitcoin will be.

Let me know how it goes in the comments below!

Two unplanned new trades (BTC and ETH)….and I need a new Ethereum Wallet

chanman · Aug 13, 2017 · Leave a Comment

In my previous post, I ended saying I was going to buy some Monero (XMR).

This it turns out isn’t as easy as I thought it might be.

I couldn’t find one exchange that traded a fiat currency (normal currency), in this case Sterling (GBP) for XMR.

The closest fiat currency I could trade for XMR was USD to XMR on Kraken, which I didn’t fancy because I don’t have a USD account (I live in the UK). Even though Kraken looks to have a very good reputation (more on that in a future post).

A Google search for ‘Buy Monero’ gave me this result https://www.monero.how/how-to-buy-monero

https://www.monero.how/how-to-buy-monero

Reading the above page on https://www.monero.how/how-to-buy-monero and the recommended MoneroEric’s guide (which is SUPERB by the way), told me that I needed to buy Monero with Bitcoin and then either swap the Bitcoin for Monero (like Shapeshift) or buy Monero with Bitcoin using an exchange (like Poloniex or Kraken).

So before deciding which method to go with, I needed to buy some more Bitcoin.

Check out my previous post on buying Bitcoin which is pretty painless. The only thing I would look at again in the future is whether the price of Bitcoin (and other available coins) on Bittylicious is more than the price for the respective coins on other exchanges. But for now, the ease and the confidence I have with Bittylicious outweighs the price considerations. Like I constantly say on this blog, this is like the Wild, Wild West and sites that you have confidence in are worth a lot in navigating this new terrain.

I bought some Bitcoin, but not much, as the price is as high as I’ve seen it. It was GBP 2,999 per Bitcoin (BTC). I won’t tell you how much I bought but it wasn’t much. I realise now that I have to build my BTC position and my Ethereum (ETH) position for two reasons:

  1. Firstly, they are the most dominant cryptocurrencies in the world at the moment and
  2. Secondly, they are useful to be able to buy other cryptocurrencies with, whether using exchanges or swapping sites.

So after I bought some Bitcoin, I decided to buy some Ethereum, also using Bittylicious. I bought 0.5 ETH and went through the trade process on Bittylicious but this time I had a problem.

Whilst my bought Bitcoin hit my Bitcoin wallet, my bought Electrum did not. Or at least I couldn’t see that by bought Ethereum reached my wallet.

Remember from my previous post on buying Ethereum, that I chose to use the official wallet on the Ethereum project site. This is a node of the full blockchain. In a nutshell, this wallet has to sync with the entire blockchain in order for your transactions to be visible within your wallet.

My wallet hadn’t been synced in a while and I had 190,000 blocks to sync with until my wallet was fully synced. 190,000!!! At a rate of 2 or 3 a second, this was going to take hours at a normal broadband rate. Not good at all.

A lot of people it seems have this problem with the official Ethereum wallet. I chose it because it was on the official Ethereum site, and safety is important in this space. But it’s not user friendly at all.

Check out these dissatisfied comments on the wallet: https://github.com/ethereum/mist/issues/1795

So I’m in the

Next steps:

  1. Build my Bitcoin position – using dollar cost averaging to get the best blended price I can get – more in a future post
  2. Build my Ethereum position
  3. Get a new Ethereum wallet and send my Ether (ETH) there once my ETH shows up in my current wallet
  4. Buy some Monero using one of the methods above

Further reading

On how to buy Monero

https://www.monero.how/how-to-buy-monero (Great resource)

https://moneroeric.com (A short blog – so far – but detailed and very useful guide to buying your first Monero and getting a wallet)

https://getmonero.org (The official Monero project site)

 

How I bought my very first Ethereum cryptocurrency (for complete beginners)

chanman · Jun 6, 2017 · Leave a Comment

How to buy Ethereum

In my last post, I wrote about how to buy bitcoins for a complete beginner.

Since then, I’ve wanted to buy other cryptocurrencies to diversify my exposure to cryptocurrencies.

I want a basket of cryptocurrencies.

Next on the list is Ethereum.

How to buy Ethereum

Now this wasn’t as straightforward as buying Bitcoins, possibly because it’s a much younger coin.

First up, like with Bitcoin, you need a wallet.

Googling ‘best ethereum wallet’ doesn’t yield good results.

Instead, go to the source again (as we did with Bitcoin). Go to Ethereum.org.

Here, download the Wallet:

How to buy Ethereum
From Ethereum.org

Next, install it.

This isn’t that straightforward, so here are two great videos showing you how to do so for Mac:

Once you’ve installed and backed-up your wallet, it’s time to load it with Ethereum.

Where to get Ethereum?

Google will take you to Coinbase.

Unfortunately, I had the same problems with Coinbase as I did when trying to buy Bitcoin.

I couldn’t even get past the verification stage.

I’ve tried to upload ID documents to Coinbase multiple times and each time I fail.

It’s not user-friendly at all.

So I googled it again and I was delighted to learn that Bittylicious actually sell Ethereum along with other coins.

The only negative I read was that Bittylicious prices can be higher than other exchanges.

The price difference wasn’t enough to put me off though. The fact that I had already gone through the ID verification stage with Bittylicious and wouldn’t have to do it again was a godsend.

At the time of writing, the price on Coingecko for GBP was:

GBP price for ETH at 7.20pm GMT 6th June 2017 – Coingecko.com

 

Whilst on Bittylicious, the price was:

GBP price of ETH on the same date and time

 

That’s a difference of £10 or 5%. It’s not small, but it’s not terrible.

Anyway, follow the instructions for Bittylicious in terms of bank transfers to the seller and use the Ethereum wallet address for delivery/receipt, and you’ll have your first Ethereum.

Like with Bitcoin, start small with your buys and get comfortable first.

Good luck! Let me know how you get on in the comments below.

Next stop, buy some Monero.

How I bought my very first bitcoins (for complete beginners)

chanman · May 15, 2017 · 4 Comments

How to buy bitcoins

The recent cyberhacks got me thinking about bitcoin. I also saw an old article on the brilliant Sprezzaturian website by Mikael Syding where he outlines becoming expert in a hot topic and consulting on that newfound knowledge (in this example, Bitcoin and Blockchain).

I watched a few videos on what Bitcoin and Blockchain are:

I looked at the price and historic prices were for Bitcoin:

Bitcoin chart IG Index
Credit: IG Index

My usual self would have ploughed into this kind of hockey stick action.

Luckily for me, it’s not that easy to buy the underlying assets.

Let’s look at how to buy bitcoins.

Bitcoin Wallet

You need a Bitcoin wallet in which to store your Bitcoins.

I looked on Google for best Bitcoin wallet and came to articles by 99 Bitcoin. This is a good website which recommended Coinbase.

I checked out Coinbase and Xapo and leant towards Coinbase because it was an exchange (where I could buy Bitcoins) as well as being a wallet. A one stop shop which was attractive to me as I am naturally lazy.

However, I tried to open an account at Coinbase but had issues uploading ID documents, which meant I couldn’t open an account at that time.

Frustrated, I did some searches on ‘Coinbase reviews’. There were lots of bad reviews about how people’s accounts being closed with no reason and people losing their Bitcoins.

Not getting an account with Coinbase was actually a lucky escape, so I decided to go back to the source.

The official website is bitcoin.org

Here it offers a selection of wallets and rates them according to 5 criteria.

Coinbase didn’t come out of it well.

Check out the page and click on the icons for each provider to see the most up to date assessments by the official Bitcoin page.

I went with Electrum.

Install your chosen wallet according to the instructions from the provider.

Bitcoin Exchanges

Again, I went straight to the source at Bitcoin.org and found a list of reputable exchanges. (Important because Exchanges can go tits up – look at Mt. Gox)

I decided to test each.

The first listed for the UK was Bittylicious.

This was straightforward to get up and verification of ID took under 24 hrs.

Before given the all clear, you’re allowed to make a very small trade.

So go to your wallet (above) and find your Bitcoin address.

Plug that into the address bar on the trading page.

I bought 0.025 of a Bitcoin (BTC) first.

Then I bought 0.2 BTC.

After each trade settles, check your wallet that the bitcoins have been received.

Final tips on how to buy Bitcoins

Start with a small trade. Don’t go sticking thousands of pounds into your first trade. Get comfortable with small trades first.

Try different exchanges and find one that you’re comfortable and that you trust with your gut.

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