Well, the day has come. I've been yapping about cryptocurrency and blockchain on here for months. I finally put my money where my mouth is. Today, I try and help guide you down the path that I took in buying crypto because the most intimidating part is figuring out where to start. You might be flirting with the idea like I was but have no starting point.
I consider myself to be relatively well informed on the subject, but naturally, there are several unknowns when dealing with this area of cyberspace. I might get some fact checks as certainly some of you know more than I do. On the other hand, I think that makes this post more genuine as most people are very novice in cryptocurrency. I’m the people’s crypto coach.
(This is not investing advice. I’m the last person to be dishing that out.)
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Steps to Buying My First Cryptocurrency
First...Know What You’re Investing In
Some would say this is the cardinal rule of investing. If you cannot tell me what the company does, then you’re probably buying off of influence. I invested in a midstream fuel company at a time when oil trading at NEGATIVE $/barrel. I was buying based on someone else's hype.
This has been the narrative behind cryptocurrency. Just a lot of hype, huh? I was in this boat for the past, call it, 4 years. The crutch I would use with crypto was the intangibleness of the investment. It's harder to be skeptical when you're talking about something that produces tangible results like a company. Why do you think people on CNBC go live on air and use fancy, incomprehensible jargon for a 3-minute segment? Because they want to build as many moats as possible to when the results of their prediction happen.
“An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today.” - Laurence J. Peters
In understanding what it is you're investing in with cryptocurrency, you and I have to understand what money is. There is no magical secret to cryptocurrency other than it's just money. So, what is money?
I chronicled my time moving to a new house in March. In the two months since I have increased the credit card bill dramatically. We’re in an inflationary time right now regardless of what the Federal Reserve says. My Cookout tray has gone from $5 to $7; my drink at Yehaw last weekend was $10; gas is steadily rising; clothes for the summer will cost a paycheck. Why is this?
The Federal Reserve ('Fed') prints your money and tries to produce a perfect money supply (the amount of currency in rotation right now). If the Fed prints money faster than you can spend on a new summer swimsuit (real output), then that causes inflation (the price of your swimsuit will go up). No one was spending during Covid, so the Fed decided to print more money (your stimulus). After you got a check, everyone spiked their prices. Therefore, it levels out. Glad I did two semesters of Econ classes.
The US Dollar (USD) itself is worthless, just like the shekels they used in B.C. times. Commerce is based on the assessed value of goods and services depending on what people are willing to pay. After that understanding is established, we produce a medium of exchange (not everything is USD). Since we as humans aren't that moral, we have to have a governing body to control the money (ha).
At its core, when you exchange USD for cryptocurrency, you are getting nothing in return. This is where people - like past me - check out. But, the thing that keeps me hooked is how we receive everything of value from the internet. Almost everything I do requires the internet. Cryptocurrency allows us to now exchange value over the internet. You're investing or dealing in what you're already doing.
Next...Process of Buying
Probably 50% of why I didn't buy any cryptocurrency earlier was being confused on where to start. I envisioned having to download some strange software and going into the depths of the internet like something out of a movie.
Buying Cryptocurrency
So let's take it from the top... In our cashless world, almost everyone chooses to store their funds in a bank. When you get paid, your company direct deposits funds into your bank account. You will likely never see the money, but we trust the bank and rely on ledgers to allow us to transact. Cryptocurrency is no different.
To own crypto, you must first create a digital wallet. These wallets serve as a crypto bank account. The only difference is you don't drive to your local digital wallet branch and set up your account like you would a bank. Digital wallets rely on the system of public and private keys to transact. For comparison's sake, your public key is like your bank account number, and your private key like your bank account pin/password. Once you sign up for a wallet, a public and private key will be generated.
Ex. You want to buy a new pair of shoes. You find a vendor who accepts cryptocurrency. You join the same network (backend stuff) and exchange public keys (a way to authenticate the transaction, like having a bank account). The transaction takes place and gets implemented on the blockchain (online decentralized ledger, I write about this here). You use your private key as a means to access all of this.
The rest is a lot of backend stuff that you can read more on here, but let's touch on a couple of the wallets:
Hardware Wallet
There are a plethora of different wallet providers that have launched. It can be overwhelming to Google "cryptocurrency wallet" and then try to weed through the results. I began here, and it's a mess of Reddit threads mixed with paid write-ups on why a certain wallet is superior.
For me, safety was probably my biggest concern. I didn't care about the bottle-service benefits that some wallets project. I'm not investing large amounts, but it's still an investment in an unknown environment by many who partake in it. I wanted to know that my crypto was secure.
I decided to roll with a hardware token which is a physical device that stores your private key. This adds an extra layer of security making your account inaccessible without the token itself. Fun fact - there have been no confirmed hackings of a hardware token account to date.
The two most popular hardware I researched were Ledger and Trezor. Ledger just recently had a security breach of personal information (not of actual account funds), so I went with the latter. Another perk of Trezor is it operates on an open-sourced platform (I write on this here), so it's been validated by the coding wizards of the world.
When purchasing a hardware token from one of these sites, make sure it is a legitimate site as there are several fakes.
Online Wallet
If you aren't planning to buy Bitcoin at the fun $60k price tag, then you're probably enticed with the more affordable Dogecoin or any of the other small-scale cryptocurrencies. This is where online wallets might make more sense.
The difference here is the factor of your private key. When you sign up for an online wallet, technically, you're storing your private key in the network. This exposes risk whereby anyone can hack into your network, obtain your private key, and steal your funds. Again, that's the worst-case scenario and most of the recognized wallets have steered clear of this.
But other than that, the logistics of the transaction stay the same. Plus, you get to enjoy some of the perks of an online wallet similar to a credit card rewards system.
Trading Cryptocurrency
Coinbase rocked the financial world a few weeks back when they went public at a record IPO. Their valuation has put people (including myself) in a mental hurdle of wondering what crypto trading has become. This graph shows the rise in Coinbase users over time:
Coinbase is at over 56 million users and will only see more growth post-IPO. People are seriously starting to trade in crypto but make sure to not confuse this with owning cryptocurrency.
These exchanges work as speculation trading of coins. You're essentially buying an IOU on the basis that the coin will go up in value. Remember, unlike an investment in a company, crypto is a form of currency so it does not generate cash flow. In order for you to profit, another user has to be willing to pay more for it than you did down the line.
So when you buy cryptocurrency on exchanges, you are not obtaining ownership in the coin itself. Coinbase controls your public and private keys for you similar to a Robinhood investment account (who you can now trade crypto on). You're speculating on the price. It's not a bad thing because we have seen some "to the moon" prices.
Overall
It's was cool to actually buy a coin. It helped me to piece the puzzle together of how this process works. But... If we are in the trust tree, I felt kind of stupid after purchasing crypto. Like a "what now" attitude. I'm not going to transact with it. Similar to everyone else, I'm just trying to make sure I show up before it's too late.
Where I finally landed was that's not a reason to dismiss it. I feel off about it because of the newness. Combine that with the complexity, and again, it's so easy to dismiss this intangible system. Remember, almost every system has been changed by the internet. Why would the money you use not be next?
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