what is ethereum?

Okay, before we get into this guide, you need to do one thing:

Stop thinking of Ethereum as a cryptocurrency.

Honestly! Although Ethereum does use a form of digital currency, it’s much bigger than money.

Ethereum doesn’t aim to be a global cash system like bitcoin. Ethereum is more like… the internet.

It’s often referred to as the “world computer,” but in simple terms, Ethereum is a platform for anyone to build something with blockchain technology.

Ethereum is a playground. It’s like lego. Or Minecraft.

In this guide, we’ll answer the burning questions: What is ethereum? How does it work? Who created it, and where can you buy ethereum? We’ll try to answer them all in plain language. However, you may want to read our explainer on Bitcoin first to get your head around the basics of blockchain.

CONTENTS

PART 1: What is Ethereum? (A Simple Guide for Beginners)
PART 2: What Is Ether, the Currency?
PART 3: Who Founded Ethereum? a Brief History
PART 5: How to Buy and Store Ethereum
PART 6: What’s Next and Who Are Ethereum’s Competitors?

PART 1: What Is Ethereum? (A Simple Guide for Beginners)

Ethereum infographic - ethereum explained

Infographic courtesy of @angelomilan

Ethereum Basics

Ethereum is a gateway for building just about anything on the blockchain – apps, games, contracts, even new cryptocurrencies.

But why would someone create an app on Ethereum rather than, say, the Apple app store or a normal website?

To understand why, let’s take a look at the Apple App Store and its problems.

Firstly, Apple is acting a gatekeeper. Every app must be vetted and approved by Apple. In fact, Apple rejects tons of apps or forces them to change how they operate.

Secondly, all the apps are hosted on Apple’s servers and accessible only to those with an Apple ID

This is the definition of centralization. One company controls many thousands of apps.

Then there are the apps themselves. A banking app, for example, saves your personal details, account numbers, and balance on its servers. Another example of centralization.

Ethereum infographic centralization explained

What’s Wrong with Centralization?

First, there’s the philosophical argument. Should one company, like Apple, really be the gatekeeper to the world’s apps?

Second, there’s the practical argument. If all the apps are stored in the same place (Apple’s servers), it’s much easier to hack. There’s one point of failure.

The same goes for the apps themselves. If all your private information and data is stored on the app’s servers, it’s more vulnerable to thieves.

Even websites are centralized. They’re built on cloud servers owned by hosting companies. One gatekeeper. One point of failure.

But what if websites weren’t hosted on one central server? What if apps didn’t have to be approved by Apple and stored on their cloud?

Enter Ethereum…

How Does Ethereum Work?

Ethereum is like the app store, except it isn’t owned or controlled by any one person or company.

Everything built on Ethereum is supported and verified by thousands of computers, all at once, all over the world. It uses blockchain technology to make sure there is no central authority.

Ethereum infographic how ethereum works

It takes what Bitcoin did for money and applies it to any industry on the planet.

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What is Ethereum

How Is Ethereum Different to Bitcoin?

Let’s back up and talk about Bitcoin for a moment. Bitcoin uses the blockchain to record financial transactions with complete transparency and security.

In other words, bitcoin is all about money.

But blockchain doesn’t only have to track money. Blockchain can record just about anything: electoral votes, goods, stocks, oil, contracts, data, home ownership, cartoon cats! (yes, really.)

Ethereum takes Bitcoin’s underlying technology and expands it for everything. More importantly, it allows creative developers to build things on it.

vitalik buterin ethereum circle“Bitcoin is great as a form of digital money, but its scripting language is too weak for any kind of serious advanced applications to be built on top.” – Vitalik Buterin, Ethereum founder.

 

Having said that, Ethereum and Bitcoin do share the same core values that make it so strong:

No censorship – Anyone can build anything they want, without a large company or government limiting their vision. Like Bitcoin, there’s no middleman.

Secured with cryptography – Like everything on the blockchain, building on Ethereum is secure. Transactions are encrypted and there is no single point of failure, so it’s very difficult to hack.

Immutable – Transactions on the blockchain cannot be reversed or altered.

Transparent – All transactions are preserved in the blockchain forever.

Still confused? Watch Ethereum’s founder Vitalik Buterin explain the whole concept:

Okay, so we know that Ethereum is a gateway to building on the blockchain. But what exactly can you do with it?

Ethereum Dapps (Decentralized Applications)

Most developers use Ethereum to build Dapps (decentralized applications). Dapps are just like an app on your phone, or a website, but hosted on the blockchain.

A Dapp is essentially any blockchain project that does something useful.

Bitcoin could be considered a Dapp. It’s a Dapp for transferring money without a bank.

Many thousands of others exist. For example, you might have heard of Cryptokitties. It’s a Dapp for buying and trading collectible cartoon cats. It’s like Pokemon cards but on the blockchain. It might sound ridiculous, but it’s actually quite revolutionary. Every collectible crypto kitty is 100% unique and cannot be duplicated because it’s on the blockchain. The rarity lead one buyer to pay over $100,000 for one crypto kitty.

cartoon cryptokitties collectibles on ethereum

More practical Dapps include Ethlance, a completely transparent freelance jobs portal. There are no fees and every contract between freelancer and client is executed on the blockchain. No more chasing payments for freelancers.

Read more: 10 Most Popular Dapps on Ethereum Right Now

Ethereum: A Launchpad for New Cryptocurrencies

Many of the Dapps built on Ethereum have also launched their own cryptocurrencies.

In fact, some of the biggest cryptocurrencies on the planet started on Ethereum.

EOS, TRON, Vechain, and ICON all started life as projects on the Ethereum network. They have since branched off and created their own blockchain (or mainnet).

A further handful of top 20 coins are still ‘hosted’ on Ethereum, including OmiseGo0x and Binance Coin.

Not only can you use Ethereum to build a new project, you can use it to create new cryptocurrencies.

Ethereum Smart Contracts

Ethereum was also created to execute smart contracts.

The easiest way to understand smart contracts is the much-used vending machine analogy.

A vending machine is a simple contract. It will automatically release a can of coke when the correct amount of money is inserted.

Smart contracts are the same. The contract will automatically execute only when certain conditions are met.

In a more practical example, let’s say you’re buying a house. Normally, a lawyer is responsible for executing the contract. They check whether the money has been transferred and whether the seller has met all the criteria.

On the Ethereum network, there is no human making that final call.

The conditions of sale are written into the smart contract in advance. When those conditions are met (such as money transfer and land survey completion), the smart contract will automatically execute.

The transfer is recorded in the blockchain forever. It is irreversible and completely transparent.

Read more: What are Smart Contracts? (A Simple, Easy-to-Understand Guide)

What’s the Point of Smart Contracts?

Smart contracts eliminate the likelihood of fraud.

In the case above, no lawyer can manipulate the contract or hide conditions, because the smart contract simply won’t execute.

It’s secure. Like Bitcoin, the Ethereum blockchain exists on thousands of computers all at once. There is no single point of failure.

Smart contracts also remove the need for trust in one particular party (like an estate agent or lawyer). The contract is verified by many hundreds of people on the blockchain.

Lastly, the fees are lower. With fewer middle-men, there are fewer costs to pay.

The Countless Use Cases for Ethereum

The potential for Ethereum is phenomenal. It can be used to decentralize everything.

Imagine an electoral voting system on the Ethereum blockchain. Every vote is recorded transparently. No third-party can manipulate the results. No more human error in counting. No more electoral hacks.

Imagine an insurance system built on Ethereum. If your house is flooded, and the damage meets all the agreed criteria, an Ethereum smart contract automatically executes to pay out the settlement.

Ethereum could improve almost every industry on the planet, from healthcare to finance to academia to logistics.

——————————————————————————————–



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Part 2: What Is Ether? the Cryptocurrency That Powers the Blockchain

When people talk about ethereum as a cryptocurrency, they’re actually talking about ether (ETH).

Ether has enjoyed incredible growth (10,000% in 2017 alone). But if ether isn’t a global cash system like bitcoin, what is it?

a chart depicting ethereum's price movement through 2017 - 2018

Ether is often referred to as the “fuel” or “gas” that keeps the Ethereum network running.

It’s a form of currency for developers who build apps and smart contracts on the system.

Let’s say you’re building an app on Ethereum. You pay a transaction fee to build on the Ethereum network, in the same way you’d pay a “hosting fee” for building a traditional website.

If you want to make changes to that app at any point, you pay a further transaction fee. These fees are proportionate to the amount of computer power needed.

That ether fee pays “miners” that maintain the Ethereum blockchain and verify the transactions.

vitalik buterin ethereum circle“Bitcoin and Ethereum are doing different things. Bitcoin is a digital currency, and the protocol is written to sustain this cryptocurrency. Clearly, Ethereum platform has ETH, it is also a digital currency, but it exists to sustain the protocol.” – Vitalik Buterin, Ethereum founder.

 

In other words, the Bitcoin blockchain exists solely to power the cryptocurrency. With Ethereum, it’s the other way round. Ethereum’s cryptocurrency (ether, or ETH) exists solely to power the vastly more powerful blockchain.

What Affects the Price of Ethereum?

In theory, the price of ether should be linked to the growth of the Ethereum blockchain. The more developers build on Ethereum, the higher the demand for ether to pay for transaction fees.

Right now, however, the price is primarily driven by speculation. Like bitcoin, ether is bought, sold and traded on exchanges around the world. Most people hold ether because they hope it will increase in value, not to actively build on the network.

Ether is also heavily tied to the price of bitcoin. Despite wildly different use cases, ethereum and bitcoin have a correlation as the cryptocurrency market moves, by-and-large, as one.

Unlike Bitcoin, Ether Supply Isn’t Capped

While bitcoin has a hard cap (only 21 million bitcoins will ever exist), ether does not.

Founder Vitalik Buterin has suggested a 120 million cap on ether supply, but it’s worth pointing out that his suggestion was posted on April Fool’s Day. However, he later confirmed that a hard-cap was worth considering.

As for current supply, 60 million ether was distributed during the first crowdfunding round in 2014. A further 12 million was gifted to a team of developers working to improve the system, known as the Ethereum Foundation.

Until recently, ether miners generated 18 million ether annually (about five ETH for every block, roughly 12 seconds). Under a new agreement, the community decided to cut the reward down to two ETH per block.

Ethereum Mining

Mining ether operates in much the same way as bitcoin.

ethereum mining

Miners are responsible for maintaining and verifying transactions across the blockchain. In return, they are rewarded with ether.

Transactions are verified and logged in the blockchain by solving complex puzzles (through computer processing). The first miner to solve a particular puzzle mines the block and is rewarded with ether.

Ethereum mining is significantly faster than Bitcoin. While bitcoin blocks are produced every ten minutes, Ethereum blocks are mined every 12 seconds.

Another key difference is who mines Ethereum.

The Ethereum community has always stressed the importance of mining by individuals, not giant corporations and mining pools. In that sense, Ethereum aims to be more democratic and less centralized. (We should point out that large mining pools do still dominate the majority of Ethereum mining).

 

PART 3: Who Founded Ethereum? (A Brief History)

Vitalik Buterin founded Ethereum in 2013 when he was just 20 years old.

Buterin was a huge fan of bitcoin. In fact, he also founded Bitcoin Magazine – one of the leading authorities in the crypto space.

In 2013, he published a white paper outlining his vision for Ethereum. Buterin sent the white paper to some close friends for critical feedback. Instead of criticism, however, he got a handful of co-founders!

More than 30 people wanted to work on the project with him. Ethereum was born.

Vitalik Buterin officially launched Ethereum in 2014 and unveiled the project at a Bitcoin conference. Shortly after, they launched a crowdfunding campaign to sell the ether token.

ethereum timeline

Infographic: Brave New Coin

A Moment That Changed Ethereum Forever

Ethereum has suffered some huge setbacks on its road to becoming the world’s second-biggest cryptocurrency.

The Ethereum “hard fork” was perhaps the most notable.

Here’s what happened. In 2016, hackers stole $55 million worth of ether. (Like Bitcoin hacks, we should point out that the hack did not breach the Ethereum blockchain itself, but software built upon it).

The Ethereum community faced a game-changing decision.

They could reverse the hack (by “resetting” the blockchain) and return the stolen money.

Or they could do nothing, accept the breach and move on.

Both options were problematic.

If they did nothing at this early stage of Ethereum’s development, it would damage the project’s credibility (who’s going to trust their money to a system with such a high-profile hack?)

But if they reversed the hack, it would fundamentally go against the values of Ethereum. The blockchain is supposed to immutable and irreversible.

Ultimately, the community voted to “reset” the blockchain, reversing the hack and returning the stolen money.

However, many Ethereum purists were furious. They believed the blockchain must never be reset. The decision spawned a new cryptocurrency: Ethereum Classic.

Ethereum vs Ethereum Classic

Resetting the Ethereum blockchain created a hard fork.

You can think of a hard fork like a train track splitting in two. The currencies share one single track until a certain point when they split and go off in different directions.

The so-called purists took one track with the $55 million hack still coded into the blockchain. This is now the Ethereum Classic blockchain.

The other track is Ethereum as we know it today: the “reset” blockchain, without the $50 million hack.

PART 3: How to Buy and Store Ethereum

How to Buy Ethereum

Ethereum is usually bought and sold on an exchange, much like bitcoin.

The most popular exchange in the US is Coinbase, but there are many others around the world.

coinbase buy ethereum

You’ll be asked to register an account on the exchange, which often means uploading a picture of your photo ID and proof of address. This is to satisfy KCY (Know Your Customer) and AML (Anti-money-laundering) rules (p.s. want to buy ethereum without ID? Keep reading below).

You can then buy ethereum using USD or your local currency of choice, depending on the exchange.

Can I Buy Ethereum Anonymously?

Yes. There are some exchanges that do not require photo ID or proof of address. However, you may have to buy ether using another cryptocurrency to do this.

For example, you can purchase bitcoin anonymously using the Bitmex exchange.

You can then use bitcoin to purchase ether anonymously on another exchange such as shapeshift.io.

How to Buy Ethereum with Cash

If you really want to go off-grid, you can buy ether with cash. Localethereum.com connects you anonymously with local ethereum sellers. Sellers are verified and rated by buyers, so there is an element of confidence here.

You can arrange a face-to-face meeting to exchange crypto or make a private transfer arrangement. Even your messages on localethereum are encrypted, so it’s private from the start.

How to Store Ethereum

Once you’ve bought ethereum from an exchange, you need to move it to a safe wallet.

You can leave your ethereum in your account on Coinbase or whichever exchange you’re using. However, this storage method is more vulnerable to hacks. (Hackers are more likely to target a large exchange than one smaller wallet).

Choosing an Ethereum Wallet

The right ethereum wallet depends on how you plan to use the ether currency.

If you are investing in ethereum for the long-term, consider a cold storage option. This keeps your ethereum offline so it cannot be accessed by hackers.

Read more: What is Cold Storage for Cryptocurrencies?

However, if you’re using ether to make regular transactions or trades, you might want a “hot wallet” connected to the internet.

Ethereum recommended wallet – A simple choice is Ethereum’s recommended wallet, called Mist. It allows you to store ethereum and any other cryptocurrency built on the Ethereum network. You can also use this wallet to write and execute smart contracts and build Dapps (more on this later). The wallet is downloadable at ethereum.org.

Hardware wallet – While the Ethereum wallet is handy for regular usage, consider a hardware wallet for cold storage. This is a like an external hard drive for cryptocurrencies. While it’s the safest option, there is a downside: if you lose the hardware wallet, your ethereum is gone forever. Popular options include Trezor and Ledger (pictured below).

ledger nano cold storage ethereum wallet plugged into a laptop

Paper wallet – A paper wallet is another form of cold storage. It’s a simple piece of paper with your ethereum public and private key written down. Paper wallets are incredibly safe because no-one can hack a piece of paper. But if the paper is lost or damaged, so is your ether.

Browser walletMetaMask is a browser extension for Google Chrome. It allows you to access Ethereum Dapps and store ether. Be aware, however, that your private key is stored by the browser and can be hacked.

Other ethereum wallets – Another popular option for storing ethereum is MyEtherWallet. It’s a unique web wallet that stores your private key safely on your computer. You can also use it to create smart contracts. Exodus is a desktop wallet with functionality for seven different cryptocurrencies.

PART 4: Can I Build on the Ethereum Network and Access Dapps?

Yes!

The whole point of Ethereum is to encourage developers to build on its ecosystem.

Anyone can build Dapps, write a smart contract or create a new cryptocurrency.

It all revolves around the Ethereum Virtual Machine (EVM): the nerve center (or brain) of Ethereum.

The EVM means developers can build on Ethereum with relative ease (without starting from scratch with complex code). To be clear, this is still advanced territory for the average user. While the EVM aims to simplify the process of building Dapps and smart contracts, it still requires advanced technical knowledge.

(Interesting fact: the EVM is ‘Turing Complete’ which means it has the potential to solve any algorithm thrown at it by developers. As a comparison, the Bitcoin network is not Turing Complete as it only handles monetary transfer).

Here’s where to start when building or accessing Dapps and smart contracts:

State of the Dapps

state of the dapps screenshot

State of the Dapps is a list of all existing dapps on the Ethereum network. It’s the easiest way to see what’s out there right now. All the dapps are categorized into genres, most-used, and top-rated lists. If you’ve already built a dapp, you can submit it to the site, too.

Ethereum Mist Browser

The Mist browser is Ethereum’s official wallet. It’s also a gateway to the world of Dapps and smart contracts.

To get started, download and install the Mist wallet.

When you launch Mist, you are now connected to the Ethereum blockchain. Create an account, and you can use this browser to send and receive ether.

You can also hit the “Contracts” tab to create your first smart contract.

ethereum mist wallet with 'contracts' tab circled

Lastly, there’s a search button which allows you to use the many thousands of Dapps on the network.

MetaMask

MetaMask is a browser extension for Chrome that gives you access to Ethereum Dapps and smart contracts.

The bonus of using MetaMask is that you don’t have to download any software (or the blockchain itself).

It works in much the same way as Mist. You can send and receive ether, create smart contracts, and browse the world of Dapps.

Five of the Most Impressive Ethereum Dapps

Golem – Golem is a revolutionary project that allows you to “lend” your idle computer power to others. Imagine you’re a video maker who temporarily needs more processing power to finish a project. Or a corporation that needs extra data storage space quickly. With Golem, you simply borrow it from others around the world by connecting to the blockchain. Users are paid in the Golem cryptocurrency (GNT) to rent out their computer power.

uPort – uPort is a Dapp built to protect and manage your identity. Using the uPort software, you enter your personal details into a smart contract. Your identity is only shared when certain conditions (which you set) are met. In other words, it gives you complete control over your identity and whom you share data with.

Augur – Augur lets you predict, and bet on the outcome of, just about anything. From the presidential election to the weather to the success of Apple’s next iPhone. You make the prediction and you then ‘trade’ the outcome alongside thousands of others. Augur launched its own cryptocurrency, REP, which is used to reward those that confirm or “report” the outcomes.

Cryptokitties – We mentioned crypto kitties before, but it’s worth repeating. At its core, cryptokitties allows you to buy and trade cartoon cats. Trading rare cats might not be the most powerful use case for Ethereum, but it has become a gateway for mainstream blockchain use. It’s the first truly viral phenomenon in blockchain, hinting at the enormous potential of the technology. It introduces people to Ethereum in a fun, engaging way.

Idex – Idex is building a decentralized exchange for trading Ethereum-based cryptocurrencies. Because it’s based on the blockchain (and not on a traditional server like, say, Coinbase) it’s reportedly more secure from hackers. It uses smart contracts to execute trades.

There are more than 1,800 dapps currently out there with more added every day.

PART 5: What’s Next for Ethereum and Who Are Its Competitors?

After the explosive growth in value in 2017, ethereum spent most of 2018 cooling off.

However, that’s not to say the platform itself isn’t growing…

Fortune 500 Companies Are Using Ethereum (JP Morgan, Microsoft, Intel, Cisco, Mastercard)

If you think Ethereum is just for cryptocurrency insiders, think again.

Some of the biggest companies on the planet are experimenting with the technology. Microsoft, Intel, MasterCard, Cisco, and JP Morgan are all part of the Enterprise Ethereum Alliance, an organization built to advance Ethereum.

Ethereum Alliance list of companies

It’s still early days but blockchain technology has the power to change entire industries. Most smart businesses are dabbling in this new world, and they’re using Ethereum as a testing ground.

Competition from New Projects

Being the first doesn’t always guarantee success.

The platform now faces huge competition from so-called “Ethereum-killers.”

EOS is perhaps the most notable. The project, which was built on Ethereum before launching its own mainnet, is built for Dapps. It is arguably faster, cheaper and more efficient than Ethereum.

Other competitors include Zilliqa, which aims to scale faster than Ethereum, and NEO which facilitates smart contracts without Ethereum’s complexity.

Ethereum’s Scaling Problems

One of the big question marks over Ethereum’s future is its ability to scale. How can it get faster and more efficient?

Developers are currently working on a long series of upgrades to the system. Under the codename “Casper,” Ethereum is slowly shifting from a “proof-of-work” system to a “proof-of-stake” system.

Without getting too technical, this should reduce the computer power required to mine ether and keep the system running.

Ultimately, it will lead to faster transaction times and lower fees.

Watch Vitalik Buterin talk about his plans for scaling Ethereum below:

For now, Ethereum remains the go-to platform for building new technology. It is the gateway to the blockchain, and we are only just scratching the surface of its potential.

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Where to Go Next?

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bitcoin christmas gift guide

All I want for Christmas is crypto! You can almost imagine a glittery Mariah Carey draped in baubles singing the song accompanied by a chorus of bitcoin whales. 

We live in an exciting new financial world that is changing every facet of our lives. Even Christmas. With the infamous Black Friday upon us and Christmas peering at us from around the corner, now is the time to get all your Christmas gifts in-check.

A recent report indicated that teenagers want cryptocurrency and digital gaming currency this Christmas, not money or gift cards, so let’s see what bitcoin presents are out there.

Bitcoin Hardware Wallets

Buying a crypto hardware wallet is the perfect gift for a crypto fanatic. You can never have enough security when it comes to storing your digital assets. Plus, these devices are slick and stylish. Hardware wallets are similar to USB storage sticks but optimized to keep your crypto safe offline. Some of the best hardware storage products on the marketplace are Trezor, Ledger and Keep Key.

Block Explorer recently reviewed 12 of the best crypto wallets to help you make the right choice.

Ledger nano best hardware bitcoin wallet

Buying Cryptocurrency as a Present

Do you have friends or a younger family member who is interested in crypto but are yet to take the plunge? Why don’t you do it for them? There are all sorts of ways you can introduce your friends and family to crypto this Christmas, here are a few.

Give the Gift of Bitcoin

The easiest way to give a friend some bitcoin for Christmas is by giving them a crypto paper wallet. They are the ideal gift for those who do not have a physical bitcoin wallet or access to an exchange. The paper wallets can be customized to give a gift in the crypto of your choice.

christmas gift bitcoin paper wallet

Fortnite V-Bucks Instead of Gift Cards

Gift cards were always a solid choice when it came to giving presents to young people. But the game has changed. The game has changed to Fortnite! A recent report by the asset management company Piper Jaffray shows that American teenagers now prefer V-Bucks or crypto as opposed to money or gift cards.

V-Bucks, although not exactly crypto, is the digital currency of choice on the ultra-popular Fortnite game, which has taken the world by storm this year. 1,000 V-Bucks costs $9.99, making it a cheap yet appealing gift. Alternatively, buying PlayStation4 PSN credit cards, which can then be used to purchase V-Bucks online or PS4 products, is also an ideal gift for young gamers. 

fortnite v-bucks christmas present

Cryptocurrency Tech Geek Gifts for Christmas

If your family or friends are keen crypto users and enthusiasts, maybe you need to seek out some crypto tech geek gifts for Christmas.

HTC Exodus 1 Blockchain Smartphone

Nothing says Merry Christmas to a crypto-head like buying them the HTC Exodus blockchain smartphone. Part phone, part crypto wallet, the Exodus offers simple access to a range of Dapps and can act as its own blockchain node to trade cryptocurrencies. The phone is currently only available to buy in bitcoin or ether, and if you order now, it will be posted out in early December. 

htc-exodus-1-blockchain phone christmas present

Bitcoin Mining Hardware for Christmas

It was once possible to mine bitcoin on your computer (ah, the good old days!) Nowadays, it requires hardware equipment called an ASIC miner. Ranging from $39 at the bottom end to $3,000 + at the top end, there are options for every budget. 

However, we should point out that bitcoin mining is by no means profitable. And if you’re a parent, be aware that your “gift” will probably double the household electricity bill! 

bitcoin miner christmas gift

Crypto Novelty Gifts

What if you’re on a tighter budget? If so, a novelty crypto gift is the best way to go. Not only are they value-for-money, but can also bring a smile to the face of a friend or family member for less than $30.

Cryptocurrency Gift Coins

On Amazon and some other online marketplaces, you can buy cryptocurrency coin gift sets. They are a cool little collector’s item and come in sets with your favorite coin names such as bitcoin, monero, ethereum and so-forth. For as little as $19.95, you can’t go wrong.

crypto coins gift set

Bitcoin Mugs and Cups

A cool little novelty present you could buy a friend is a bitcoin mug or cup. Check out this Bitcoin mug that only costs $14.95 on Etsy. An ideal present for a bitcoin enthusiast.

bitcoin mug gift

Crypto T-Shirts and Clothing

What do you buy a crypto friend who already has everything? A crypto T-shirt with the words “Just Hodl” on the chest that costs only $18.99. There’s a wide range of crypto-inspired t-shirts online that offer a cheap and fun way to fill up the Christmas stocking this year.

just hodl tshirt christmas gift

Buying Digital Assets Christmas Presents

In this day and age, you can buy digital assets on the blockchain. Here are some options for you:

Cryptokitties as Collectible Digital Pets 

Cryptokitties is a blockchain-based collectible game where you can purchase virtual cats with crypto (think Pokemon on a blockchain). It’s possible to buy, sell and breed the cryptokitties. You can buy a friend a cryptokitty, which they could maybe even sell for a profit one day.

give cryptokitty as a gift

Be a Dictator with Your Own Crypto-Countries

Ever wanted to be a dictator of your own country? You can buy your friend a crypto country for Christmas. Crypto Countries gives you the chance to buy and own countries as smart contracts on the Ethereum blockchain. You can take ownership of the country, which automatically increases in price (valued in ETH). In some cases, if another user desperately wants to buy your country, they might even pay double back to you in ETH.

cryptocountries gift

Buying Virtual Land on Decentraland

You could buy virtual land as a Christmas gift on the VR Decentraland platform, which is one of the most innovative projects on the Ethereum blockchain. As with physical real estate, you can improve the price of the land and sell it on for a profit. Decentraland’s next “land auction” is launching in December, just in time for Christmas.

Decentraland-Review-The-Blockchain-Virtual-World

High-End Luxury Crypto Gifts

If you think that novelty Christmas gifts are for cheapskates and you want to throw the big bucks around, how about a luxury watch or flash sports car? 

Buying a Rolex with Crypto for Xmas

If your friend is a ‘he’, how about this stunning Rolex Yacht-Master II for 10.68 BTC? If the present is for a ‘she’, why not splash out on the jaw-dropping Rolex PearlMaster 34 that costs in the region of 38.8 BTC?

bitcoin watch

Or a Lambo?

It’s every bitcoiners favorite meme: when you make it rich in crypto, you buy a Lambo! You can buy a 2017 Lamborghini Aventador LP 750-4 for approximately 120 BTC. Or if you are looking for something more affordable, you could purchase a 2017 Ferrari 488 3.9 GTB Spider 2DR for 63 BTC. 

bitcoin lambo christmas gift

Whatever you buy this Christmas with your crypto, just remember that the thought is actually more important than the gift or its price. And if you believe that, I have an authentic Egyptian Pharaoh skull in immaculate condition for only 5 BTC. It’s a bargain. Happy hunting! 

bogdanoff-brothers-plastic-surgery-1

Every Friday, we take a light-hearted tour through the best memes, colloquialisms, and oddities from the cryptoverse. As the bitcoin price continues to fall, we look at meme-culture’s favorite cryptocurrency manipulators: the Bogdanoff Twins. Carty Sewill explains.

It hasn’t gotten any better. In the past week, bitcoin has fallen from grace. We could blame gravity but that’s no fun. In such dire times, we’re in need of a scapegoat. Well, look no further than the twins; the Bogdanoff twins. The guys manipulating the markets and dumping bitcoin right after you “buy the dip.” 

Well, according to this meme, anyway.

bogdanoff twins crypto meme
The Bogdanoff Twins

Igor and Grichka Bogdanoff are French celebrities and acclaimed science-fiction producers known for their television series Temps X. The two were also involved in an intriguing academic controversy known as ‘The Bogdanov Affair,’ and possess a penchant for plastic surgery which contributes to their iconic unearthly looks. In December 2016, users on 4chan began ironically suggesting the twins had an immense influence on French politics. A meme was born.

bogdanoff twins bitcoin meme

The OP (original poster) asks for a rundown on the Bogdanoff Twins. Replies include:

> in contact with aliens.

> rumored to possess psychic abilities.

> control France with an iron fist.

> own castles and banks all over the world.

> will bankroll the first cities on Mars.

It’s a meme that would wind its way through political, conspiratorial, and, finally, cryptocurrency subcultures to become synonymous with bitcoin and big red candles. The mythos surrounding these guys includes everything from being “in contact with aliens,” to having a “400 IQ,” or making, “the Rothchilds bow to the Bogdanoffs.” The kind of power capable of saving Europe from political disaster with a phone call. 

Or destroying bitcoin’s market capitalization.

That’s what they’ve been doing for months, if the meme is any indication. The twins prepare the bulls, make the call, and tell their minions to “dump eet.” A maxim that’s left many a bitcoin holder destitute, or ‘bogged,’ and short-sellers ecstatic.

People buy the dip and pray for green as the Bogdanoff’s scheme the next dump. The secret’s out. Now we know what’s really going on behind the blockchain, thanks to video-maker Bizonacci and memers like him. 

From YouTube videos to forum posts, there has been an all-out public awareness campaign to expose these market manipulators. Awareness is key but it does nothing in the wake of such power. The Bogdanoffs will likely continue their bearish ways and there’s little we can do but inform, educate, and hope.

A Bogdanoff “making the call”

bitcoin cover

You’ve probably heard the stories about bitcoin…

The Norwegian student who bought 5,000 bitcoins for $26 in 2009. Four years later, he was a millionaire.

Or the early adopter who bought two pizzas for 10,000 bitcoins (worth $70 million at today’s prices).

But what is bitcoin, exactly? How does it work? How do you buy bitcoin? Where should you store it? And is it safe? This guide will take you through it step-by-step (without any confusing jargon).

Contents

PART 1: What Is Bitcoin, the Digital Currency?
PART 2: What Is Blockchain, the System That Makes It All Work?
PART 3: How to Buy, Store, and Spend Bitcoin
PART 4: Should I Be Worried about Hacks and Scams?
PART 5: What’s Next for Bitcoin?

PART 1: What Is Bitcoin, the Digital Currency?

Before we dive in, you need to know that bitcoin is actually two things:

1. bitcoin (with a small b)

This is the cryptocurrency; digital tokens sent back and forth to one another (or used to buy pizza). When people talk about bitcoin, this is what they’re usually talking about.

2. Bitcoin (with a capital B)

This is the revolutionary network on which the currency runs. It’s also known as the Bitcoin blockchain.

Let’s start with the cryptocurrency.

bitcoin infographic - what is bitcoin and who invented it?

Infographic courtesy of Kriptomat

Bitcoin Basics

 peter thiel bitcoin“I do think Bitcoin is the first [encrypted money] that has the potential to do something like change the world.” Peter Thiel, Co-Founder of Paypal

 

The basic concept of bitcoin is to make payments as easy as sending an email, without a central middleman getting in the way. Here’s how it works:

No banks

Bitcoin exists outside the traditional banking system. Anyone with a digital wallet can buy bitcoin and send it to anyone else in the world (so long as they, too, have a wallet). There is no middleman.

No government control

Most currencies around the world are controlled by their respective governments. For example, the US Federal Reserve controls the dollar’s interest rate and supply. Not bitcoin. No single person, bank or government owns the bitcoin system.

This is what we mean when we say bitcoin is ‘decentralized.’ Bitcoin and all its transactions are powered by its users. We’ll explain more in the ‘blockchain’ section below.

Securely locked with cryptography

Every bitcoin transaction is encrypted with public and private key encryption. Here’s a quick video to explain how that works:

‘Pseudonymous’

You might have heard that bitcoin is anonymous, but that’s not strictly true. Every bitcoin transaction is tagged with your public key address. It’s a long number that looks something like:

1GsOmhLr0FbBpNco1NDar6sSV8tsHaKF6kd

Although this transaction doesn’t contain your name, if someone knows your wallet address, they can see the payments you’ve made or received. In other words, it’s pseudonymous.

Irreversible

Bitcoin transactions absolutely cannot be reversed. If you make a payment by accident or send it to the wrong address, it can’t be retrieved. It’s a blessing and a curse. It means payments cannot be altered making it secure against fraud, but if you get it wrong, your money is lost forever.

Prefer to Read This Guide as an eBook?

If you’d like a hard-copy of this guide (or just want to come back to it later), download the free pdf version here, no email signup required.

bitcoin ebook

Who Created Bitcoin?

Bitcoin was created by the elusive Satoshi Nakamoto. His name, however, is a pseudonym. The real creator remains a complete mystery.

In October 2008, Nakamoto published the famous bitcoin white paper on a cryptography mailing list. It outlined the vision and technology for the Bitcoin system:

satoshi nakamoto“A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.”

 

In January 2009, he created the first 50 bitcoins in a process called “bitcoin mining.”

Who Is Satoshi Nakamoto?

The identity of Satoshi Nakamoto is one of the tech world’s biggest secrets. Countless journalists have tried to reveal his identity by analyzing his writing style, his coding, and various other scattered clues.

He writes in British English, for example, and codes in C++.

Newsweek famously published a front-page splash outing the bitcoin founder as Dorian Satoshi Nakamoto – an elderly Japanese American. Despite his computer-engineering background, it was later revealed that Dorian Nakamoto had never even heard of the cryptocurrency. (He apparently referred to it as ‘Bitcom’ in a later interview!)

More likely theories point to the likes of Nick Szabo and Hal Finney, who were involved in Bitcoin’s development and have been active in the cryptography community for decades. Some have even pointed the finger at Elon Musk. All have denied it.

Further reading: 24 Clues About Satoshi Nakamoto’s Identity

One thing is for sure, Satoshi Nakamoto is a genius with meticulous attention to privacy and anonymity.

He’s also a billionaire.

By tracking Satoshi’s transactions, we can see that he never sold his original bitcoins (other than a few test transactions). He owns about one million coins. At the time of December’s record prices, he was the 44th richest person in the world, worth over $19 billion.

There Will Only Ever Be 21 Million Bitcoins

One of the most interesting features of bitcoin is that its supply is capped. There will only ever be 21 million coins. Unlike dollars, which are created at will by the Federal Reserve, the creation of bitcoins will steadily diminish until 2140, when it will stop entirely.

There are currently 16.7 million bitcoins out there, which leaves just 4.3 million bitcoins left to be created.

Read more: How Many Bitcoins Are There? (Hint: Not That Many)

In other words, the supply is incredibly limited.

Even the existing bitcoins are in short supply. As we’ve mentioned, Satoshi probably owns about one million. The Winklevoss Twins own roughly 1% of the bitcoins in circulation. And the FBI holds at least 144,000 bitcoins after seizing them from illegal activity.

It’s also guessed that up to 30% of bitcoins are lost forever (on broken hard drives and forgotten keys).

The 21 million bitcoin cap is partly why the price has skyrocketed. When there is a finite amount of something, the price tends to rise because everyone wants a piece (like gold or diamonds).

The finite supply is also why bitcoin is often likened to gold rather than traditional currency. There is only so much gold on the planet, just like there are only so many bitcoins.

chart depicting the bitcoin halving rate

Chart source

Luckily, each bitcoin can be split into smaller units denominations, right down to one hundred millionth of a bitcoin.

Bitcoin Price: Why Is It so Volatile?

When it was launched in 2009, the first exchange valued one bitcoin at eight-hundredths of a cent.

Flash forward to January 2018, and that price soared to $20,000.

Along the way, bitcoin has experienced some heart-stopping swings in value. Since January 2018, bitcoin has dropped 60%. Bitcoin is much more volatile than traditional investments like bonds or stocks. It’s why many investors are nervous about getting involved.

bitcoin price chart
Chart: CoinMarketCap

Why? The simple fact is that bitcoin is brand new. It’s still less than a decade old. Compare that to traditional markets like gold, oil or the stock market. It takes time for a new market to settle and find a stable price.

Bitcoin also goes through ‘hype cycles.’ Every so often, bitcoin attracts mainstream attention (usually when there’s a new technology breakthrough). Excited investors flood in, which pushes the price up. When the excitement dies down, we see big drops in price.

Investing in bitcoin means bracing yourself for big, volatile movements.

Don’t Confuse Bitcoin with ‘Bitcoin Cash’ or ‘Bitcoin Gold’

Bitcoin is altogether separate from other cryptocurrencies you might have heard of, like bitcoin cash (BCH) or bitcoin gold (BTG).

These alternative currencies were created when they split off from bitcoin (known as “forking”). This happened because there was a dispute in the bitcoin community about how to go forward.

Read more: What Is a Hard Fork in Cryptocurrency?

When users disagree about the technology or the ethos of a particular coin, they may split off and create a new cryptocurrency using different tech and ideals.

To understand why, we need to know how bitcoin works.

——————————————————————————————–



——————————————————————————————–

PART 2: What Is Blockchain, the System That Makes Bitcoin Work?

Satoshi’s most impressive feat is not actually bitcoin-the-currency. It’s the system on which it runs: blockchain.

Also known as the Bitcoin protocol, this is what makes bitcoin transactions possible.

An infographic explaining how the bitcoin blockchain works

What Is Blockchain?

In the simplest possible terms, blockchain is exactly what it sounds like: a chain of blocks.

When you make a transaction with bitcoin, it is bundled into a “block.” That block is processed, verified, and approved before being added to the long chain of blocks that came before it.

That’s the short version. In practice, it’s more complex than that.

Imagine an Excel spreadsheet that everyone in the world can access.

Every bitcoin transaction ever made is written down in this Excel spreadsheet.

Scroll right to the beginning, and you’ll see Satoshi’s very first entry (the ‘genesis block’), preserved forever. You can also see the most recent transactions, logged in real-time, and everything in between.

In simple terms, blockchain is a completely public, transparent way of logging payments and transactions.

This is why you often see blockchain referred to as a ‘digital ledger.’

Of course, it’s not really a spreadsheet; it’s a chain. Every time a bitcoin transaction is made, it’s logged in a 1MB ‘block’ of data. The block is then added to the one that came before it.

Hence, blockchain.

(FYI, you can look for transactions on the bitcoin blockchain using our block explorer).

Blockchain Is Not Stored in One Place

No single person or entity owns the blockchain. It exists on a network of millions of computers all at once.

Using the spreadsheet analogy again, it’s almost like a Google doc. With Google docs, anyone can log in and make edits to the same spreadsheet. The changes are public and everyone with access can see (and approve) those changes in real-time.

This is a huge change in the way we do things. In the past, for example, you’d write a spreadsheet in private, then send it to someone via email. The other person would save it to their computer, make their changes in private before sending it back.

Using this old method, there are two different spreadsheets on different servers. One person can claim theirs is the superior document or make fraudulent changes.

Or a hacker can steal one of the documents.

Now think about it in terms of banks. Banks keep their own private spreadsheets and log their own transactions, all stored in one central location. It’s less transparent, not to mention easier to hack.

With blockchain, everything is transparent. Bitcoin transactions are 100% visible, traceable and accountable.

(Note: the Google docs analogy isn’t 100% accurate since the Google document is still stored on Google’s servers. The bitcoin blockchain is not hosted by any one central server. Thousands of copies are stored on servers all around the world, all at once).

What Is Bitcoin Mining?

Bitcoin mining is how we create bitcoins.

It’s also how we keep the blockchain running.

In very simple terms, miners are rewarded in bitcoins for creating the blocks and validating the transactions.

It a self-regulating system. Miners maintain the blockchain. In return, they get bitcoins.

Anyone can mine bitcoins. However, due to the competition, it now requires an immense amount of computing power. To illustrate the point, giant bitcoin mining facilities are located in Iceland just to keep the temperatures of their hardware down.

In the past, Satoshi mined the very first block with his reportedly modest home computer. He was rewarded with 50 bitcoins for doing so.

How Exactly Does Bitcoin Mining Work?

Bitcoin miners are responsible for producing the 1MB ‘blocks’ that become part of the blockchain.

To create this block, they must solve a mathematical puzzle. This is not literal. The miner is not solving puzzles on a piece of paper. Instead, their computer is trying to ‘guess’ a pre-set 64-digit number, or “hash.”

The first miner to get ‘less than or equal to’ the hash, mines the block and is rewarded with bitcoin.

The current reward is 12.5 BTC per block.

The Bitcoin Halving

Remember we explained that bitcoin supply is capped at 21 million? That’s because the reward for mining is halved every four years.

The mining reward has been halved twice so far. The reward began at 50 BTC per block. It is now 12.5 BTC.

At this rate, we’ll hit the 21 million supply cap in 2140, after 64 halvings.

PART 3: How to Buy, Store, and Spend Bitcoin

How to Buy Bitcoin

Bitcoin is typically bought and sold on an ‘exchange.’

There are hundreds of bitcoin exchanges out there so it’s important to choose wisely. Many exchanges have been hacked over the years, and investors have lost their money, so do your due diligence to find a reputable exchange in your country.

Among the largest and most reputable exchanges are Coinbase and Gemini in the US. (Others are available and this should not be considered a recommendation).

To set up an account at these exchanges, you’re often required to upload a picture of your photo ID and proof of address. This is to ensure they comply with anti-money laundering (AML) laws and know-your-client (KYC) laws.

Can you buy bitcoin anonymously? Yes, some exchanges don’t require ID or proof-of-address. BitMEX is one example where you only need an email address. You can also buy in cash (see below).

Once registered with an exchange, you can link a bank account, or – occasionally for smaller amounts – a credit card or PayPal account.

Now, you can buy bitcoin with USD or your local currency.

Buying bitcoin on the coinbase exchange screenshot

Whichever exchange you choose, your bitcoins are stored in a wallet on their platform. We highly recommend you now transfer your bitcoin to a private wallet where you control the encryption keys (this is not as complicated as it sounds, and we’ll look at this in the next section).

How to Buy Bitcoin with Cash

If you’d rather not link your bank account to a bitcoin exchange, you can pay cash. Localbitcoins connects you with local cryptocurrency sellers who accept cash for bitcoin.

To make this transaction, however, you will definitely need a private wallet and address. We’ll look at how to set this up in our next section:

How to Store Bitcoin

You store your bitcoin and all cryptocurrencies in a ‘wallet.’

However, choosing the right wallet is perhaps the most important part of this entire guide.

You’ve probably heard that bitcoin is vulnerable to hacks and thieves. There are countless scare stories of people losing thousands.

But it’s important to know that these hacks are not related to the bitcoin system itself (or blockchain). Instead, the hacks usually target exchanges and poorly-maintained wallets.

Storing bitcoin can be safe and secure, but only if you do it correctly.

Recommended reading: 8 Cryptocurrency Best Practices (Keep Your Crypto Safe!)

infographic explaining bitcoin wallets - cold storage and hot wallets

Explaining Bitcoin Wallets and Encryption Keys

As we explained earlier, there are two aspects to storing and transferring bitcoin:

Public key – your wallet address that everyone can see (people need your public key to send you bitcoins)

Private key – a second key that only you have access to. This allows you to unlock the wallet.

When you keep your bitcoins on an exchange (like Coinbase), they hold the private key for you. This is called an ‘online wallet.’ While they are convenient and user-friendly, they are less secure.

Why? Because if the private key is on their servers, it can be stolen by hackers, who are more likely to target a large exchange.

So it’s important to make sure you hold the private key. That means moving your bitcoin off the exchange and into a private wallet.

Hardware Wallets (Cold Storage)

Hardware wallets are your most secure option. Think of them like an external hard drive or USB stick for bitcoin. For the vast majority of time they are offline, so cannot be hacked (except for the short periods when you connect to transfer bitcoin). This is known as “cold storage.”

Read More: What is Cold Storage for Bitcoin?

Of course, there is the risk of losing the hardware wallet, which is why some people keep them locked in secure bank vaults.

The most popular hardware wallets are Ledger and Trezor.

ledger nano cold storage bitcoin wallet plugged into a laptop

Desktop Wallet

With a desktop wallet, your private key is stored as a file on your computer.

The main advantage here is that you control the private key. They are usually free and easy-to-use, too.

However, your bitcoins are lost forever if your computer is lost, stolen or destroyed (unless you backed them up elsewhere). A hacker can also access your computer and take them.

In the past, using a desktop wallet meant downloading the entire bitcoin blockchain. Nowadays, light wallets are available which makes it a little easier. Some of the most popular wallets include Exodus and Electrum.

Paper Wallet

A paper wallet is simply a piece of paper with your private and public key written on them.

They are incredibly secure since they are never connected to the internet. You cannot hack a piece of paper.

However, you can lose a piece of paper very easily. So make sure you keep it somewhere safe.

Just don’t be this guy who showed his paper wallet to everyone watching Bloomberg TV. Within seconds, his account was empty (although the culprit offered to give it back after proving their point).

a man accidentally reveals his bitcoin paper wallet on Bloomberg TV and has his bitcoins stolen

‘Cold’ Software Storage

Some electronic and software wallets now facilitate offline or ‘cold’ storage options. This is a best-of-both-worlds option. Like electric wallets, they are easy to use, but they are also stored offline for additional security. Electrum, mentioned previously, offers this functionality.

Mobile Wallets

lastly, you can choose a mobile wallet. These are handy if you plan to store small amounts of bitcoin and spend them from time-to-time. Some are designed with spending in mind, such as Samourai for Android and Edge for iPhone.

None of the wallets mentioned here should be considered recommendations and many other options are out there. Do you own research and due diligence before using any of the services listed here.

Where Can I Spend Bitcoin?

The number of shops and businesses accepting bitcoin is increasing rapidly. Here are just some of the things you can buy with bitcoin:

Even if you can’t pay directly with bitcoin, there is often a workaround.

You can buy gift cards using bitcoin from eGifter or Gyft, which you can then spend at Nike, Starbucks, Whole Foods, eBay, and Wal-Mart, among others.

A new platform called Bakkt, powered by the New York Stock Exchange and Microsoft, aims to provide a system to convert bitcoin to dollars. So you could theoretically buy a coffee at Starbucks.

You can even pay for tuition at Lucerne University in Switzerland.

And, in the bitcoin tradition, you can buy pizza through pizzaforcoins.com.

PART 4: Should I Be Worried about Scams and Hacks?

Bitcoin has a reputation for its connection to hacking and scams.

There is, of course, some truth to this.

In 2014, hackers successfully targetted the world’s largest bitcoin exchange, Mt. Gox . The hackers stole 850,000 bitcoins from the exchange (worth about $473 million at the time).

Even in 2018, hackers stole $35 million worth of bitcoin from the South Korean exchange Coinrail.

Again, however, this reaffirms the importance of storing bitcoins safely in a hard wallet and not on an exchange.

Bitcoin has also been connected to numerous scams and Ponzi schemes.

Fake exchanges, fakes bitcoins, and fake crowdfunding campaigns (known as ICOs – initial coin offerings) are still out there.

Until bitcoin exchanges are regulated by government authorities, more will pop up. Here are some of the worst offenders to look out for:

1. Scam wallets – these are the most common scams. They’ll look like a legitimate online wallet, but you’ll know they’re nefarious because they ask how much you’re depositing. They’ll  set up an address for you, but it will link to their wallets, not yours

2. Dodgy miners – these scammers claim to mine bitcoin for you. You pay them money and never see it again.

3. Exchange scams – these exchanges look like legitimate bitcoin exchange websites. The giveaway is that they accept  credit card payments for large amounts of crypto, or offer better-than-usual exchange rates.

The best way to avoid these dodgy schemes is to do your due diligence. Research every exchange before you sign up. Make sure they are trusted and make sure you are on the correct website.

Ignore anything that seems too good to be true. It probably is.

PART 5: The Future of Bitcoin

Although bitcoin is less than a decade old, we are just at the beginning.

Bitcoin, and its revolutionary blockchain technology, has opened the floodgates.

There are now almost 2,000 cryptocurrencies out there. Some aim to compete directly with bitcoin. Others are expanding on the idea and branching out into new territories (see ethereum).

Bitcoin itself is constantly evolving.

Right now, its biggest hurdle is scalability. Without getting too technical, Bitcoin is slow compared to many of its peers.

a chart comparing the transaction speeds of bitcoin vs ethereum, ripple, litecoin, paypal and visa

Source

Bitcoin can currently handle seven transactions per second. Compare that to Visa which handles 24,000.

It also takes ten minutes to confirm a bitcoin transaction. At peak times, like during the ‘gold rush’ in December 2017, it takes days to process bitcoin payments.

If bitcoin aims to become a day-to-day cash system, it needs to be faster.

However, there’s a huge disagreement in the community about how to do this. In fact, this is why bitcoin cash ‘forked’ (but that’s a whole other story. Read about bitcoin cash here.)

Bitcoin developers are now working on the Lightning Network, which will help settle small amounts fast on the bitcoin blockchain.

Is Bitcoin the Future of Money?

It’s perhaps too early to call bitcoin the future. It has some big hurdles to overcome including speed, reputation, and mainstream adoption.

One thing’s for sure, however. Bitcoin triggered a revolution. Cryptocurrencies and blockchain are here to stay. Countries like Venezuela and Iran are even copying the idea by creating their own national cryptocurrencies.

As for blockchain, a huge 84% of companies are now experimenting with the technology.

The future of money might not be bitcoin, but it will be cryptocurrency. Get ready for it.

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The crypto markets are in bloodbath mode today. Bitcoin is down 14%, plunging below $5,000 to new yearly lows. Bitcoin Cash has tumbled 43%(!) allowing Stellar to become the fourth-largest cryptocurrency by market capitalization.

Almost every coin is down by double-digit percentages.

Despite numerous analysts claiming that Bitcoin has “bottomed,” it’s clear this bear market is not over.

Some of you will have been here before. After 2013’s bitcoin high of $1,100, we struggled through a long, two-year decline before bottoming out at $220.

But if you’re starting to panic, here are nine possible strategies to navigating this crypto massacre. 

Note: Neither Block Explorer nor the author provides financial or investment advice and this article should not be construed as such.

Bitcoin 24-hour price chart. Source: CoinMarketCap

1. Don’t Try to Time the Market

Whatever you do, don’t try to time the market. Don’t believe anyone that tells you that bitcoin has bottomed. The truth is: no-one knows where the bottom is. Really.

John Bogle, the grandfather of index funds once said: “Sure, it’d be great to get out of stocks at the high and jump back in at the low… [but] in 55 years in the business, I not only have never met anybody who knew how to do it, I’ve never met anybody who had met anybody who knew how to do it.”

If professional investors can’t time the stock market (with its hundred-year patterns and history), you certainly can’t predict the crypto market.

One of the strategies we’ll cover is buying more crypto during the crash, but don’t convince yourself this is the bottom, and be wary of trying to “catch the falling knife.”

As we go through these strategies, always keep this number one rule in mind.

2. Do Nothing (Hodl!)

Hodl is the rallying cry of all bitcoiners who are in the red. The term came from a drunk BitcoinTalk forum user who adamantly claimed he was “hodling” (misspelling the word “holding”) his funds during the 2013 market crash. 

Five years later, that strategy would have paid off. Holding on through the darkest moments and riding out the dips is a classic investment strategy.

However, we are not in a classic market like stocks or commodities. There’s no long-term historical precedent to assume bitcoin will recover. We should also remember that stocks are tied to companies that sell real things to real people. Even in a crash, they carry on business and bring in money. That’s not (always) the case with crypto.

Bitcoin has recovered from price crashes before and hodlers have been rewarded. But beware there is no guarantee Bitcoin will recover to its former glory this time around.

just-hodl-it

3. Cut Your Losses

Sometimes the stress and panic of watching the value of your investments plunge simply isn’t worth it. Every investor takes losses – it’s part of the game and it’s an important learning curve.

I once threw my phone at a wall after cutting a particularly big loss in the forex markets a few years ago. It’s frustrating, but sometimes cutting the loss is the best thing for your mind!

You should never invest more in crypto than you’re willing to lose, so cutting your losses shouldn’t be too painful. If it is, it’s a sign that you’ve put too much money into the market.

Bear in mind that this bear market almost certainly isn’t over yet. Things may get worse before they get better and the losses may accumulate further.

4. Buy More?

As the old saying goes, “buy when there’s blood in the streets.

Every investor is taught to buy when there’s fear in the market and sell when there’s hype. You don’t need me to tell you there’s plenty of fear going around right now.

Traditional investors like Warren Buffet made their fortune by purchasing assets when everyone else was offloading. It takes a high risk appetite to buy into the market when everyone is selling, but it can pay off.

Again, beware that crypto is an entirely new asset class and there’s no guarantee its price will recover.

 

5. Rebalance Your Portfolio 

A market crash is a good time to re-evaluate your portfolio. You suddenly see which coins and projects are the most vulnerable and volatile.

As the hype dies down around crypto, this is when the true winners will emerge. It’s a good time to assess the market in the cold light of day.

6. Look for Strong Opportunities 

If you are reassessing the market, what should you look for? Well, the same thing as always in crypto investing:

The team, the product, and the market they are serving.

The coins and projects that will survive this crash will have a few things in common. They’ll have a dedicated, passionate, experienced team. Look at who’s running the project and the community around them.

Next, look at the product they are creating. Does the coin or project have some type of usability or utility? Does it solve a problem or create a new opportunity?

Finally, who’s the market for this project and is it a viable one? For example, Ripple’s market is the banks, Ethereum’s is developers, Stellar’s is the unbanked.

The crypto hype is over. Only those with real value will survive, so look for that value and future market opportunity.

7. Dollar Cost Averaging

I’ve already warned against trying to time the market. So instead of waiting for the bottom, some investors may choose to “average down” by purchasing a fixed dollar amount of crypto at regular timely intervals – once a week or once a month, for example.

If you buy $100 of crypto every month, for example, you’ll average out the cost of buying. When prices are low, you end up buying more crypto (because $100 buys more coins).

You might not time it perfectly to buy in at the bottom, but you will get a more even average cost rather than purchasing in one lump sum.

It’s an age-old investment strategy that requires discipline. We should also point out that this strategy does not guarantee you won’t lose money (no strategy can do).

8. Learn

Watching any investment go down is difficult. However, you learn a whole lot more when things go down than when they go up!

You learn more about the market, a project’s viability and the strength of its team. You also learn more about yourself – your discipline, your appetite for risk, your mistakes and your successes.

Make sure you take something away from this market crash and apply it to the future. 

9. Don’t Panic

This is easier said than done, but the most important thing is not to panic. Now is the time for fierce discipline and due diligence. Before you make your next decision, take the time to research as much as possible. Try to act with a clear head.

Conclusion

Despite repeated attempts to call the “bottom,” bitcoin continues to find new yearly lows. This is still a relatively new and volatile market and all strategies should take that into account.

To reiterate: Neither Block Explorer nor the author provides financial or investment advice and this article should not be construed as such.