Getting started with Cryptocurrency

December 15, 2017

With Bitcoin rising so much I decided to buy/sell/trade some cryptocurrency.  Admittedly I don't really know what I'm doing, I'm just in it to hopefully make a little bit of money.  I do think that cryptocurrencies will be a growing market over the next few years as they become internationally adopted and we begin to be able to actually purchase things with them.  

 

As an introduction, google "what are cryptocurrencies" and read a little bit about how they work.  Here's a nice overview:  

"A cryptocurrency is a digital or virtual currency designed to work as a medium of exchange. It uses cryptography to secure and verify transactions as well as to control the creation of new units of a particular cryptocurrency. Essentially, cryptocurrencies are limited entries in a database that no one can change unless specific conditions are fulfilled."  Source:  https://cointelegraph.com/bitcoin-for-beginners/what-are-cryptocurrencies

 

There are many different types of cryptocurrency, but the top ones right now are Bitcoin, Ethereum, Litecoin, Bitcoin Cash, and Ripple XRP.  Each coin has their advantages and disadvantages, mostly dependent on how their transactions are set up on the back end.  I'll explain briefly the differences of them below.  

 

 

Digital Wallet - US Dollars to Cryptocurrency

So if you want to invest in them, first you have to convert your money from USD in your debit/credit card or account into some cryptocurrencies.  This is called a digital wallet.  I recommend using either Coinbase or Bitstamp.  I mainly use Bitstamp, because they have low/no transaction fees and it was the first one I found and signed up for.  The only drawback with Bitstamp is they require thorough identity verification including your social security number and pictures of drivers license and a recent bill.  But once you do that there aren't any practical limits to what you can invest.  Coinbase is also popular, I think it's easier to transfer money back into your bank account on there.  

Coinbase - Bitcoin, Ethereum, Litecoin

Bitstamp - Bitcoin, Ethereum, Litecoin, Bitcoin Cash, Ripple XRP

 

 

Bitstamp Steps

  1. Make Bitstamp account, wait a day or two for the identity verification to complete

  2. Go to Deposit, Credit Card.  Select the type of coin you want to buy and how much $USD you want to spend.  

  3. Fill out the credit card information

  4. Congrats, you've bought some cryptocurrency.  

Coinbase Steps

Disclaimer - I haven't done this myself yet

  1. Make Coinbase account.  Use my link if you're feeling nice:  https://www.coinbase.com/join/5a2ffcfc5dc55a019fcecaf6     Without verification of identity you can buy a maximum of $750 with a credit card each week or $10,000 with a bank account each week, and sell $10,000 worth per week.  

  2. Link up a payment method - I used a debit card

  3. Go to Buy/Sell, select the coin you want to buy and enter how much

  4. Congrats, you've bought some cryptocurrency.

Definitions

Block - a ledger entry of recent coin transactions throughout the world.  

Blockchain - a digital ledger in which transactions made in a cryptocurrency are recorded chronologically and publicly.  

Mining - th

 

Different types of cyptocurrency

Bitcoin - BTC

The OG cryptocurrency, which is the only coin that most people know about.  Bitcoin uses Blockchain, which is a global database record of all transactions that have taken place on the Bitcoin network and keeps track of new bitcoins as they are generated.   There is a lot of very complicated math that goes into generating or "mining" a bitcoin.  Bitcoin blocks are limited to 1 megabyte in size, which limits the maximum transactions the bitcoin network can process per second.   The theoretical limit for Bitcoin's capacity is around 7 transactions per second, which is nothing compared to Visa's 47,000 transactions per second.  This limit has lead to increasing transaction fees (I read yesterday on Reddit about someone sending $20 in bitcoin to a charity and it took 13 minutes and had a $15 transaction fee) and delayed processing time.  For these reasons it's unlikely for Bitcoin to become widely used unless it undergoes some major changes.  

Sources:  Wiki1  Wiki2

 

Litecoin - LTC

Bitcoin takes about 10 minutes to solve a block, whereas Litecoin takes about 2.5 minutes.  This means it can handle a higher volume of transactions per second than bitcoin.  Transaction fees are much lower, about 1/1000 of a litecoin.  (So currently with LTC at $300 ish, transaction fee would be $0.30 no matter how much the transaction was for)  

Sources:  Investopedia  Wiki  Differences

 

Ripple - XRP

Ripple is very different because no one mines Ripple's coins - they were just issued.  Ripple also doesn't use a public blockchain, it uses an internal blockchain ledger involving the banks and financial institutions using Ripple.  It isn't anonymous miners like LTC or BTC.  Ripple's payments are near instantaneous just like normal Visa transactions.  There are 100 Billion XRP maximum (compared to 21 million bitcoins), so the price of a single coin will never be the impressively high amount that Bitcoin is.    Currently one Ripple coin is worth $0.80, whereas a Bitcoin is $17,000.  Ripple can perform 1000 transactions per second and can finalize a transaction in 3 seconds.  Ripple is intended to be used in an international banking system and already is in live beta phase with 75 banks.  

Sources:  CoinCentral 

 

Trading with less popular coins or "AltCoins"

Coinbase and Bitstamp are wallets for your cryptocurrencies and only support the top 3 or 5 coins.  However, there are new cyptocurrencies realeased every day that have the potential to increase exponentially like Bitcoin did.  If you want to invest in these in hopes of getting rich quick you'll have to use a coin exchange.  I signed up for Binance, which has a lot of options once you transfer BTC or ETH into it.  Steps to use these are typically

  1. Buy BTC or ETH on Coinbase or your wallet with USD

  2. Transfer from your wallet to the exchange 

  3. Trade from your balance on the exchange to your altcoins

This site has a good write up on trading:  https://richardpatey.com/how-to-buy-altcoins/

 

Taxes

Taxes are going to be complicated for cryptocurrencies, but you'll definitely have to pay them somehow.  Google it when taxes come around.  Basically digital currency is going to be considered property for tax purposes.  

https://turbotax.intuit.com/tax-tips/tax-payments/tax-tips-for-bitcoin-and-virtual-currency/L1ZOgU00q

https://www.forbes.com/sites/greatspeculations/2017/07/10/what-you-need-to-know-about-cryptocurrencies-and-taxes/#368b6e961a95

https://blockonomi.com/cryptocurrency-taxes/

 

 

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Jacob Thompson

jat5@clemson.edu

Clemson, SC

© 2020 By Jacob Thompson

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