If you’re new to Bitcoin and crypto then this post will answer some of the most commonly asked questions.
How do I Buy Bitcoin?
The best way to buy bitcoin is to open an account on your local exchange. There are new bitcoin exchanges popping up around the world so it’s usually a good idea to find one that can work with your local currency. Make sure to conduct proper due diligence on any exchange before sending them your money. I personally use a Canadian exchange called Quadrigacx when I need to cash out or pay bills. This exchange will also work internationally via bank wire for anyone who’s not in the U.S.
U.S. residents can use an exchange service like Coinbase and link up their bank accounts to it. Most fiat exchanges will ask you to verify your ID due to KYC regulations. This generally requires submitting a copy of your ID and proof of address. The verification processes can sometimes take longer when exchanges get a flood of new market participants.
Make sure that you use 2FA (2-Factor Authentication) on all your exchange accounts. This is a secondary password generated from a smart phone application such as Google Authenticator or Authy.
Here’s an example of a 2FA code
2FA is extremely important because without it someone can easily hack into your account. If someone manages to crack your password they still won’t be able to access your account unless they have your physical phone. Make sure you write down and save the secret key in case you lose your phone.
Once your account is fully secure you can purchase your first bitcoin. This is often done by making the purchase on the exchange order book. Each side of the book has buyer and sellers, the market price is determined by whatever orders are available. If you don’t like the market price you can always set a lower order but there’s no guarantee you’ll get a fill.
Unless you are actively trading, exchanges should not be treated like a bank. There is counterparty risk by leaving money on an exchange and if they get hacked you could lose it all.
How do I Send a Bitcoin Transaction?
Bitcoin uses cryptographic key pairs, the public key is what you give people to receive bitcoin and the private key gives you access to spend them. Most wallets have the private keys hidden and automates this process unless you want to see what they are.
Here’s an example of a bitcoin key pair.
To send a bitcoin transaction you just need to copy and paste the public address into your wallet or from the withdrawal section of your exchange. When purchasing items it’s always best to do it from your own wallet because exchange withdrawals can sometimes have delays.
What bitcoin wallet should I use?
It’s always best to store your bitcoin in your own wallet. One of the most secure and easiest ways to store bitcoin is to use a hardware wallet like a Trezor or a Ledger NanoS. These keep your private keys isolated from the internet so that they can’t get hacked.
- To set up your Trezor you’ll need to go to https://wallet.trezor.io
- Download the browser extension
- Hold both keys at the same time and connect the device to your usb port, this will ensure that the firmware is up to date
- Next the device will generate 24 words as your seed. Write these down in order and NEVER keep a digital copy. With this seed someone can access all your wallet addresses and money. It’s also used as a backup in case you lose the device.
- To log in you will be prompted to create a PIN authentication number generated by the device. Choose a number combination of your choice, write it down and set it by matching the order of your PIN shown on the device by clicking the corresponding squares on your computer monitor. This PIN will act as a passcode to authenticate your transactions so don’t lose it.
- After you enter your PIN you will be prompted for a password. You can create any password you want and it will act as a 25th word on that seed. Many addresses can be generated from one password and you can have multiple password accounts
Trezor wallet can store multiple coins such as BTC, ETH, ETC, LTC, DASH, ZEC, and all ETH based tokens. For more detailed instructions please read through the entire tutorial section from Satoshi labs.
What’s the Best Free Bitcoin Wallet?
The best free bitcoin wallet is the core software created by the many volunteer developers. This not only serves as a wallet but can also be a node to help verify transactions on the network.
That said, the core software may be a bit intense for beginners due to the blockchain sync times and the extra disk space and bandwidth required to use it. Another alternative is to use a lightweight wallet such as Electrum.
Electrum has many great features including generating a recovery seed as well as the ability to easily swipe paper wallets.
- First download the electrum wallet here
- Then click on auto connect
- Next choose the type of wallet you want. For simplicity choose standard or one with extra 2FA protection (which relies on their server and has an additional fee).
- Next create a new seed
- Write the seed down and never store a digital copy! Just like with Trezor, this seed will generate all your addresses and can be used to recover everything if something happens to your computer. For extra security, disconnect your computer from the internet while generating your seed.
- Once written down, manually type the seed into your computer to confirm that it’s correct. Also make sure your computer is free from viruses, otherwise keyloggers could steal your private keys
- Next encrypt your wallet by choosing a strong password. Make sure you write it down in case you forget. Use a unique password, make it at least 16 characters long and add a combination of numbers, letters, capitals and symbols
- If you are using their 2FA service then enter your email and click accept
How do I Create a Paper Wallet?
Please reference this post for generating a bitcoin paper wallet. The easiest way to retrieve the funds is to sweep your private keys into an Electrum wallet.
Then type your private keys into Electrum and click sweep. Your coins will be sent to the listed wallet address.
WHAT ALTCOIN WALLETS SHOULD I USE?
The most secure and easiest way to store some altcoins is with a Trezor and/or a Ledger NanoS. I’ve already listed off various altcoins that can be stored on a Trezor and a Ledger NanoS can also store most of those as well as STRAT, Doge and XRP.
To store most other altcoins you will need to download the wallets created specifically by their developers. If you’re collecting many altcoins this can be very time consuming and requires additional space on your computer to download all their blockchain data. You’ll also need to make sure these wallets are up to date in case there are major upgrades.
A more convenient but less secure way is to store those coins on an exchange. This comes with counterparty risk but is less time consuming and will minimize the chances of user error.
There are also various browser wallets like Jaxx but I generally don’t recommend them for large sums of money because they don’t tend to be very secure.
What Exchanges Should I Use to Trade Bitcoin and altcoins?
There are many different bitcoin exchanges internationally that you can trade on. When buying bitcoin it’s best to find a local exchange that deals in your currency but for trading you can use any exchange. The BTC/USD and BTC/CNY tends to be the most liquid currency pairings.
Each exchange has their strengths that can be used for different strategies. To manage counterparty risk I never keep my entire crypto portfolio on exchanges. The majority of my coins sit on a Trezor and then I spread out my trading capital amongst multiple exchanges. That way if one exchanges gets hacked your entire trading capital wont get wiped out.
Here’s a list of the various exchanges that I like to trade on:
- They offer margin trading on a variety of different markets, making it possible to short or use leverage.
- They acquired a popular charting platform called cryptowat.ch, which has a clean user interface and will even automatically mark your entries on the charts.
- One of the most liquid exchanges offering a EUR currency pairing.
- Multiple fiat currency pairings such as USD, EUR, CAD, GBP, JPY
- Multiple altcoins to trade such as ETH, ETC, DASH, XRP, LTC, ICN, GNO, MLM, REP, ZEC, DOGE, XLM, XMR
- Some people find their traditional user interface unintuitive and complicated.
- Liquidity is thin on some pairings so be careful with margin trading
- Customer service can be slow
- One of the most liquid BTC/USD exchanges in the world and often a market mover for bitcoin.
- Has the ability to margin trade various altcoins and their liquidity isn’t bad.
- A really nice interface with proper charting tools built directly into the platform
- They managed to recover from a major $70M hack and eventually credited everyone’s loss.
- They used to have issues with their trading engine glitching out during peak volatility (seems to be resolved).
- They’ve been hacked on a couple of occasions.
- BitMEX is one of the best crypto futures exchanges
- They offer the highest leverage in the industry up to 100x on BTC
- Multiples futures contracts for various altcoins
- Their trade engine has fast execution which makes it ideal for scalping
- Fast and reliable customer support
- Nice user interface
- Rigorous security process
- Liquidity on certain contracts can be thin with a loose spread
- Withdrawals aren’t instant but this also makes them more secure
Use this link and save 10% off your BitMEX fees.
- Has one of the largest selections of altcoins to choose from
- They are constantly added new coins to keep pace with the markets
- Great exchange for accumulating cheap altcoins
- Has decent altcoin trading volume
- Lacks the ability to trade on margin
- Has the best altcoin market makers
- Highest altcoin trading volume and liquidity
- New coins listed generally have price discovery rallies
- Website can have serious lag for some users
- Customer service can be really slow
How Do I Short Bitcoin or ALTCOINS?
Shorting bitcoin simply means to borrow coins and sell them on an exchange. If the price drops you can then buy back the borrowed coins at a lower price, return them with a fee and keep the difference as your profit.
In order to borrow coins you need to keep some as margin in your trading account as a deposit. This is used as collateral in case the markets move against you. Margin trading comes with the ability to use leverage, which means you can increase your position size higher than what you have deposited.
For example: if you use 3x leverage and have 1 BTC as a deposit, you can then trade up to 3 BTC. The exchange will not let the markets move against you more than 30% and if that happens you will lose your deposit and return the borrowed coins. This is called liquidation.
The mechanical process of shorting bitcoin looks identical to a regular sell order, except you’ll have maintenance fees to pay the lender and a liquidation price.
You can also long bitcoin and altcoins on margin, which is borrowing dollars to buy coins. Margin trading can be very risky, so should be avoided by traders who don’t have proper experience.
Is Mining Bitcoin and altcoins Profitable?
For the most part, small scale crypto mining generally isn’t profitable unless you really know the markets. The cost of hardware will immediately put you out of pocket and the electricity bills can be huge.
Most profitable mining is done on a large scale industrial level with very cheap electricity. That said, if you dig in deep on the fundamentals and time the markets, you can turn a profit by getting in on the ground floor of new altcoins before they hit the exchanges. This can be very time consuming and usually requires patience because you’ll likely start at a loss.
It’s generally best to avoid cloud mining services because most of them are Ponzi schemes in disguise or run a fractional reserve system.
Should I Invest In Crypto High Yield Return Schemes?
No. Just about any website that guarantees a high yield percentage return for doing nothing is a Ponzi scheme. Stay away from all Ponzis and MLM type crypto structures because you will likely lose your money or contribute to someone else losing their money. All Ponzi and pyramid schemes fail due to market saturation with at least 50% of the participants losing their investment. Please don’t contribute to the problem.
A lot of new traders are always looking for price targets. Ultimately nobody knows where the exact top is going to be unless you happen to be a whale who can move the markets.
That said, you can always learn how to use technical analysis to read market behaviour and find relatively good targets. During strong bull trends you likely want to let your winners ride until signs of a reversal. Fibonacci extensions are one of the best tools that traders can use to find price targets.
You should always conduct your own due diligence instead of blindly buying coins that are shilled from traders on social media. If you don’t understand the risks, market behaviour and technical analysis then you are the low hanging fruit that will lose money.
The markets are a zero sum game so not all traders get to be a winner. The markets are a meritocracy so take responsibility for your actions or you will lose. There are many good traders who share ideas on social media and there are also many wolves who want you to buy their expensive bags.
Crypto is about being your own bank and self governance. If you act like a sheep and blindly follow then you are missing the point entirely. Your reward shall be measured by the effort that you put into your study and training. There are many great courses and trading communities that you can join to learn more. Also avoid all pump and dump groups because these are scams.
Latest posts by Rocky (see all)
- Bitcoin and Cryptocurrencies for Beginners - June 24, 2017
- 3 Things You Should Know if You’re New to Bitcoin - June 9, 2017
- Cofoundit Aims to Help Blockchain Startups Raise Capital - June 1, 2017