How To Trade Bitcoin and Ethereum Cryptocurrency for Beginners 2018

How's it going everybody. I'm going to talk about cryptocurrency such as Bitcoin and Ethereum. A little background about it how you can invest in it and the risks involved.

Now I'm a beginner myself and I did my research just enough so that I would be comfortable investing in it. I know you can get a lot deeper into in terms of the implementation the types of crypto currencies the way it works. And actually how actually mined things. This is all kind of transparent you don't necessarily need to know every single detail in order to invest in it wisely. But it is important to know a little bit of the background.

Cryptocurrency Background

 Crypto currencies is kind of like this you have a whole bunch of computers on a network on the internet. They all have a thing called lectures which keeps track of all the transactions. Now cryptocurrency is a decentralized network which means every single node, every single computer has a copy of this ledger of every single transaction there is. Now every single node can actually have a concave version of this ledger.

Currently this ledger which holds all the transactions that ever been completed since the beginning. Is roughly ten the 30 gigabytes and it's actually growing. The whole decentralized network constantly checked itself for error. So if an attacker comes in and tries to modify one single computer. And tries to feed this to other computers. Other computers are going to complain about it and not going to allow this fake transaction to go through.

 The thing I like about cryptocurrency is that the number of coins is actually fixed. From the very beginning. Now not all of them may be discovered yet because they have to go through this mining process.

Bitcoin vs US Dollar

This is in contrast to u.s. dollars where the central bank can actually just print any amount of money bail whatever company out. All of the supply of the United States dollar would inflate and the value of our dollar would gradually go down.

 This is very different in the crypto currency because the number of issued coin stays the same. Much like gold where the amount of gold stays the same. And therefore there's a rarity to it and due to this rarity the value of gold is kept. And I expect the value of a digital currency to be kept as well.

 You can see as the US dollar goes down and down the value of the digital currency would go up as compared to a United States dollar. 

What is the main difference between bitcoin and ethereum

Now what's the difference between Bitcoin and Ethereum. Bitcoin is just a digital currency itself. However Ethereum you can attack on all these other different services on to the blockchain and essentially do fancy things with it. And that's why people like to use as a area more than Bitcoin.

 For example you can set up the Ethereum to do something like a Kickstarter where people can actually pay into it. And it would not actually be duck from their account until certain criterias are met.

Ethereum has been a bit more popularity and currently it's a second most popular digital currency after Bitcoin. Ethereum has a shorter block time of 12 seconds whereas Bitcoin has a block time of around 10 minutes. This really just means that whenever you do a transaction for example you want to buy more etherium that transaction would go through faster. This is because Bitcoin by itself it's architected in such a way. That they can only do so many transactions per second need to propagate through the whole system. And this takes ten minutes to do. Just because of this bottleneck and because the original creator is nowhere to be found.

There's a lot of different groups that are trying to change the way Bitcoin works and they can never agree to something. Because of this is kind of going to be like an HD DVD versus a blu-ray battle the digital currency that's going to win is the one that's easier to use.

 Now I see Bitcoin it's kind of slowing down although it is the most popular right now. Due to this blockage of all the different ideas of how Bitcoin should be changed. So therefore they're going to be in a gridlock and nothing will happen. And therefore it's just going to slow down in terms of usability compared to the Ethereum.

How to buy bitcoin and ethereum

 Now you wonder how the heck do you buy into this because sometimes you have to run a server or something this gets really complicated. Personally I just go to one of the largest exchanges coinbase.com.

I actually bought one Ethereum this is at the cost of $255 and I've gained about 26% since maybe a month ago that I bought this coin. You have to understand that digital currency is highly highly speculative. It's kind of like currency traded you never know where it's going to go based on policy or whatnot.

For example the Ethereum got hacked a while back someone sixty million dollars from the server. However the creator said no you can't take 60 million dollars. So then they kind of went back on the ledger and just kind of forked it and they call the new one Ethereum and the old one is called the Ethereum classic. The classic one started off about $2 and now about $20.

 Normal ethereum is about $320 as of today on blockchain brokerage. Now I like it here and better because I like the idea that thieves wasn't able to get away with the 60 million dollars however the theme classic people just think oh yeah you know this programming is immutable. You should not be able to change it no matter how what happens.

 Now that's two ways of thinking about it kind of side on the etherium side rather than the classic side. So I bought more a theorem instead. Now I want to give a case on why I should buy things that holds their value a lot better such as crypto currencies or gold.

However cryptocurrency is a super duper volatile just one day it can go like 10%. I just bought a ethereum, I bought at 250 and went up all the way to like 350. That's like a hundred dollar gain. How many percent gain is that. it's like 33% and then it just dropped back down $30 this is another 10% down.

So you can expect it's going to go up 30% down 10% one day up with other 20%. You know it's just going to move all over the place. And you just have to expect this, however if you think about long term let's say 10 to 20 years.

The US currency in year 2000 let's say you have $1 then you know how much it's worth today it's about 71 cents to that dollar. Now if you held $1 worth of gold it's going to be worth a lot more than one dollar.

Since year 2000 there's an inflation of about 2% per year. Now over 17 years this equates to about a 40% of inflation so the average price of things if it was one dollar back then today it's going to cost you one dollar and 40 cents.

Now you just can't look at inflation and just go all my currencies is going down in value but at the same time your wages has been going up as well. So what you really want to look at it's not at the actual value of this dollar. But rather how much you can buy per your income every single year.

 Back in 2004 to average expenses as a ratio of income is about 55% this includes housing, transportation, medical costs, food etc. Now fast-forward 10 years in 2014 people actually have this 74% to buy the same exact stuff. This is a 19% increase of cost relative to your income.

 Your income may be increasing but the costs are increasing a lot faster. All this boils down to that your buying power is actually being reduced. In light of all this you may have a chunk of investable assets and you put it in an investment account and it's growing at 6 to 8% every single year.

 Now yet this beats inflation however if you keep any of this in cash such as in a savings account. Which earns you only 1% the inflation of 2% along with wage is outpacing your expenses. It's going to create an effect where your money is kind of shrinking about 1% every single year. And over a long time this is a lot.

When I looked at digital currencies is highly speculative so I wouldn't want to put all my investment money inside a digital currency of course. Couple years ago a friend told me about a guy who invested in Bitcoin really really early on and he invested in just about a thousand dollars and it grew 1,000%. So guess what $1000 turned into a million dollars. So he put in in something highly highly speculative and he got a really good gain from it.

 You can imagine for anything that's so highly speculative you may gain 1,000 fold or you may actually lose it all. If maybe Bitcoin just folded. One thing's for sure I think buying digital currency is actually a lot better than lottery tickets or going gambling with the same amount of money. When you gamble at a casino the long-term gains is actually very very negative the more you play the more you're going to lose.

 So in light of all this my comfortable range of investing in something like this maybe about five to ten percent of your portfolio.  Your portfolio is the amount that is over and beyond what you save your emergency fund. So if you have an emergency fund and anything over this. This is what you should use to invest. Out of this five to ten percent, I would stick about 25% in bitcoins and 75% in ethereum.

Investor or Trader

 There's pretty much two ways they can go about doing this. You could be an investor or you could be a trader.  Now if you choose to be an investor that typically means that you would purchase some cryptocurrency and hold on to it.

Basically you could be holding on to it for a few months or even a few years. And hoping that that value of that cryptocurrency will appreciate. Now if you choose to be a trader you typically focus on short term profit. Meaning you would purchase a cryptocurrency and utilize the volatility of the market to sell in and out of trades.

 Basically it goes down to the buy low sell high now if you're anything like me you're probably going to be a mixture of both. I do have some coins that I hold long term as long term investment so I'm not too concerned about the fluctuation in prices.

 However there are other coins that I do trade short term and I do utilize that fluctuation to get quick profits. So it's really up to you to evaluate what your goals are and what level of risk you're willing to take.