Now that you have your first Bitcoins or any other crypto, what can you do with it? and how can you use it? Well firstly cryptocurrency can be regarded as a:
- Medium of value: You can hold it indefinitely as the value may appreciate over time
- Medium of exchange: You can buy goods or services
- Medium of speculation: You can trade it with other currencies for profit
Store of value
Bitcoin is regarded as a store of value and as such is usually compared to gold. That is where you just buy it and hold it, in the hope that the value of the asset increases over time. Certain factors such as the adoption, the value proposition and the use cases from the currency will mean that the basic principles of supply and demand will apply and the price will increase. However other factors come into play as well that you need to remember.
For example, new precious metals aren’t discovered everyday- unlike cryptocurrencies. It is estimated that at the time of writing this statement, there are just over 1000 cryptocurrencies in the market. Even Bitcoin has been forked several times with three versions of it in the market.
The cryptocurrency age is also very new. There is a lot of uncertainty surrounding the technology- and not just this, but there are political, legal, and geographical implications to consider as well. Therefore who knows if any crypto will survive long enough to remain a store of value. For example Bitcoin may have the largest market cap and may be regarded as a store of value for now– but what is stopping another coin from rising to the top, leaving Bitcoin behind?
Hence it is important to understand and study each crypto before you invest into it for its store of value. This is no different to any other investment you would consider holding on for the long term- for example property, shares, mutual funds, metals etc.
Also remember that the best time to buy is when the price is low. It is easy to get caught up in the hype when a coin is being talked about on social media and being shilled by others, meaning that you end up buying at a high price rather than at a dipped or lower price. This could be okay in the long run as eventually the price may continue to increase. However you’d still have made higher profits or you could buy more units if you had instead bought at a lower price.
Medium of Exchange
It wouldn’t be called a crypto currency if you couldn’t use it as a currency right? So one thing you can definitely do is buy and sell goods and services in exchange for crypto. Most retailers or service providers that accept cryptocurrency as payment accept Bitcoin due to its popularity and history. Other popular coins include Litecoin and Ethereum.
More coins are becoming popular and it will be up to each vendor to decide which cryptocurrencies they will accept.
On the flip side you can accept cryptocurrencies as well if you are a vendor. There are plenty of plugins available in the market that let you easily integrate cryptocurrencies into your e-commerce platforms. This is for the top coins only though. But you can always reach out to the cryptocurrency community for support or hire developers to integrate other currencies if you wish.
Remember that if you desire a certain coin but are limited with say between Bitcoin or Litecoin only then you can easily exchange these with your desired coin on an exchange that you find suitable.
Speculating for profit
Photo courtesy of Photo by Lorenzo Cafaro from Pexels (pexels.com/photo/black-and-white-business-chart-computer-241544/)
This topic requires a deep dive and we will discuss it in another chapter. For now, considering that cryptocurrencies are highly volatile and have monetary value, they are widely used as a speculative asset for trading and profiting. You can buy, sell, trade between fiat and crypto, or crypto-to-crypto. It is easier to trade between crypto-to-crypto as you have more currencies to play with.
With the number of exchanges rising, it is giving us more options that let us trade cryptocurrencies for speculative purposes.
Although people have made significant profits from trading, you still need to be aware that it is a highly volatile market with a lot of risk. Therefore it is important that you:
- study the market
- keep up to date with news and related social media posts
- conduct technical analysis (charting analysis)
- have a trading strategy that you follow
- build your portfolio wisely
- know what you are doing
It is easier said than done- you want to buy low sell high. It is very easy to enter a trade and find that your coin depreciates in value the split second your order is placed. Usually meaning that you end up buying high and selling low!
In the crypto trading world it is very common to see volatility in the range of 100s of percent per day. This is not the same as trading shares, metals, futures, etc. Once again, crypto trading is highly volatile with extreme ups and extreme downs, so know what you are doing!
Coinmarketcap.com shows the biggest gainers and losers over 24 hours
Coinmarketcap.com shows the biggest gainers and losers over 24 hours
Participating in the community
The other thing to note is that you can actually participate in the community. Most cryptocurrencies are decentralised- meaning that for it to operate, it requires the community. On top of providing technical resources such as running a node or participating as a developer there are several other things you can do.
These can include things such as contributing ideas, offering marketing, becoming a merchant (accepting the crypto for any goods and services you provide), providing support, promoting the currency in forums and helping other users. This is not just recommended, but also, welcomed by the crypto community. So if you have a currency you are really fond off and see strong potential, feel free to get in touch with the community.
Where to find the community:
Start at the official website of the cryptocurrency which will list their preferred communication and group participation channels. You will find the following are the most common:
Sending Receiving or Transferring crypto coins
Sending and receiving funds is quite easy. You can send and receive to and into wallets by using the private and public addresses. But first, a few important details:
- never give out your private key to anyone, always give the public key when sending and receiving funds
- Each crypto has it’s own set of address keys, e.g. Bitcoin can only be sent to a bitcoin address, Ethereum to an Ethereum address. Don’t send Bitcoin to an Ethereum wallet that you may own.
- always double and triple check the addresses. Crypto transfers cannot be reversed unless the recipient returns the funds back to you address.
Sending cryptocurrency to someone else
Let’s say we want to transfer Ethereum (ETH) to someone else. In this case you need to:
- open up your Ethereum wallet (regardless of whether that is on your PC, online wallet, or an exchange)
- select the option to send Ethereum
- in the address field you will type in or paste the recipients Ethereum wallet public address- this will be a long alpha numeric number
- some cryptos will require another field such as message to be input as well- the recipient should be able to provide this to you also
- software wallets and cryptocurrency clients will ask for the fee as well- you can specify how much fee you will pay for the transactions- there will be a minimal fee payable
- finally, enter the amount
- double check the recipient address
- finally, triple check the recipient address
- once all details are entered you can hit send
The speed of the transaction varies quite a bit when it comes to cryptocurrency. Depending on the cryptocurrency, the funds will be received on the other end within minutes to hours. Once again, this re-iterates the point on researching your cryptos before you buy them.
The following is an example of the fields required within the NXT cryptocurrency client:
Receiving cryptocurrency is obviously the opposite of the above. All you need to do is provide the public address of your crypto wallet to the payee. Make sure to double and triple check all address details. You may also need to provide a one time message to the sender.
It’s been mentioned earlier, but keep in mind the following:
- Tax may apply to your trades- this depends where you reside for taxation purposes- each jurisdiction will have its own rules. However most countries currently view cryptocurrencies as property and not currency. So your profits may be subject to taxes such as capital gains or income tax
- The future of crypto is highly uncertain. This is not to scare you off. We really believe in the tech behind cryptocurrencies and strongly feel that they will pave the way for a lot of future successful projects. However, no one can say for sure how it will pan out, and how long it will take
- Storing your crypto is confusing and inconvenient. You need to be extra careful if storing it on your own (recommended but with a strong warning). Otherwise you need to find trustworthy exchanges or online wallets to store your crypto (not recommended). Unfortunately this is a case of ‘you’re damned if you do, or you’re damned if you don’t‘. However we are in the early days of crypto and such is the case. With emerging tech though, hopefully security and convenience will go hand in hand when it comes to crypto storage.
- Remember that once you send funds anywhere you cannot get them back. There is no middleman or intermediary to resolve disputes between vendors and purchasers. You do not have the convenience that PayPal, or the banks offer. So make sure you send crypto to the correct addresses.
- Do not rely on single sources for truth. For example don’t just rely on posts in a Reddit social group to make decisions. People on social media are happy to shill coins for their personal gain.