Beginner's guide to investing in crypto: Part one

by , 13 April 2018
Beginner's guide to investing in crypto: Part one
Right now, we are living through a revolution in money - the cryptocurrency revolution.

I'm sure by now, you already know the potential of cryptocurrencies and how they're minting new millionaires every day.

The more mainstream cryptos have become, the more people have started to take interest in it. In fact, over the past year or so, plenty of South African's have invested in cryptos and I'm sure some have made a lot of money.

If you haven't taking this leap yet (maybe you're scared), and you're still keen to invest, don't worry, it's not too late. The crypto revolution has just got started.

So for the next few weeks, I'm going to help you learn everything you can about cryptos. I'll also show you how and where to invest in them.

I can't cover everything today or it would be a very long article. But I will cover all of these topics, in detail, over the coming weeks.

In part one, I will cover… 
  • The number one rule for crypto investing
     
  • The three main types of cryptos and explain the most popular one
     
  • The best ways to research cryptos
So let’s get started…
    
  
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The number one rule of all crypto investing
 
It’s not just for cryptos, but it’s the number one rule when it comes to share investing, trading and even sports betting.
 
I’m sure you’ve heard it countless of times, but it never gets old. 
 
Never invest more money than you can afford to lose.
 
You may think it doesn’t happen, but for example, people often use credit to start investing. In fact, a worrying article was published last month with the headline, “South Africans are pawning their cars and taking out second bonds to buy Bitcoin”.
 
In short, South African Debt counselling company, Debt Rescue has witnessed a rapid growing number of people who’ve gone to extreme lengths just to invest in Bitcoin.
 
CEO of Debt Rescue, Neil Roets said, “Some of them had gone as far as pawning their vehicles, taking out second bonds on their homes and borrowing money on credit cards in order to buy cryptocurrencies”.
 
Don’t be one of those people who ignore this rule, because today they’re hugely indebted.
 
Before I move on, there is one major difference between investing in cryptos and say, shares.
 
Because cryptos have the ability to grow 50%, even 100% in a single day/week, you can invest tiny amounts and still make a decent return.  Shares on the other hand, usually take longer to grow that fast.
 
My point is, you can literally invest as little as R100 or R500 – AS LONG AS you don’t need it. Because just as cryptos can soar high, rapidly, they can drop just as fast.
       
Not all cryptos are created equal – There are three main types
 
First things first, not all cryptos are created equal. You get different types of crypto categories.
 
The three main ones you need to know are: 
  • Platform
  • Currency
  • Utility
For today, I’m going to cover the most familiar one, currency. In part two, I will cover Platform and Utility cryptos.
 
Currencies are where it all started, hence why many people refer to every crypto as a crypto-currency. Although this isn’t strictly accurate, the name has stuck and is now widely adopted.
 
The main idea behind cryptocurrencies is they let anyone transfer money to anyone else in the world through the internet, without relying on a third party.
 
Cryptocurrencies solve the problem of trust.
 
In ordinary transactions, you have to trust the person or a third party – such as a bank – to compensate you. Whereas, cryptocurrencies remove the need for a third party to process and guarantee your transactions.
 
With no need for third parties, every transaction can be cheaper, faster and more secure.
 
However, cryptocurrency’s biggest strength is also its biggest weakness. By removing the need for third parties and fiat (normal) money, it’s struggled to gain traction in many countries.
 
This is why it’s taken bitcoin a number of years to get to where it has.
 
It’s had to prove itself worthy time and time again.
 
Another hurdle cryptocurrencies face is can they become an “alternative payment” method?
 
But in order for this to happen, they need a stable price. You see, no one wants to spend a currency that is increasing in value at such a rapid rate.  That’s why many people now call bitcoin “a store of value” and not a currency.
 
Despite these hurdles, some of the best performing cryptos have been currencies. And they most likely will continue to be. 
 
So if you have the money, it would be a good move to invest a portion in currency cryptos. 
 
      
    
 
Three leaders in the currency crypto space
 
There are many different types of currency cryptos, but today I’m going to share three. These are the leaders in this space – as I see them. Others may disagree.
 
Here they are...
 
#1: Bitcoin – The current king of cryptos
 
Bitcoin is obviously the biggest currency crypto out there right now. Despite its massive run to over $19,700 and subsequent fall, it still has huge potential to go up again.
 
The thing about Bitcoin is, it’s the gateway to getting into many other cryptos. By that I mean you need to buy bitcoin in order to trade it for other, smaller cryptos on exchanges.
 
Bitcoin is currently king of crypto and any portfolio should hold some.
 
Bitcoin’s moves affect the entire market. You cannot escape its influence, so you might as well own some and benefit from its swings.
 
#2: Monero – The undisputed #1 in privacy
 
Unlike bitcoin (which is very easy to trace) Monero is currently untraceable. You can’t even see public account balances.
 
How does Monero achieve this? Stealth addresses and ring signatures.
 
Stealth addresses let payees generate one-time public addresses that payers can send to. Once this is on the blockchain, the payee can find it, generate a private key from it and spend it. This spend is never associated with the payee’s wallet.
 
Ring signatures are “sort of like a multi-signature model, where all signatures are equally important, but only one of them is the real one.
All the signatures appear equally plausible to an outside observer. And only the person with the right private key can work out the real one”.
 
Monero isn’t the only crypto that allows anonymous transactions. But it is widely regarded to be the best.
 
#3: Litecoin – Similar to Bitcoin, but won’t grow as fast
 
Litecoin was designed to be a faster, higher-tech bitcoin. It’s based on the same code as bitcoin and so it can also implement features bitcoin adds.
 
Litecoin is also very popular and has a strong following with many investors hoping it will one day reach the price of bitcoin. But this won’t happen.
 
Now if you like the sound of any of the currency cryptos I just mentioned, it’s imperative to do your own research before investing.
 
Before I finish up part one, I just want to share a few tips that may be helpful when you research.
 
The most useful resources every crypto investor needs to know about
  • Read the whitepapers –  This is where the creators of the crypto lay out their plan. They explain – usually very simply – how it works and what it hopes to achieve. This is the starting point of your research into any crypto you want to invest in. You can learn an awful lot from the crypto’s white paper. 
  • Go on the crypto’s website –  Have a look around the crypto’s website. Look for the section on the team and check their backgrounds. If they don’t give much background, steer clear. You can also look for any partnerships they have. 
  • Look at the Reddit communities –  Reddit is one of the best places to find information on any crypto. You have hundreds, if not thousands of people adding to the debate. If they post something useful they get an upvote.
If it’s false or not useful it gets a downvote. The only thing with Reddit communities is that they will all shill their own coin, and mostly only post positive news about it. So read as many posts as you can get a balanced view. 
That’s it for part one.
 
In part two, I’ll cover Platform and Utility cryptos. I’ll also show you where and how to buy different cryptos. 
 
Always remember, knowledge brings you wealth,
Joshua Benton,
 
Resources:
 
Bitcoin
Monero
Litecoin


Beginner's guide to investing in crypto: Part one
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