Monday, September 18, 2017

"Should I buy cryptocurrencies?" And other cryptocurrency questions

As bitcoin and ethereum appear frequently in the news, I've been getting a few questions about buying cryptocurrencies.

Here's a short primer on my outlook. I am not an investor and this is not investment advice. Buy at your own personal total loss risk.

Should I buy cryptocurrency?
If you have any interest in technology or finance and if technology plays more than a marginal role in your life, then yes.  Absolutely, emphatically, yes.  It's a great learning experience and certainly the future of money.  

After you buy a little bit, play with it. Send some to a friend. Buy something online with it. Give someone an extra tip or give someone a paper wallet loaded with $20 worth. Have fun with it!

Familiarize yourself with cryptocurrency first before making any significant purchase. Cryptocurrency is meant to be used, so go buy some stuff with it!

Do a little research. Google it, read wikipedia pages, browse various forums like reddit, and dig around. One hour of your time might just change the rest of your life, or could just help you be more informed the next time you see CNBC talking about bitcoin.

If you a 90 year old senior that has trouble using a TV remote, then no, you should generally not buy cryptocurrency.

Where do I buy cryptocurrencies?

If you are American, I would use Coinbase to purchase.

I don't recommend trading, but if you insist, use GDAX or Gemini to trade.  There are many other exchanges.  

There is the security problem of storing your cryptocurrency, and this problem can be significant. If you are not going to be in charge of your holding's security, which will be 95% of the general public, then the organization listed previously are among the most trusted American institutions.  I would be okay with leaving small amounts of coins on these exchanges.

If you are going to be in charge of your own security, then you can use an ethereum wallet to store your coins.  Use Google to find the ethereum wallet and be vigilant of scammers. Be mindful, cryptocurrencies are generally immutable meaning "once it's gone, it's gone!" If you are prone to "getting hacked" or are afraid of getting hacked, keep your coins on a service you trust. Be warned, many services have gone belly up in the past although the ecosystem overall is maturing.

How much should I spend?

Do not spend more than you're willing to lose completely.  Cryptocurrencies are still young and not all the bugs in the ecosystem are worked out yet.  The unexpected will happen, and that could mean the complete devastation of particular cryptocurrencies.

That being said, the high prices are an indication of market confidence, mine included.

If you are buying more than minimal amounts, I would use dollar cost averaging over a long period of time.  You can use Coinbase to set up "recurring transactions", which will withdraw from your bank account monthly or weekly. For example, you could spend $20 a month on a recurring transaction to buy cryptocurrency.

There are dramatic ups and downs, but those who have played the long game have all done very well. I've personally bought no more than I can afford to loose.

I own cryptocurrencies because I believe in cryptocurrencies. I have philosophical, moral, and political reasons for my holdings, you may not. Don't be greedy.

What cryptocurrencies should I buy?

In my humble opinion, ethereum.  I sincerely believe ethereum is the future.  All my other holdings are purely speculative.  Ethereum is the only coin with serious fundamentals for the future.  Ethereum is easy to use, nearly universally known, possesses superior technicals, it's faster, it's cheaper, and ethereum is building a more open ecosystem than bitcoin. I think just as a currency with no other use, ethereum is far more promising than bitcoin. Bitcoin also has a lot of infighting and huge technical issues with no solid solution in sight. Ethereum's singular vision is more true to bitcoin's original mission than the groups currently controlling bitcoin development.

I think there's a coming sunset on bitcoin dominance. Even this year bitcoin has lost significant market share to competitors like ethereum. I plan on writing more about bitcoin's flaws in future blog post. Regardless of my personal feelings, bitcoin is still the most trusted, oldest, and universal. There are mounting technical problems that bitcoin isn't handling well while needlessly polluting our environment through proof of work. Ethereum has been faster to adapt, grow, and address issues head on. Ethereum's vision is much clearer and applied than bitcoin's acolytes who are ever the philosophical armchair saints.

I think litecoin is overpriced and maintains minimal utility.  I also recommend against participating in ripple as it is not a cryptocurrency. I perceive it's marketing in the space as mostly fraudulent since it was designed to be centrally controlled.  I can offer my thoughts on other projects, but my opinions are only just opinions.

Research, read, and learn on your own.  Every 6 months or so I would reevaluate your holdings and make adjustments as you personally feel comfortable.