The Top 10 Cryptocurrency and Bitcoin Questions Answered for Beginners
If you don’t know what cryptocurrencies are, or even what Bitcoin is, then you have some catching up to do. Firstly, you should learn what bitcoin is because Bitcoin could potentially have real benefits for you now, whether or not you own any.
Bitcoin is being accepted by more and more retailers and business, both online and off, due to the ATO’s new regulations that legally allow bitcoin to bypass GST tax. This is in addition to PAYG tax when paid as a salary to individuals. Bitcoin is legally usually only subject to capital gains tax if the amount is over $10,000 and even then, if Bitcoin’s price were to go down and you were to make a loss, then that could possibly be tax deductible. However, this should be confirmed with either your tax professional or a tax officer from the ATO.
This article showcases the top 10 questions that bitcoin beginners have about cryptocurrencies. The questions were answered by Jerry Banfield who is a cryptocurrency expert, blog writer, YouTuber, and entrepreneur. This article builds on Jerry Banfields answers to the top 10 bitcoin questions that beginners had.
10What are cryptocurrencies like Bitcoin, Steem, Ethereum, and Litecoin?
Bitcoin, Ethereum, Ripple Litecoin and NEM are cryptocurrencies similar to Bitcoin and Steem, which are essentially digital money. Cryptocurrencies are differ from regular currencies in that they are completely decentralised. They are basically issued and managed by users. However, there are companies that can handle fiat currency (eg: USD, AUD and EUR) transactions, for example Coinbase and Bitstamp, who allow changing fiat currency like AUD to crypto’s (Bitcoin) and this provides real value. Bitcoin is currently accepted as payment for goods and services by thousands, if not millions, of businesses and websites around the world. The number of enterprises accepting Bitcoin (BTC) is growing exponentially. Thus, moving us towards mainstream adoption at an ever increasing rate. This is sky rocketing the price and for every business accepting BTC, there must be at least 20 traders buying it for the purpose of speculation. Cryptocurrencies have also become the go to choice for so-called “black markets” as the anonymity and ease of use is far greater when compared to using normal credit and banking facilities. Digital currencies are also very popular in countries like China where moving wealth out of the national economy and into the global market is difficult.
9How is the value of a cryptocurrency determined and where can I see it?
Coin market cap has a list of cryptocurrencies ranked by the value of 1 unit of that currency times the cost on an exchange to buy it which equals the market capitalization. For example, 1 Steem today is worth $1.56 on Poloniex and Bittrex as I write this. With 235,749,278 STEEM available, that means in theory to buy every Steem at the market price today would cost $1.56 times 235,749,278 which equals a total market capitalization of $368,544,488. As you can see these numbers are all really fiction because the price moves all the time as does the quantity available meaning no one is going to actually be able to buy all the Steem in the world with $368 million. Still, the market capitalization gives a rough estimate of the total value today of a digital currency.
8What are the most exciting reasons to become involved with digital currencies?
With the ability to transfer money in just 3 seconds to anyone in the world with a Steemit wallet without any fees, digital currencies like Steem make sending and receiving money 10 times easier than using wire transfers, PayPal, or Western Union. Digital currencies are just like cash meaning for merchants receiving payments this way guarantees you actually get the money whereas with processing credit cards using Stripe or PayPal there is no guarantee the customer actually paid because of the ability to easily to a chargeback with almost no chance for the merchant to win. I believe that money in the future will be primarily transacted from user to user with digital currencies meaning that buying even a little bit today may be the biggest investment opportunity going forward and an ideal retirement plan!
7Worst part about using cryptocurrencies?
If you are unlucky enough to lose your private key (password) or make a mistake with a transaction and enter the wrong address, then you’ll more than likely end up losing your Bitcoin or other cryptocurrency the same as if you lost your wallet or mailed cash to the wrong address. Cryptocurrencies can be extremely unforgiving when it comes to making mistakes because many wallets are only locked with a password with no hope of getting back in if the password is lost. To make matters worse, they are relatively easy to steal compared to say robbing a bank. For example if your wallet is unlocked on your computer or your account is open, anyone that has physical access to your computer and knows how to make the transaction could easily clean your whole wallet out with a few clicks the same as they could taking the cash out of your wallet. Law enforcement at less than the NSA level is not likely to be able to help out either unless the thief is sloppy beyond belief because it is easy to move any cryptocurrency through some kind of anonymous transaction that makes tracking it nearly impossible to those without access to the real time global electronic monitoring system which no one is going to allow use of to track down some stolen cryptocurrency! Fortunately Steem has both account recovery and Steem Power both of which make it significantly more difficult to instantly clean out an entire account. That said, I have seen at least one Steemit user accidentally send as much as $200,000 to the wrong account and thankfully the user that received it is giving it back in exchange for a 5% fee offered by the sender! Ironically the ease of losing cryptocurrencies is also likely to drive the value up!
6Which cryptocurrency is best to buy today?
The best cryptocurrency to buy is one we are willing to hold onto even if it goes down. For example, I believe in Steem enough that I am willing to hold it even if it goes down 99% and would start buying more of it if the price dropped. I have no intention of selling and am continuing to invest for the long term because of the supportive and energized group of users we have on Steemit! One of the most expensive mistakes I made starting out with buying Bitcoin, Ethereum, and other altcoins was to buy with the belief that it should go up and therefore make me money. When it actually went down, I got into fear and anger because the real reason I had purchased was just to make money which obviously was not working out in the short term as the price dropped. Naturally I could only take this pressure so long and sold down low to “cut my losses” which also cut all my profits when I sold over 30 Bitcoin at around $200 in 2015 after a year of buying it and hoping to make money. Buying into any cryptocurrency with the expectation it should make money quickly is a guaranteed way to be miserable because even if it goes up, then the pressure is on as to when to sell? I am currently only buying Steem and investing in Steem going forward because I believe in the community of users of which I am a part. With fiat currencies, the government issuing the money and the people using it determine the value. Would it be a good idea to buy into whatever country’s currency was hot today or recently up or had the best features? Obviously that would be a huge risk. The same with digital currencies. Just buying in on hype or to make money will produce little joy even if the price goes up. Buying in with the intention to become a long term user of that currency and to participate in its development and growth is the best opportunity. Therefore, I suggest and am practicing only investing in digital currencies where I am willing to go through the good times and bad regardless of the price. Steem is where I am today and where I plan to stay indefinitely!
5When to sell a cryptocurrency?
Before Steem I was all in an another altcoin and really excited about it. When I first bought the price was low and made payments to me every week just for holding it. As I tried to participate in the community over the next several months, I was consistently met with a mix of excitement and hostility. When I began talking openly about this, the negative emotions won over in the community and in me. Originally I had invested and been happy to hold no matter what the price which quickly went up after I bought it. After months of frustration in trying to be of service in helping that cryptocurrency grow, I suddenly found myself staring at the price charts with fear. I was back to only seeing the currency as a way to make money and I knew it was time to exit because I now no longer cared if I missed out on the profits from a price increase while having the price go down had become completely unacceptable. I sold everything just before the price doubled again but still made 7 dollars for every dollar I invested. In other words, when the digital currency became a means to an end of making money instead of an investment I was excited about, I sold it because why have my money tied up in something I no longer care about? I used about one third of what I sold to invest in Steem and am extremely grateful for this experience today because I learned how to make a graceful exit. Could I have made more money by holding the other currency longer? Sure. Is the point of investing purely to make money? No because the point of investing is to use money to do some good in the world and if there is no joy from investing, there is no good in it either.
4Where are the best websites to use for changing fiat like USD and EUR to digital currencies like Bitcoin, Ethereum, Litecoin, and Steem?
I use Coinbase.com with Bitstamp.net as my next best option for buying and selling Bitcoin, Ethereum, and Litecoin to USD because I can make direct transfers from my bank account and quickly move Litecoin into an exchange where I can then buy anything else.
3What exchange is working the best today to buy altcoins?
Bittrex.com is where I am buying and selling most of my Steem and Steem Dollars into Bitcoin because the transactions complete in about half an hour total from sending SBD to Bittrex to having USD in my Coinbase wallet. For buying into Steem, the reverse is true where I can have my USD changed into Steem in my wallet at the best rate in about thirty minutes. Poloniex is what I used previously but many users have been unable to make withdrawals leaving me to suspect a crash is coming.
2When to invest?
Ideally you should buy in when the market is down. Buy when the market is hitting a monthly low, not a yearly high. More generally though, the ideal strategy to me seems to be to invest consistently over time because this minimizes the impact of volatile prices. For example, if you decide you want to invest in Steem but are not sure if the price will be up or down later, buying in every month instead of all at once is often an ideal way to go forward because if the price goes down, you get a better deal next time. If the price goes up, you got a good deal buying in initially. If you feel the price is absolutely a great deal today, then buying in all at once can be a good strategy when combined with an ongoing investment plan to continue buying more in the future. I bought into Steem all at once to begin and then bought more as the price dropped right after I bought it. Today the price is up more and I am grateful just by making posts I am continuing to invest more as an author. If the price takes a serious drop below a $1, I will begin buying in again with cash in addition to my author rewards because I believe the price will be over $10 in a few months. In summary, investing over time is ideal because it helps account for the up and down prices more effectively.
1How about day trading crypto?
While profits are possible trading cryptocurrencies, so are losses. My first year involved me spending hundreds of hours trading Bitcoin with a result of losing over $5,000 with nothing to show for it. Simply trading digital currencies is very similar to gambling because no one really knows what is going to happen next although anyone can guess! While I was lucky to do nothing expect lose money when I started, the worst thing that can happen is to get lucky right away and get a big ego about what an amazing cryptocurrency trader we are. The predictable result then is increasing the volume and risks in trades with eventually losing everything with again nothing to prove to anyone that we learned anything except a story. If you are not aware of how the very top traders and companies rig the game to wipe out ordinary traders, then the odds are stacked against winning just as much as going to the casino. I struggled with a gambling addiction not because I lost all the time but because sometimes I did win big but mostly lost. The night I turned $10 into almost a thousand in college was followed by years of gambling compulsively with most nights resulting in losing all my money and occasionally turning a few dollars into a thousand. Cryptocurrency trading is the same. The systems are setup at the highest level to capitalize on the ups and downs with almost no risk and are great for consistently taking money from ordinary traders like me when I thought I was smarter than everyone else while allowing just enough good things to happen so the game continues to be played. Avoid trading on all levels or risk the consequences of losing a lot of time and money overall even if initially or occasionally big success comes.
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