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3 tips for trading cryptocurrency

Before you get in on the latest ICO, read this advice from entrepreneur (and altcoin miner) Jason Sherman.

The author's mining rig. (Photo by Jason Sherman)

Cryptocurrency is taking the world by storm, with most of us being left behind. The majority of the world’s population doesn’t even know what Bitcoin is, let alone how to get in on the action. Just like any other investment or tech startup, you need to do your research.

Here are the top tips on how you can get started:

1. Research every altcoin you are interested in

Every cryptocurrency (or at least most of them) has a website dedicated to its altcoin (alternative coin). Not only that, but the more popular coins that have been established for quite some time will have a dedicated Slack for community discussions, Reddit forums full of commentary and a fair amount of news stories written about them. This is the best way to get to know the community, technology and company behind the coin.

With the recent bombardment of ICOs (Initial Coin Offerings), investors around the world are investing in every ICO they can because of FOMO (Fear of Missing Out). Unfortunately in some instances, this is giving cryptocurrency a bad name. Some of the companies holding an ICO are taking advantage of the investor community, and some are even going out of business before they build a product. An ICO is basically a way for a cryptocurrency startup to raise money to build their business the way a tech startup raises a seed round or Series A round. All the investors see is a landing page, a list of founders and a white paper (a PDF document that explains the technology behind the platform). Then they make a decision whether or not to invest in the company just based on that.

This is why the SEC has recently stepped in to regulate the ICOs. The federal agency is trying to help prevent many newbie investors from losing their shirts. All you have to do to protect your investment is to make sure you are investing in an altcoin that has a community, a team and a technology that is already proven: such as Siacoin. Sia already has customers, revenue, traction and a wonderful community backing not only the technology but the currency as well. Other examples of community-backed altcoins with functional products are Zcash (ZEC), Dash (DASH), Monero (XMR) and there are many more.

2. Research market trends and analyze data

Sort of like the stock market, you can research market trends for the volume of altcoins being traded and their market cap. For example, as of this writing, Bitcoin was up to a $72 billion market cap, which is almost higher than PayPal. Every coin has a market cap and a trading volume, and by checking out websites like Coin Market Cap you can see the top coins that are being traded as of right now. Then you can use an indexing site such as CoinCube to automatically invest in the top (20) coins or whatever number you choose. This is a more hands off approach.

3. Trading Bitcoin for altcoins on an exchange

If you’d like to control your bids (buys) and asks (sells), after you do your research you can buy and sell whichever coin you prefer through an exchange such as Bittrex. A month ago Antshares (ANS) were just $4 a piece, and after doing research you might have decided it was worth investing some money in them. So you bought 100 of those coins, and since then, ANS has been rebranded as NEO and now they are valued at roughly $42 apiece. By using an exchange like Bittrex, you will be able to send your Bitcoin to a wallet there, and then trade for other altcoins.

Always remember the age-old saying: Only invest what you are able to lose, because in this volatile market that goes up-and-down, you may lose everything within seconds.

The good news is, cryptocurrency is fairly new, it’s here to stay, and with the advent of Ethereum and smart contracts it seems to be going in the right direction in terms of a decentralized internet. An important trend that is prevalent in cryptocurrency trading is when Bitcoin goes up in value, altcoins tend to go down in value. This is because when Bitcoin goes up in value, traders exchange their altcoins for Bitcoin, and the flood of sales brings the altcoin values down. The opposite is true when Bitcoin goes down in value, altcoin values go up. Being able to move with these trends is important if you are in it for the short term.

Since Bitcoin is only a currency, it took a while for it to take hold in the market, but with Ethereum, there is a purpose now. With smart contracts you’re able to create a landlord tenant agreement for your rental property along with the exchange of Ether coins for payment. This eliminates the need for a paper contract, back-and-forth emailing and wire transfers or cash and credit card exchanges. In one fell swoop you can not only agree to and sign a contract, but you can pay for it as well. Within the next few years we should see the platforms of these altcoins evolve and transform the world of technology into not only a decentralized internet, but a more secure and useful internet.

Imagine a decentralized cloud storage platform that encrypts and splits up your files into pieces of metadata that are hosted by random nodes (people) around the world. Well, it exists with Sia. The next time Game of Thrones gets leaked online, HBO might think about hosting their videos and screenplays on Sia, since its encrypted network highly resistant to hacking. Other platforms offer different useful functions that will benefit society in the near future. Whether legally binding contracts, anonymous payments, charitable donation systems or cloud storage, deciding on which one of those to invest in is the key to ensuring that your investment gives you a high ROI.

Lastly, if you are unsure about how to even purchase Bitcoin, there are now ATMs in your area where you can put in cash and they will deposit Bitcoin into your wallet. Or you can use websites like Coinbase or Coinmama to purchase Bitcoin with your credit card or bank account. For more experienced technologists, you can build what’s called a mining rig and join a pool of users that contribute to solving complex algorithms. By hashing in these pools, you are rewarded in coins. (Full disclosure: This reporter is currently mining Ether and Siacoin.)

The author's mining rig. (Photo by Jason Sherman)

The author’s mining rig. (Photo by Jason Sherman)

In order to build a mining rig you need expensive GPUs (Graphics Processing Units, aka video cards) to do the heavy lifting. Most mining rigs cost an average of $2,500 or so to build and cost roughly $30 to $50 worth of electricity to run per month.

Blockchain or cryptocurrency startups are essentially a new form of tech startups and can almost be treated this way. They normally include a team of entrepreneurs, a problem solving platform, traction and revenue. The best part is that you, the everyday person, can now invest in them simply by purchasing altcoins. Welcome to the wild west of cryptocurrency.

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