What the fork? Get your free coins

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Last week Litecoin Cash forked from Litecoin. A fork occurs when developers want to modify the code of a coin and create a new coin. Often this is due to disagreement among developers about how a coin should operate. For example, Bitcoin cash is supposed to be a faster, cheaper version of bitcoin. Sometimes modifications are substantial, such as with Bitcoin Cash. Other times the changes are smaller, like with Litecoin Cash and Litecoin.

The great things about forks is that it’s a chance to get free coins. Developers take a snapshot of the old coin’s blockchain right before the fork takes place. Whichever wallets have the old coin at that snapshot will also be eligible to receive an amount of the new coin. For Litecoin Cash, for every Litecoin you held, you will get 10 Litecoin Cash. Similarly when Bitcoin Cash forked from Bitcoin, for every 1 bitcoin someone held, they received 1 bitcoin cash.

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First of all, to get new forked coins, you need to have some of the old coins. The developers of the new coin will issue a date in advance for when the snapshot will be taken.

You also need to have access to the private keys of the wallet where your coins are stored. For this, you will like have to make sure they are not on an exchange. Because when your coins are on an exchange, the exchange holds the private keys so you don’t know what the private keys are. I’m not the most knowledgeable in wallets, but I’ve found that paper wallets the easiest in terms of giving you access to the private key. For some software wallets, it’s not always easy or even possible to access the private keys. There are a lot of paper wallet tutorials out there, but it’s basically a piece of paper that has both your public and private key written on it. So simple.

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Who needs technology when you have paper

Once you have the private key, you have to wait for the new coin’s wallet to come out from the developers of the new coin. This can take weeks or months. Once you have the wallet, enter the private key that held your old coins into the new coin wallet. This is used to verify how many old coins you had and subsequently transfer the appropriate number of new coins to you. But before you submit your private key, be sure to transfer your old coins somewhere else. Otherwise some unscrupulous developer could use your private key to take all your old coins.

There really is no risk in claiming new coins, as long as the private key you are using to claim the new coins does not have any old coins in it. The worst case scenario is that the new coins you get are worthless and you’re back where you started.

Getting free coins can be a quick way to make money. When bitcoin cash forked on Aug 1, 2017, 1 BCH was worth about $470 while BTC was at $2,700. So for every bitcoin you held, you got an extra $470, or an immediate 17% return. Since then BCH has gone as high as $4,000.

You also have to look at the psychology of coin forking. Because people know in advance that a coin will work, there is often a sudden spike in price of a coin before the fork because everyone is buying in. Some people will immediately dump the coin after the fork which causes a drop in price. Other will even sell off the coin before the fork, anticipating a drop after the fork and foregoing getting any of the new coin. I think most people will try to sell off the new coin immediately after claiming them to pick up some free money. But perhaps the most savvy investors will see others dumping the new coin and pick up the new coin at the low price, see bitcoin cash, and hodl long-term. (This reminds me of the Princess Bride poison scene.). How you act on this depends on how successful the new coin will be. Not all new coins end up being worth much.

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Look out for the next bitcoin fork, Bitcoin Private which is scheduled to fork on Feb 28. This is going to be an anonymous version of Bitcoin. The interesting thing about this is that it is forking both bitcoin and ZClassic (ZCL). That is the most likely reason that ZCL has been surging since December. The Bitcoin Private fork will distribute the new coin to both bitcoin and ZClassic holders at a 1:1 ratio. For every 1 Bitcoin and 1 ZCL you hold, you will get 1 bitcoin private. With ZCL only costing about $150, if your goal is to load up on bitcoin private, you will want to load up on ZCL, rather than BTC which is around $10,000. If you don’t want to risk buying ZCL and you already have bitcoin lying around, just make sure your bitcoin is on a wallet where you have the private keys and you’ll at least get some bitcoin private.

Happy forking!

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Intro to Ripple

With the multitude of altcoins out there, it’s hard to sift through all the info. I hope to do some coin intros, to at least process what I’ve learned about certain coins.

Time to talk about Ripple. XRP is the coin that Ripple, the company, created.

XRP is comfortably the third largest coin sandwiched between Ethereum and Bitcoin Cash. It’s currently less than half the market capitalization of Ethereum. Hard to imagine, but as recent as Jan 8, it was higher than Ethereum and sat just behind Bitcoin.

I’ve done my best to read up on Ripple. Fortunately, there is a lot of information out there about Ripple which isn’t the case for a lot of coins.

Ripple is marketed toward banks that conduct cross-border payments. I remember when I had to move money from Canada to the US, I had to open a USD account in Canada, write a check to myself to deposit in the US, wait for 3 weeks, then I finally unexpected got charged a $50 fee. Ripple would have been perfect for this. If my two banks used Ripple, they would have sent XRP from my Canadian bank to my US bank. I would have deposited CAD into my Canadian bank and it would magically become USD in my US bank. The banks would have transacted in XRP behind the scenes for me.

XRP is fast. While Bitcoin transactions can take hours to complete, Ripple transactions take seconds. This is because it does not use mining or “proof of work”. Mining involves thousands of computers solving complex math problems in order to confirm a transaction. Instead of math, Ripple uses the “consensus” method. A group of “trusted servers” decide whether or not a given transaction is confirmed. If enough of these servers agree that the transaction is valid, then the transaction is confirmed.

Ripple is cheap. A bitcoin transaction can cost upwards of 20-30 dollars. A ripple transaction costs less than a penny.

Ripple often gets criticized for not being as decentralized as bitcoin. As I mentioned above, there are these “trusted servers”. So who determines which servers are trusted? Well, Ripple (the organization) does. This really bothers bitcoin diehards who don’t trust anyone, let alone large companies. Another way that ripple is not decentralized is that Ripple (again, the organization) owns about 60% of all XRP. Because XRP is not mined, this makes people worry that Ripple could flood the market with XRP to keep the price down.

Unlike a lot of other coins, there is no question that Ripple is a legitimate company. They have have legitimate partnerships with American Express, UBS, CIBC, Santander to name a few. They also have big investors like Accenture and Google, which again makes bitcoin diehards skeptical of too much power and influence in the hands of large organizations.

I also like how their CEO, Brad Garlinghouse, and lead developer, David Schwartz, are all over the place promoting ripple. They are well spoken and confident in their product. They are all over Quora answering people’s questions. There’s a great Youtube video of David Schwartz describing how ripple works. He looks and sounds like a computer genius and you can tell that he’s annoyed that he has to try to answer questions to common folks. The comments are also pretty funny.

Is XRP worth buying? I think it’s a relatively safe investment, emphasis on relatively. When crypto crashes, XRP is certainly not immune. However, it did grow 32,000% in 2017. Can it repeat this kind of growth? Probably not. It sits around $1 today after being over $3 several weeks ago. If right now it went up 3.5x, Ripple would have the same market capitalization as Bitcoin. So while you might double or triple your investment, you’re probably not going to get rich on it, but it’s a good addition to a crypto-portfolio.

The Disciplined Investor

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Crypto has been crashing all around. Oddly enough, the safest altcoin to be in was the one that is being subpoenaed by US Trading Commission, Tether (USDT).

For the past several days, a general pattern emerged where coins would drop 20% then recover slightly up 5%, then drop another 20-ish% and so on.

Anyone can invest when the markets are surging, but only the disciplined investor can make it through the downturns. A few thoughts from the past week.

With the huge drops come huge discounts. Coins are essentially at 60 to 80% off from their all-time highs making it a good time to buy in, especially if you think that the prices will eventually go back up. But the question is when to buy in? If I buy now, maybe the prices will keep going down. People ideally want to buy at the absolute bottom, But since no one knows, the best way is to dollar cost average. If you have $500 that you want to invest, split it up into 2 or 3 buys spread over the course of several days or weeks.

Dollar cost averaging takes discipline. Inevitably, there are some spikes. When you see the prices spike, there is an urge to have to get all your money in because of FOMO. Don’t do it. There is usually a slight pull back after a large spike, so you end up buying high. This is basically just chasing trends and is the reason why day trading fails for a majority of people. Stick to your game plan. If you plan to put in $250 today and $250 next week, just wait until next week. It does feel like every time, I try to perfectly time a buy, the price immediately drops when I buy, to the point where I feel like I can actually make the market crash by just buying in.

Take the news with a grain of salt. It seems that every other article has a theory as to why the crypto markets are crashing. Facebook ad bans, India expressing concerns, stock market correction, the SEC hearing (which actually went well for crypto), Tether scams, North Korea, and of course, there’s always China. It’s probably a bit of all of the above, in addition to a possible regular market correction. Given the huge run up throughout 2017, this could all just be much ado about nothing. But it does seem like the media is just jumping on every little reason to cast doubt on crypto.

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Have an exit strategy. I still believe that buy and hold is the best way to go. But that doesn’t mean you never sell. When a coin is dropping, ask yourself, has anything changed about the fundamentals of the coin? Do I think the coin will rebound? Is there a better place to put this money? Or sometimes it’s ok to just think “No matter how great this coin is, I’m not going to lose more than 50%”. On the other side of the coin (pun intended), don’t be afraid to take profits. If you’ve doubled your initial investment, take sell a portion of your holdings that you can even use to buy back in when the market decides to dip.

Of course, this is all easier said than done. Will I buy when prices spike? Yes. Will I panic sell when prices have bottomed out? Undoubtedly. Will I hold on to coins too long? Yes Yes and Yes. But I think it all comes down to being a disciplined investor and taking the emotion out of the picture.

January Review aka Crypto crashes and burns

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January was one of the worst performing months for cryptocurrencies in a long time. At the start of the month, bitcoin was worth almost $15,000. Today it fell below $9,000. Over the past 4 years, this was the 3rd worst performing month for bitcoin.

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Keep some perspective. This 25% drop in bitcoin comes on the heels of some insane returns from the latter half of 2017. If you were fortunate enough to buy in during those times, then this January drop is only making a small dent into your profits.

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And if you’re curious about that -7.44% last September, that was due to China announcing the banning of crypto exchanges. That led to similar doom and gloom as today, but as you can see, bitcoin bounced back to have record returns the following months.

Interestingly enough if you look at the past 3 January’s, you’ll notice a definite pattern. Some people speculate that it’s related to Chinese New Year being in January and traders in Asia sell of their crypto to buy gifts for the holiday.

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So how did the other coins do in January?

Most of the top 10 coins also crashed, except for Lumens and Ethereum.

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Of the top 50 coins in January, these were the ones that were positive and there was still some good gains, especially if you held VeChain.

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Most of my profits were wiped out, but I fortunately had Eth and XLM to keep me afloat. Here’s hoping for a better February!