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!

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!

The 3 Don’ts for new crypto-investors

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According to surveys, while 6 in 10 Americans have heard of Bitcoin only 5% of Americans actually own bitcoin. However, 20% are looking to get into bitcoin soon. If you’re in this 20%, here are some pointers to get into the right mindset:

Don’t invest more than you can lose. Everyone says this, but then you hear people of putting their life savings into bitcoin or maxing out credit cards. Hopefully you’re not in that extreme, but how much is too much to put in? If you’ve never invested in anything before before, I wouldn’t recommend getting into cryptocurrency. It’s way too volatile. I also think that investing in crypto bears a lot of similarity to investing in the stock market, so the stock market is a good place to learn. I would recommend to not put more than 5% of your net worth and probably closer to 1%. So if all you have is $1000 of savings, then I wouldn’t put more than $10-$20 into bitcoin. The other 99% you should be for emergency savings. If you have $100k, then put a thousand in bitcoin and put the rest in an index mutual fund.

You may think that bitcoin is easy money. But according to Cointracking.info’s user statistics, over 20% of cryptoinvestors have lost money, some over $3,000.

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Red is BAD

Don’t quit your day job. Even if you don’t lose money on crypto, you’re not going to become rich over night. Don’t get me wrong, I think there are still plenty of gains to be made. But if you’re just buying bitcoin, you might get a good return, but you’re probably not going to get insanely rich. With bitcoin hovering around 10k to 14k, even if it goes to 100k, that’s at most a 10x on your return. Unless you’re investing 100k, you’re not going to get to $1 million on bitcoin alone. So if you want to get a high return, you’re going to have to look into altcoins, and that involves research and investing time to sift through the thousands of cryptocoins.

Don’t chase the hottest crypto. At any given moment, there’s likely going to be some coin that’s going up 20% in an hour and you’re going to want to throw your money into some trendy coin. I looked at the data of the top 50 largest coins of each the last 10 weeks. Of those coins, I looked at the #1 performing coin of the week and looked at how they performed the week after. So from the below chart, the #1 performing coin on Nov 19 became the 45th performing coin the following week.

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n/a means that the coin dropped out of the top 50 performing coins the following week. Only once did the #1 coin repeat the following week as a top performing coin (Jan 7). People inevitably sell off pretty quickly once their coin makes a huge jump, especially if said coin is an obscure coin.

That said, some people think it’s too late to get into bitcoin, but we’ve barely scratched the surface in terms of what blockchain can do. Not only are profits to be made, but also the chance to get in early on a potentially societal-altering technology. Check out my post on how to get started. Invest wisely!

 

 

How I track my crypto using CoinTracking.info

So now that you’ve bought your bitcoin, what’s the best way to track how it’s doing? I started out using Excel but once you start trading bitcoins for altcoins, it becomes a nightmare. There are a number of software and websites available, but I’ve only used cointracking.info. There is a lot of functionality which can make it a bit steeper learning curve, so I put together a simple cheat sheet below. There also is also an iOS and Android app. It’s free for up to 200 transactions uploaded. I haven’t hit the limit yet, so I might look at other tracking tools as I get near the limit.

Upload your transactions

Under the Enter Coins tab, click on Exchange Imports. Most exchanges have a way to download your transactions in csv format. Select your exchange and upload this file and you’re all set. You can manually input your transactions, but it’s a time-sucking activity.

3 Useful views

These are the 3 main views that I use:

Dashboard View

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1 – This is the value of all your coins

2 – This is how much cash, in my case US dollars, I’ve put in. So -680 means that I’ve invested $680 into my coins. If say, I cash out $100, then this will become -$580.

3 – This is simply circle 1 + circle 2, or your net profit (or loss). In the above picture, I’d be up $113.

Realized & Unrealized Gains

This is found under the Reporting tab

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Circles 4 and 5 give you the Unrealized and Realized gains/losses. Unrealized represent the change in value of the coins. Realized gains/losses is the amount you profit/loss after you’ve sold a coin. If you start trading your bitcoin for altcoins, these can be difficult to calculate on your own. Much easier to let cointracking crunch the numbers.

 Current Balance

This is also under the Reporting tab.

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This tells you the balance of your coins, as well as the most recent performance on the right hand side (similar to coinmarketcap.com).

There are a load of other functions, but you can get started using the above.

Hope that is helpful. If you have any other tracking tools to recommend, let me know in the comments.

What to do when (not if) Bitcoin crashes

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I am now a grizzled veteran of 2 bitcoin market corrections (or crashes, I don’t know what the technical difference between the two are). This most recent correction happened several days ago around Jan 16 when bitcoin dropped 32% from over $14k to mid-$9k. The correction previous to that was in mid-December when bitcoin price dropped 40% over 5 days. (It’s interesting to note that crashes of 20% in the stock market happen only once every 3.5 years and crashes of 40% happen about once every 12 years).

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The last two crashes (from coinmarketcap.com)

On the first correction, I went from $1,000 in profits to 0 and this most recent correction my profits went from $1,500 to 0. The important thing to note is that within a couple weeks after the first correction my profits climbed up from 0 to $1,500. So far the market has come back up so that I’m now about $800 back in the black. So fortunately it has bounced back quickly. Of course, that’s no guarantee either. Will bitcoin break $20,000 again? Probably. Will it happen by April because that’s when I have to pay my next rent installment? Who knows. And if you need the money to pay rent, don’t buy bitcoin. The first time bitcoin hit $1,000 in 2014 it lost 80% of its value and took 3 years to get back to that level. Of course, if you held it until now, you’d be feeling pretty good about yourself.

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(from coinmarketcap.com)

During the December market correction I definitely had thoughts of selling all my coins. This latest one, I bounced back and forth between selling my coins and wanting to buy in more at a cheap price.

Now that the market has calmed down a bit, I’ve tried to write down a few thoughts on how to best handle these market corrections. As I mentioned, there are a lot of similarities between crypto investing and stock market investing. Here’s what to keep in mind when the crypto market crashes:

1. Find out if there a specific incidence that caused the crash. Sometimes corrections come naturally and there’s nothing that had really caused it. If this is this case, I think you have less to worry about. But maybe something concrete happened, like last September when China announced a crackdown on cryptocurrencies. That caused a crash which lasted a couple weeks, but bitcoin has more than recovered from that. So when South Korea announced desires to regulate bitcoin, it caused a slight dip but I think we didn’t really have to worry too much about bitcoin’s long-term future since it already weathered China’s ban.

2. Look for bargains. Imagine in mid-December when the price of bitcoin was nearing $20,000. You probably wished that you bought in at $10,000. Well, here’s your chance! In fact, you’re this is even better than buying in the first time bitcoin was at $10,000 because now you’re buying while knowing that it’s possible for Bitcoin to break $20,000 because it already has.

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3. Before markets crash, have a strategy in place. E.g. you might not be willing to lose more than half your initial investment. Don’t feel like you need to buy & hold until your investment is worth zero. That would actually be a terrible strategy. Whenever you buy a crypto coin, have an idea of how much loss you can stomach or how much profit you want to take in. If you wait until the market crashes to put together a plan, your emotions will take over.

4. Diversify. This is a little trickier with crypto coins because the price of altcoins all tend to follow the price of bitcoin. When bitcoin goes up, most coins go up. When bitcoin goes down, most coins go down. But coins go up and down at different rates. So maybe you missed out on Ripple the first time around before it shot up 1000% while Bitcoin only went up 20%. Now might be a good time to get into Ripple now that it’s tumbled back down.3562f68

5. And finally, get ready for friends to laugh at you. This is part of the deal. When bitcoin is shooting upwards, you get to brag about how smart and forward thinking you are. When it crashes, they get to laugh at you for throwing your money away.

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Know that corrections and crashes will come. The key to getting through crashes is to act rationally and of course never invest more than you can stand to lose.

The 4 big untruths about Bitcoin

Jack

Bitcoin is going to revolutionize the way we pay for things because it’s quick, cheap, anonymous, and decentralized. Well, not quite. It turns out that this is kind-of-not-completely true. I wouldn’t say a lie, but more like … an untruth(Da da da. Cue suspenseful music..)

Quick and cheap – By design, the Bitcoin network processes 3-6 transactions per second. Sounds fast! But for reference, Visa handles 47,000 transactions per second. When the number of Bitcoin transactions worldwide was low, this wasn’t a problem. Now that Bitcoin has skyrocketed in popularity it is not uncommon for wait times of 30 to 60 minutes. Anecdotally I had a transaction that I made at 3:30pm which didn’t get confirmed until I woke up the next morning.

 

 

Also, in order for a transaction to be processed, there is a transaction fee that used as incentive and reward for the miner to process the transaction. Not including any transaction or too low a transaction fee has the risk of waiting for a long time for your transaction to be processed. Again, due to high levels of transactions and the laws of supply and demand, people have seen fees upwards of $30. So imagine waiting half an hour for your cup of coffee, and paying an extra $30 for the privilege of paying with your Bitcoin.

AnonymousAs I’ve already mentioned, Bitcoin is not truly anonymous. This is because the blockchain is open and public, so even though you don’t know which address belongs to who, anyone can see the balance of any Bitcoin address. You can also actually trace the flow of Bitcoin. For example, picture the scenario where Alice pays Bob and Bob in turn pays Charlie. You could see that funds flowed from Alice’s bitcoin wallet through Bob and onto Charlie.

Decentralized – Ok, so this one is still true, BUT it’s not 100% impossible to circumvent, and we are nearing a situation where decentralization could be compromised. There are thousands of Bitcoin computers aka miners around the world. Bitcoin needs them to be independent because they are confirming transactions essentially by voting. If over 50% of miners say a transaction is valid, then it gets confirmed You can imagine a handful of rogue miners submitting false transactions. Those transactions would get rejected by the other thousands of miners who would disregard those miners’ transactions. Phew… as long as more than 50% of the miners don’t band together to conspire to confirm false transactions.

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Beware of evil miners!

BUT due to cheap electricity costs, most Bitcoin is mined in China, an estimated two-thirds of all Bitcoin. Having such a large percentage of miners in one country puts decentralization at risk. While I can’t imagine how the Chinese government would be able to take control of all the miners inside the country, this is also the same country that has shut down access to Facebook and Google to over a billion people, so there is definitely a greater than 0% chance. And keep in mind that decentralization is what makes Bitcoin valuable. So there you go, it IS possible (albeit still very very unlikely) to destroy Bitcoin.

So where does this leave Bitcoin?

Well, Bitcoin is still the godfather of cryptocoins, and is by far the most recognized and has the most potential to hold value. But this is one of the reasons why there are hundreds of other cryptocoins out there. We are already on the second and third generation of cryptocoins, each one seeking to shore up Bitcoins weaknesses. Litecoin can process about 50 transactions per second while Ripple claims a ridculous 1500 transactions per second. Other coins like Monero and Dash focus on privacy and provide the anonymity that Bitcoin lacks.

As always, invest wisely!