This extensive beginners guide to cryptocurrency trading will introduce you to a wide range of fundamental investment and trading strategies you’ll need to learn before moving onto more intricate topics like technical analysis.
I hope this guide can help serve as an introduction to those looking to get into crypto trading. Many of its lessons I had to learn the hard way, so buckle up and try not to make the same mistakes I did. Regardless of how careful you are, just know that you’re going to make mistakes. As long as you learn from them, and move forward, you’ll be successful in this new and highly exciting cryptocurrency era.
If you’re just starting out, I highly recommend you bookmark this guide and start from Step 1. If you consider yourself a moderate to experienced trader, by all means, use the table of contents below to zip down to exactly what you need to know!
Start preparing by scanning your ID in the form of a driver’s license or passport ID and have that bad boy stored on your computer. We’ll use this on our next step. Make sure you scan the front and back of your card.
Initially join a “cryptocurrency to fiat exchange” that allows you to purchase crypto with your bank account or debit card. These exchanges include…
Don’t just join one, join them all. You’ll find that one exchange will be slower to transfer fiat currency than another during certain times of the year. It’s always good to have backups of your backup.
Set an account with a cryptocurrency “trading” exchange. The ones mentioned above are great for turning your fiat currency over into cryptocurrency. There are much better exchanges that will allow you to trade your crypto for other altcoins and vice versa. The exchanges mentioned below have much better charts and trading features you’ll end up using on all your trades.
You’ll need to submit a driver’s license, passport, etc in order to get into most serious crypto exchanges. You might as well kill two birds with one stone and apply to all these exchanges, at once.
PRO TIP: there’s no need to purchase a whole number of a cryptocurrency. You can own small fractions of any denomination, so don’t really worry about fulfilling an entire Bitcoin for example. There are millions of investors and traders who only own fractional amounts of multiple coins.
An Option for Quicker Deposits
If you’re impatient like me and don’t feel like waiting several days for your deposit to complete, check out LocalBitcoins This place accepts everything from cash, credit card, and even Walmart card payments into crypto.
Everything on this site is sold through third-party sellers so be careful and make sure you purchase through a reputable one who has reviews on their local user ID (think eBay for crypto).
With this option you’re not paying ridiculously high fees. However, you will have to get up off your ass and make the transaction yourself either through bank account transfer or cash in hand.
4. Set up a direct deposit or wire transfer from your bank account for the quickest possible deposit into any one of these exchanges. Depending on the time of day, alignment of the stars, season of the year, etc… it can take anywhere from 1 to 7 days for the funds to reach your account.
To be quite honest, it really depends on how busy your current exchange is at any given moment. Coinbase tends to be the busiest and most widely used so if you’re in a hurry, you may not want to use this one immediately…unless you have time to kill.
Your Funds Are Deposited
Now that your deposit has hit your account, and you have that beautiful cryptocurrency on-hand (because I know it’s burning a hole in your digital pocket) let’s move on to the next step, trading on crypto exchanges.
PRO TIP: – when you sign up to Coinbase or any other “US-based” exchange, your transactions will be reported to the IRS. Do yourself a favor and make sure you’re tracking all transactions.
A great service that provides this for you, without having to do it manually (which is an extreme headache) is CoinTracking. I highly recommend this service to everyone who intends on trading more than a few coins per year.
Step 2 – Trading your Bitcoin On A Cryptocurrency Exchange
This is where the rubber meets the road. If you want to invest or trade in a cryptocurrency other than Bitcoin, Litecoin, Ethereum, or Bitcoin Cash then you’re going to need to get real familiar with a cryptocurrency exchange trading platform.
These exchanges can be a bit intimidating to the weary newcomer, however believe me when I say, once you learn one, you’ll know how to use all of them.
I’ll go over the intricacies of how to use each one, however let’s stay on course and get you signed up to a few of these beginner friendly exchanges.
Sign up to Binance – this is where all the beginner to more intermediate crypto traders go. This is a great place to start your crypto trading journey.
Sign up to HitBTC – this is another beginner friendly exchange that caters to the trading noob. They have some pretty cool trading features as well when you get into the intricacies of trading (order book) but I’ll cover this in another article.
Sign up to Bittrex – this exchange is more of an intermediate to advanced level exchange, however is definitely worth signing up to while you’re in the process of applying for these exchanges.
Also worth mentioning is GDAX, however you essentially get access to that exchange when you get accepted to Coinbase. It’s the official trading platform for their users. I don’t currently use that platform but realize that there are a lot of other beginners that do, so it’s worth checking out.
PRO TIP: learn what “dollar cost averaging” is before you start trading. This basically means that if you want to invest $1000 total into a coin, you want to split that up into segments of 4 ($250).
For example…let’s say you want to invest in Litecoin (LTC). You invest $250 to start. After a month, you want to invest another $250. Keep repeating this process every month, until you have fully invested your full $1000 capital.
This strategy ensures that you get the best price over time. To ensure you get the lowest price, invest on monthly dips. Over the course of 4 months, you’ll end up investing at a much lower price than you would have dumping your entire investment in one lump sum.
PRO TIP: – Stay tuned to our Youtube channel where I’ll cover more details behind trading and technical analysis on different platforms as well as several different beginner trading strategies.
Step 3 – Getting Familiar With The Trading Exchange Interface
Watch this video to get acquainted with the Binance trading interface
There are 3 different order types you’re going to use when buying or selling at any crypto exchange. You should be comfortable with each one in order to be a successful trader.
Note that all orders, both buy and sell, have fees attached to them. They are relatively small (fractions of a percent), so don’t worry about them too much.
Market Orders – these orders allow you to get into a trade right away at the current market price. Orders are immediately filled within an order book at the best available rate. The advantage of this order is, it’s completed immediately. On the other hand, you don’t always receive the best price..
Limit orders – This order type allows you to set a specific price. The market can then fill that order at the specific price. The drawback to this order type is, your order may not always be filled before the price inevitably increases. You may notice that the order book is full of buy and sell orders. Once you place a limit order you’ll be able to view where your order is within the order book, usually indicated by an arrow pointing to your exact order. On other exchanges your order is in bold print.
Stop Orders – (AKA – “stop losses”) The disadvantage to having a stop order is that there are cases where a price will drop significantly during a small period before it rallies (increases) to meet your original goal. This is a way for market-makers to eliminate stop losses before increasing price action for a more prominent bullish run.
I cover more intricate details about stop losses within this guide. I highly recommend you read it before implementing this feature into your trades.
PRO TIP: Trading is all about minimizing losses and maximizing your gains. No one and I mean no one is going to win them all (not even close). You just have to make sure that your losses are small while keeping your gains relatively large. Obviously this is an oversimplified statement, but it covers the basis of trading.
Candlesticks and Trading Patterns – you want to get yourself familiar with these indicators as they are the basic foundation of trading cryptocurrency. We cover a wide variety of these patterns on our candlestick and trading patterns section. I highly advise that you check these out now and study them while you’re waiting for your exchange approvals to facilitate.
Step 4 – Exploring More Altcoins via CoinMarketCap
If you’ve been in the crypto world for more than a week, then I’m sure you’ve heard of the website CoinMarketCap.com. This handy crypto tool should be your ever-loving sidekick when it comes to checking on the latest trends, prices, exchange listings, and news for anything crypto coin related.
The only real issue that I’ve had with a CoinMarketCap is that it’s not updated in real time and can showcase older prices (by an hour). However if you want to view real time cryptocurrency price updates, I highly recommend you check out our live crypto chart page for up to the minute price updates.
So let’s just pretend you’ve been living under a rock for the past few months and heard about a new cryptocurrency that’s bound to change the way we view reality. I know, tough sell. The very first thing you want to do is check CoinMarketCap and place a search for that coin.
Once you find it, click on the link and look under the tab labeled “Markets” to view what exchanges sell the coin. You’ll typically notice that it’s being traded on several exchanges, unless it’s brand new.
You can also view other relevant information on the coin like their website, latest news release, forum gossip, market value over time (charts), and so much more. There’s a ton of information for you to dissect on CoinMarketCap, so you have no reason to not do your due diligence before investing.
This should be one of the very first places you explore before trading or investing in a new altcoin. Alternatively, our CCJ Live Trading Charts give you the same information offered on CoinMarketCap.
Step 5 – Transfers, Deposits & Withdrawals
Transfers seem to be common occurrence for cryptocurrency trading, even more than any other trading commodity in the world (forex, stocks, options, etc), so let’s make sure you do it right, ok?
One aspect to coin transfers that you really need to get acclimated to our the fees. Transfer fees from one cryptocurrency exchange to another can vary greatly.
For example, at the time of this release, Bitcoin transfer fees are fairly high, whereas Litecoin offers a much cheaper rate. Always make sure you check the transfer fees before submission. They are displayed within a pop-up box right before you submit the transfer.
Also take note of the transfer time, which is equally as important as the fees. Check out bitinfocharts to see what the current coin transfer rates and fees are before setting up a transfer.
Once the transfer is complete, you can easily purchase the cryptocurrency that you intend to trade pairs with (typically BTC, ETH, or USDT).
Deposits and Withdrawals
These both work in the same manner and are fairly easy to accomplish. Once you complete the process once, you’ll most likely be able do it again without hesitation. In this example, we’ll be depositing BTC into Binance from Coinbase. You want to start out by retrieving your deposit address (the exchange you will be sending coins to). From here you want to click on the deposit button and copy your deposit address.
Take that deposit address and place it into the Coinbase Send/Request tab under Recipient. Once you click the “Send Funds” button, the transfer is complete. Now that wasn’t too hard was it?
Important Note – If you want to check on the status of your transfer, keep your deposit address handy and place it into the search bar located on blockchain.info
PRO TIP : Always, and I mean always enable the two factor authorization for all exchanges you currently use. Most exchanges use the authenticator app or Authy app which reside on your smartphone. This will ensure that no unwanted guests have access to your account without also having access to your smartphone. This little added security feature is what you want to have when there are thousands of dollars on the line.
Step 6 – Mitigating Your Risk & Securing Your Profits
Congratulations young grasshoppa! You’re one step closer to becoming the next crypto millionaire. However, there is one aspect to crypto that you want to make sure you adopt in the early stages of your career. SECURING YOUR PROFITS!
Weekly news regarding exchange hacks and crypto scams are prevalent within this budding industry. Cryptocurrency is in its “Wild West” stage of adoption so everyone’s out to grab a little piece of your digital nuggets.
Many of the low level hacks that tend to go under reported however occur on at daily basis are spoof sites scams. These are websites that look like real crypto exchanges you frequent. The scammer requests that you login to the fake exchange and once you login with your credentials, you can say goodbye to your precious crypto coins. That’s why utilizing 2 factor authentication is so important. Make sure you have that feature turned on before you start trading.
You can also utilize sites like HaveIBeenPawned and input your information there so the site can scan for security breaches to see if your username, password, or other information has been leaked. Sign up for their notifications so they can let you know of future breaches as well.
Securing Your Profits via Digital Wallet
Now that you’ve acquired your little stake of currency within the crypto sphere, you need a secure place to store. There are 4 mediums in which you can do just that.
Crypto Exchanges – this is the easiest option, however the most risky as well. It allows for fast liquidation of assets. You don’t have to wait for your crypto to transfer to your exchange of preference. You can easily exchange your coins for others altcoins and diversify your portfolio from within these virtual crypto shopping malls.
The biggest disadvantage to these venues is the fact that you don’t have full control over your wallet. If the exchange is hacked (many of the newer and less established exchanges are) and they declare bankruptcy, you might end up holding the bags for it. Mt Gox is a great example of this. This infamous exchange is constantly being referred to when it comes to these types of scenarios. [LATEST: they are currently in process of returning customer funds]
Soft wallets – this solution includes storing your crypto on a computer software program like Exodus. All your coins will be stored on your desktop or laptop computers for safekeeping.
When using the solution, you need to make sure you keep your private key safe in case something happens to your computer, like a virus or hardware malfunction. This private key will enable you to retrieve your funds if an unfortunate event like this occurs.
Make sure that this private key is secured in a safe place. Like other utilities that have private keys, you’re still the susceptible to having them stolen if you’re not careful where you place it.
Online Wallets – this offers users you way to keep your cryptocurrency online, within a secure environment, without the worry of being hacked or shutdown. Services likeMy Ether Wallet (MEW) offer an option to access your wallet from anywhere in the world, while maintaining full control of your funds. You’ll always have access to your private key when needed.
The main advantage of this service is, portability of funds. The disadvantage is that your private key is still susceptible to being stolen if you keep it on your computer or somewhere easily found within your home. It’s a very small chance, but still a chance.
Hardware Wallets – the introduction of wallets like Ledger Nano S can take care of your private keys for you so that you’re off the hook with regard to keeping your key in a safe place. This ultimately means that hackers will never be able to steal your private key via key loggers, file scanners, etc.
If that wasn’t good enough, you’ll have a backup of your secret key, which you can access if you ever lose sight of your Ledger Nano. The only disadvantage (if you’re really reaching for one), is that you’ll have to pay a transfer fee when you decide to transfer your coins from your wallet to an exchange. I wouldn’t really categorize that as a disadvantage as it simply comes with the territory regardless of what wallet you decide to use
Proven Cryptocurrency Trading Techniques
In order to get you moving in the right direction I want to cover a few proven ways to make money trading cryptocurrency. Many of these techniques have been carried over from traditional stock market trading, however, unlike traditional stocks you won’t find the volatile swings we see every day with cryptocurrency. This means more opportunities for us.
A Little Technical Analysis Goes A Long Way
First and foremost, you’re going to want a get a good grasp on technical analysis and trading patterns. Please check out the technical analysis section of our site where I cover all the fundamental chart patterns, candlesticks, as well as indicators. You’ll need to study these in order to achieve a high chance of success with trading. I also cover more detailed technical analysis over on our YouTube channel along with several different trading strategies.
If you’re more of the investor type and you plan on investing in numerous altcoins for the long haul, it’s still good to have a fundamental understanding of technical analysis.
So what exactly is technical analysis?
Technical analysis is the study of past price patterns in order to receive a high probability of a potential outcome. This tends to equip us with a unique ability to identify future opportunities of profit. The cryptocurrency market, more than any other traditional trading marketplace, have a herd like mentality. The tendency for inexperienced traders is to buy when the price is high (rallying) and sell when the price is low. We can take clear advantage of this with proper technical analysis.
It’s much easier to nail down fundamental analysis, simply because everyone has the ability to stay up-to-date on the latest cryptocurrency news due to all the information we have at our fingertips. In order to become a successful trader, we need to utilize fundamental and technical analysis at all times.
Note: technical analysis is not an all-in-one strategy. It is only one of the tools we use to help execute our overall strategy.
Be careful to not dump 100% of your funds into one single coin. Spread your funds out over several different coins or use dollar cost averaging, which I covered above.
Trading Tools For Technical Analysis
Tradingview, in my honest opinion, is the very best charting platform on the net. They not only offer you a free chart to hone your technical analysis skills with, but it’s also a great social networking site for beginner and advanced traders. You can really learn a lot by following how other traders are plotting their trades.
Plotting chart patterns, as if you had real money in the coin, helps a lot with learning the basics of technical analysis, however it can never prepare you for the emotional side of trading when using your own money.
Once you feel comfortable with technical analysis and think your skills are up to snuff, I highly recommend starting out with very small amounts to trade, in your beginning stages. This will ensure you are actively trading, perfecting your TA abilities, as well as honing your emotional skills which greatly come into play when trading with currency.
Other trading platforms like Coinigy are great, but they don’t even come close to the value and features you get with Tradingview.
Build Your Strategy and Be Consistent With It
One of the easiest ways to lose money trading is to bounce around from one strategy to the next without really using one particular strategy for any decent amount of time. Crypto traders need strategies and need to be consistent with them.
A solid strategy will always answer these questions…
How to protect your capital when the market turns against you (bearish trends).
When to take profits when you’re ahead.
How much to buy and sell.
When a strategy works or when it completely fails you (know when to hold em and fold em).
Just remember, a solid strategy will allow you to win only half of your trading battles, and still keep you in profit.
PRO TIP: This is definitely worth repeating. Finding a proven strategy that has worked for you and sticking to it is the most important thing you can do along your crypto trading journey.
With that being said, it also might be one of the toughest. You’re not going to win them all, but if you can at least win close to half of them, you’re going to come out ahead (as well as using proper money management skills). Remember; don’t fix it if it ain’t broke!
Common Crypto Trading Mistakes & How to Avoid Them
We’re almost done, so I congratulate you for sticking with me so far (unless you cheated and skipped to the end). By now, you should have a fundamental understanding on cryptocurrency trading. Hell, you might even think this was more simple than you had originally thought. Better start preparing for that “lambo life” by the end of the year right?
Yeah, yeah….don’t get too far ahead of yourself young grasshoppa. Even though some of these more simplified concepts may sound easy to grasp, the truth of the matter is, the emotional part of trading is a lot more difficult.
You might think you’re a Zen master now, but just wait till you start trading with your own hard earned income. It’s going to take some solid work (and pain) before you really master the concepts within this guide. The only way to do it is through experience and trade discipline.
When trading with real money, you’ve rightfully earned, you’re going to make mistakes. Just realize that now and be ok with it. There’s not a trader out there that hasn’t lost a ton of trades. So let’s close this guide out with a few of the most common mistakes beginner traders (yes you) will make.
Keep Your Cool
Perhaps one of the most frequent and careless mistakes a trader can make is letting their emotions get the best of them. If you have the wrong mindset, you will always lose in the long run. Set a clear goal for the profit goal you wish to obtain for the day or week and just “walk away” once that goal is met. Set up the same for losses to ensure you don’t keep digging yourself a hole.
If your losses for a particular day become too great, walk away and come back another day when opportunities are more present.
2-3% profit per day is a great goal for an initial investment of $1000. Reinvest that money and compound interest to allow your profit to work for you.
Protect Your Investment
Let me sum this up in one word, stop loss! That’s all there really is to say. If you don’t know what a stop loss is, read this article. To me traders fail because they don’t set proper stop limits. This is an easy fix so don’t let it happen to you.
Let Opportunity Come To You
Use technical analysis in order to determine when a particular trading strategy is open, in order for you to take up a position. If you find a chart pattern that’s about to break out and have two or three indicators confirming the pattern, you should feel confident about taking the position.
Also make sure to set trading alerts for when your favorite coins reach an all-time low or break out of a major support. Wait for the trade to come to you as opposed to forcing one. This will save you many painful days of regret.
Watch For Paralysis By Overanalysis
Technical analysis is not a prediction into the future. If that was the case we’d all be billionaires by now. Studying charts for hours is not going to produce consistent income. If certain charting patterns and signals don’t feel right or indicators are not confirming your strategy, then it’s best you trust your gut. Save your money to trade another day.
There will be plenty of times where chart patterns and indicators point to a potential breakout and it doesn’t happen. Don’t let it get to you as the market is made up of too many irrational factors for it to be too predictable. Continue to use a strategy that works for you and implement it on a consistent basis.
Only Invest What You Can Afford To Lose
I realize you’ve heard this statement 100 times over but it does bear repeating. There are too many stories of novice traders investing in a trade, in which they take money out from their bank account (or worse savings) that they can’t afford to lose.
This is not only a bad idea for trading but for any investment opportunity as well. You’ll also realize that your emotions get the best of you when you’re trading money that you can’t afford to lose. Trading with the mindset of not giving a damn is one of the most powerful mindsets that you can bring to the table.
I hope this guide helps you on your journey towards wealth and independence. Be sure to check out our other guides related to technical analysis, trading fundamentals, and crypto trading tools. They’ll help you along your path to crypto millions. Good luck and happy trading!
Bitcoin is the single pioneer into digital assets and has attained high values of billions of dollars in virtual assets. The transaction system itself is still going through regulation processes in most of the global economies, where financial institutions advocate for governments to back digital currencies.
The delay in regulation opened up Bitcoin trading to incredible and innovative fraudulent activities. Also, the fact that the notion of digital assets was and still is fairly unfamiliar cripples a lot of ‘green investors’ and opens them up to losses through fraud. Another reason is the technology behind digital transactions. Basically, the value of Bitcoin is based on a technology that very few understand. Needless to say, all of Bitcoin fraud happens online and Cyber criminals use these innovative technological operations to serve their own purposes.
Majority of Bitcoin fraud victims are usually unsuspecting novices and occasional seasoned traders. I will highlight the most common ways in which Bitcoin scams are carried out and how to protect yourself.
1.Fraudulent Bitcoin Wallets
Fake wallets were the easiest way for scammers to defraud investors. These wallets first appeared as mobile applications on the Apple and Google Stores. Granted the majority of users are completely confident in the authenticity of the applications. And they do not engage in sale or purchase of coins. It’s difficult to detect fake wallets and investors should avoid using third party wallets without verifying the links and adverts of such wallets on the main websites.
If you are unsure of the wallet, ask for help from someone who understands Bitcoin and wallets specifically. Looking at the reviews might also be helpful but not guaranteed.
You can also Store your Bitcoins in an Exchange such as Bittrex.com
2.Non-existent Bitcoin transactions
Believe it or not, one can learn how to do fake Bitcoin transactions right from the internet: not because it’s the easiest thing to do, but Bitcoin greedy miners/scammers are very innovative in how they do these transactions. It’s practically ‘impossible’ to duplicate a Bitcoin transaction. This is because once you transfer Bitcoins from one account to another, the distributed ledger network registers it as a submitted transaction and prevents you from doing it again and again.
The verification process alone is enough to discourage counterfeiting a Bitcoin transaction. Unfortunately Bitcoin transactions are not free of loop holes. In brief, it is a Bitcoin flipping trick, offering exchange of Bitcoins for cash and they are able to advertise the same offer to as many people as possible in a very short period of time. But the other end of the bargain is never held up.
Unsecured websites offering Bitcoin at discount prices
Temporary offers to sell Bitcoin for Paypal
3.Bitcoin phishing impersonators
Bitcoin fraud gave rise to one of the largest money laundering cases in 2017 when Russian citizen Alexander Vinnik was accused of laundering an estimated sum of $4 Billion in Bitcoin, part of which was obtained from a hacking scheme of a failed Bitcoin exchange Mt. Gox.
One of the easiest ways this is done is through running fake adverts on social media or impersonating the Bitcoin brand itself. The issue is that the scammers are so good at this that they even ask you to check your Bitcoin key on their website to confirm its existence. That is how Finish millionaire Aarni Saarimaa lost over 5,000 Bitcoins to fraudsters in Thailand, after falling victim to a casino project and the idea of an upcoming cryptocurrency.
4.Bitcoin Pyramid schemes
This is the oldest trick in the investment book. The working principle here is multi-level marketing. Selling an idea based on minimal investments for higher yields by signing up as many people as possible. Then like dominoes the original scammer always walks away with all the investment and the scheme collapses.
It was ten years ago today that Satoshi Nakamoto first submitted the Bitcoin whitepaper to the Metzdowd cryptography mailing list and started a revolution in finance. A couple months before that, the domain Bitcoin.org had been registered. One of the first to interact with the world’s premier decentralized cryptocurrency – all new concepts at the time – was and still is a suspected Satoshi, Hal Finney, although Finney was not the first to respond to the post. Finney wrote:
I also do think that there is potential value in a form of unforgettable token whose production rate is predictable and can’t be influenced by corrupt parties. This would be more analogous to gold than to fiat currencies. Nick Szabo wrote many years ago about what he called “bit gold” and this could be an implementation of that concept.
No one in these early conversations lets on that they have any idea what is to come. Several concepts are still years away. The project is at first to create a form of digital cash. In December, the first version of Bitcoin lands on Sourceforge.net, at the time the most popular way to share open source code, Github having only been founded earlier that year. On January 98th, version 0.1 is released with a graphical interface, which aids those who speculate it could not have been built by a single person in such a short length of time.
First Block Mined
On January 3, 2009, the first block is mined by Satoshi Nakamoto himself. The rewards of this “genesis block” are unspendable. Nakamoto utilizes a feature the block’s which allows a miner to embed a tiny bit of data into a block, to include a headline of the day: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.” Satoshi also mines the next block, receiving the reward at the address 12c6DSiU4Rq3P4ZxziKxzrL5LmMBrzjrJX and many blocks after that. You might notice that people have sent that address nominal amounts of coin over the years, likely as a tribute to Satoshi.
Interestingly, most of Satoshi’s coins have never been spent, except to test out the software. Approximately 1,148,800 BTC remains unspent of his massive fortune.
Over the next nearly two years, a few parts of the early Bitcoin ecosystem grow up. Perhaps the most important part of said ecosystem at the time is Bitcointalk.org, where Satoshi frequently engages in important and sometimes heated discussions with other cypherpunks and people interested in digital money. Satoshi is the third registered user on the site, which is owned and operated by another early aficionado, Theymos or Michael Marquardt. Bitcointalk is where most of the philosophical and general discussion of Bitcoin place, as well as serving as one of the earliest trading hubs for the cryptocurrency, but developer talk is confined to an IRC channel, #bitcoin-dev on freenode, which is still used today.
Mt. Gox and The 10,000 BTC Pizza
2010 is an exciting year for Bitcoin, which has no functional exchange value associated with it until the establishment of early exchanges. The very first such market is called “The Bitcoin Market” but the first one, perhaps, that really matters is Mt. Gox, founded a few months later, which goes on to be legendary in a very negative sense for Bitcoiners the world over, with many losing fortunes and evidence that the price was manipulated. Also in 2010, the first Bitcoin transaction takes place – the legendary pizza purchase, in which Laszlo Hanyecz spent 10,000 BTC to buy some pizza. Another user had the pizza ordered online and received a $7 million fortune in today’s value for the equivalent of $25 worth of pizza. This would be the first real test of the currency and its value, though just a few months later the value would hit 80 cents a coin on some of the now-growing exchanges.
As with all new concepts, Bitcoin has its share of detractors in the early days and later on, when it starts to garner the attention of the mainstream media, becomes the subject of government scrutiny and criticism from traditional financial people. Then as now people at first struggled to grasp the idea of Bitcoin mining and the immutable, public ledger. Stories of Bitcoin itself being “hacked” were pretty frequent back then, and amongst Bitcoiners the term “FUD” (fear, uncertainty, and doubt) became common parlance in reference to such rumors.
However, it is important to note that in August of 2010, a bug was found and exploited to the tune of 184 billion false bitcoins. The system is designed to only ever have 21 million coins, and thus the decision was made to “hard fork” Bitcoin onto a new version of the blockchain which did not include these counterfeit coins. Few bugs of this significance have surfaced since then, as more and more developers have joined the project over time.
SatoshiDICE, Silk Road, and a Growing Exchange Market
2011 can be seen as the real establishment of the Bitcoin community, as it is around this time that people like Vitalik Buterin (then the founder of Bitcoin Magazine) and Erik Voorhees (current entrepreneur behind ShapeShift.io and at the time the owner of SatoshiDICE, which he later sold for more than 100,000 BTC at the first peak of the currency’s value). SatoshiDICE is the subject of some hyperbole when it becomes evident that some nodes do not want to process its transactions, calling them “spam” due to their often tiny size.
Bitcoin has since seen dozens if not hundreds of exchanges come and go, intense scrutiny from governments and rumors of the technology being banned in various regions, countless forks or altcoins being developed, and no story of Bitcoin is complete without two vitally important parts of its history included.
The Silk Road. The real value of Bitcoin was truly established when the world’s first dark net market called the Silk Road went online and chose Bitcoin as its medium of exchange. The market allowed for the sale of most goods, importantly illicit drugs, and for more than two years people could safely transact in such goods. There is valid speculation that the market rise of Bitcoin during the period of the Silk Road was fueled directly by demand which the market generated for the coin. In 2013, Ross Ulbricht was arrested in San Francisco. He had amassed a personal fortune – only a small portion of the exchange’s activity in the form of transaction fees – of 144,000 BTC, most of which was later auctioned by the US government to venture capitalist Tim Draper. Ulbricht eventually was given life in prison, and efforts to attain clemency for him remain in motion.
The Failure of Mt. Gox. Until its collapse, Mt. Gox had become the premier marketplace for Bitcoins for both buying and selling them. The exchange had a modern interface and allowed people to trade with little friction. Operated by French ex-pat living in Japan Mark Karpeles, the story of the exchange is a historical post all its own, but the basic facts are that at some point a bug in the code allowed the exchange to lose millions of dollars in coins, and it was later proven that the exchange covered up this fact and operated akin to a ponzi scheme for several months. The exchange’s eventual failure led to a severe decline in the value of Bitcoin beginning at the end of 2013 (when it had reached a high of over $1,000) and continuing all the way into late 2015, when it bottomed out at under $100. Confidence in the cryptocurrency as a whole was shaken by the events at Mt. Gox and Karpeles will forever have an important name in the history of Bitcoin.
The Block Wars
The polemics of this legendary technical debate eventually led to the first successful fork of Bitcoin, Bitcoin Cash, which can at least at first be seen as an effort primarily of Bitcoin millionaire Roger Ver and self-proclaimed Satoshi Craig S. Wright. Several other attempts were made prior to the introduction of Bitcoin Cash, including Bitcoin Classic by Gavin Andresen, without whom the story of Bitcoin is also not complete. Andresen was one of the earliest contributors to the code and participants in the community.
He later adopted the view that block size should be adjusted as technology had progressed since the introduction of Bitcoin such that blocks larger than 1MB could be processed by the vast majority of network participants. On the other side of the debate, a majority of Bitcoin developers backed by Blockstream, a firm founded by famed cryptographer Adam Back, believed that third-party efforts such as Lightning.network were the appropriate strategy to pursue. The debate even culminated in the resignation of Mike Hearn, who took issue with more than just the block size issue and declared Bitcoin was a failure.
At that time, it would have been insane to predict an average moving price of Bitcoin at more than $5,000, or that the premier exchange (today’s Binance) would be powered by an Ethereum smart contract token. Ethereum itself was not even heard of yet. How the times have changed – tokens provide as much news as anything else in today’s crypto world, and millions rather than than dozens of thousands of people have an active interest.
What will the next ten years bring? One thing has stood the test of time – Bitcoin’s dominance as the most valuable cryptocurrency or token on a blockchain. Will a Bitcoin killer ever truly emerge? Time will tell. The emergence of Ethereum and other smart contract platforms has brought about a whole new chapter in cryptocurrency, and as time goes on, we can only marvel at the breadth and artifice of the movement started 10 years ago today with a modest proposal on a little-known cryptography mailing list.
Bitcoin price surged 9 percent within hours as Tether started losing its grip on the USD-peg.
The BTC/USD pair closed yesterday on a modest 2 percent gain in pennant formation action following the recent drop. Nevertheless, the couple started picking momentum during the early Asian trading session and jumped to as high as 7800-fiat from its previous low near 6300-fiat.
At the same time, Tether’s USDT/USD pair lost came crashing down below 0.95-fiat at the beginning of the Asian session. It eventually formed lower lows towards 0.85-fiat, before correcting higher towards 0.90-fiat. The pair, however, continues to be far from its $1-peg that is creating a negative sentiment about its future in the crypto space.
The needle then points to one thing: whether Tether has funds to support its USDT supply or not? It can only be found out with a clear and transparent audit. But, even on that front, the project has not come reasonably well. Against the promises made in their original whitepaper, the Tether team has not conducted a proper financial audit. It had however hired a legal firm, which already had a business relationship with Tether and Noble Bank, to perform an inspection.
All stories collectively have created a negative community sentiment for USDT. Retail investors are already exchanging their Tether holdings for Bitcoin and other top coins, which have also seen an impressive rally in the past 24 hours.
“There is no guarantee that you can redeem your tethers. There should be a way for Tether to repurchase them from you for 1 dollar. There is not. For me, this whole thing smells very like when mtGox went belly up. You want to hold your bags, will that is your decision. It is not why I am in crypto.” – one of the crypto users commented on Reddit.
Tether social media handles posted nothing during the crash.
The truth is that anything connected to the internet can be hacked. However, hacking wasn’t always a problem.
The History of Air Gap Technology
Data used to be held offline, in what’s now known as cold storage. Data on external paper cards, then moved to tape and digital media as technology evolved. The first computers built were by default on cold storage or ‘air gap’ technology.
Even when networks were initially built, much of the data still had to be manually connected to the system by adding in the media to a device. In the early days, sensitive codes and information were kept locked in vaults accessible by an authorized individual or in some cases, by multiple people required to key in simultaneously. This approach was the genesis of multi-signature authorization.
Eventually, with the invention of the internet, those computers and that data could be connected to an outside, worldwide network. The concepts upon which the internet was built had some basic principles of security within them, but the exchange of data and the ease of doing so was paramount in the original architecture of the web.
Sensitive institutions were slow to add their most critical data to the internet, and all-important military institutions initially relied on a manual air gap, where a command was sent to a person who would retrieve data devices out of a vault and connect them to a machine for a short period in which they needed to be used.
Some institutions still rely on these methods. The Russian military is famous for its continued reliance on typewriters for some of their most sensitive documents – if it’s never digital, well, it’s certainly a lot harder for your enemies to get their hands on it.
The value of air gap technology is unparalleled in its ability to hide data away from digital thievery; however, inaccessibility has always been its shortcoming. With the institutions using the tech over the course of history, having the physical manpower on hand to mount drives online at a moment’s notice was not an issue, but the corporate application of this technology requires some automation of that process to scale and serve the needs of millions of customers simultaneously.
However, how to bridge that gap without systems being online? The fact is that with a recent invention, human interaction, and the resulting security risk those touch points entail are no longer required to remotely close an air gap.
Application of Air Gap in Crypto Custody
Individuals have been storing sensitive data on cold storage devices for decades. USB thumb drives are ubiquitous across society these days, and their use for storing cryptocurrency keys began almost as soon as currencies were first invented. Over the years, the complexity of these drives has evolved, and now cold storage wallets like Ledger or Trezor are de rigueur for smaller independent investors.
However, these drives are not a viable solution for larger investors who need instant access to their funds but who do not wish to take the risk of employees carrying around their codes. Additionally, for institutions the gaping holes in the security of these devices, and their applicability to the global needs of their clients renders them useless.
Beginning in 2013, institutional grade custody providers came to market to provide offline storage of digital assets. Amongst the first of these was Xapo, a group focused on serving the needs of long-term holders of cryptocurrency. Xapo built vaults within mountains for the long-term cold storage. Since the founding of this company, many other institutions offering deep cold storage have entered the market.
Most recently, the Winklevoss twins announced a cryptocurrency-based patent in the air gap space, lending even more credibility to the application of the technology. The solutions all rely on a combination of codes on digital or physical (paper or other) media in coordination with some vaulting solution. These options are great if you don’t need to access your keys to make trades; however, trading is a key to doing business.
All of these solutions have the same issue which has vexed institutional investors for years – entirely locking them out of the market in many cases – and that problem is accessibility. The typical solution, like Xapo, requires a 2-day notice to bring your keys online manually for you to make a transaction. This delay means these solutions can’t meet the needs of active investors who need access at a moment’s notice. Additionally, the additional human interaction point represents a significant risk to data.
Remote Automated Air Gap Security (RAAS)
In early 2017, Tony Hasek, one of the founders, of Goldilock was working with a company offering deep cold storage for physical assets – mostly precious metals. He had been trading cryptocurrencies for years and was worried about the constant breaches suffered by even the largest institutions, starting with Mt. Gox back in 2011. Not wanting to carry his codes around, he started thinking about ways to keep them offline using some of the same concepts of cold storage combined with some analog technology he’d worked with back in the 90s.
Combining forces with his co-founder Jarrod Epps, who had also worked with analogue telephony solutions, the two collaborated for several months to build out an architecture which would allow all data to be kept offline in a vaulted, air gap, cold storage state until the exact moment the owner of the data wanted to bring it online (also known as ‘hot’).
By relying on a sophisticated combination of legacy offline technology as a trigger mechanism for remotely-toggling data nodes on/offline, alongside cutting-edge cryptography and biometric gateways, and adding in options for remote multi-sig approvals, the two filed a patent for a unique way to access cold-stored data at a moment’s notice. Also, they built it in a way so simple and secure that anyone with a mobile telephone could use it.
This new RAAS technology (pronounced ‘race’) allows anyone to access their data anytime from anywhere that he or she has a mobile or landline phone.
RAAS into the Future
Remotely accessible air gap technology is truly transformational for the handling of all data across the internet. Institutions such as banks, credit rating agencies, video distribution groups, software developers, healthcare record custodians, crypto funds, crypto custodians, and crypto exchanges have all reached out to get on the waiting list to use this technology.
Outside the cryptocurrency space, being able to bank, manage credit data, health information safely, even personal photos and videos will transform the way consumers interact with the internet, allowing them to do so without fear of hacking, identity theft, or hijacking of their credit.
With recent changes in regulation as well as customer sentiment rapidly shifting, it’s no surprise that cryptocurrency exchanges are embracing changes within this constantly fluctuating industry.
It’s important to note that there are only a few key players that handle the overwhelming bulk of crypto trading volume.
There are 3 types of cryptocurrency exchange groups. Custodial, noncustodial, and decentralized exchanges (also known as DEXs).
Custodial exchanges are those that act as a crypto wallet managers. They maintain user assets through an internal ledger. Customers therefore don’t have direct access to their wallets that the exchange holds for them. Only when the user decides to transfer his currency does he have a resemblance of control.
An example of these exchanges would be Coinbase, Bitfinex, Gemini, Bittrex, Bitfinex, etc. These are, by nature, centralized exchanges. An overwhelming number of trading volume (73%) runs through these custodial exchanges.
One of the most notable advantages of using these exchanges is the ease of use at which they come with. Nonetheless, this still provokes concern over the exchanges centralized nature. With hackers breaching their internal systems and attaining private keys to the exchanges, a user’s funds can be lost overnight.
It’s worth noting that more exchanges these days have been proactively taking measures to store funds in “cold storage” (storage without connection to the Internet) which provides an extra layer of security. However, what happened with the infamous Mt. Gox, Bitfinex, and recent CoinCheck hacks still have users weary when it comes to storing large amounts of cryptocurrency on their chosen exchange.
These types of exchanges also face a major concern over price manipulation as reflected in the recent probe by the US Department of Justice.
– Pros: easy to use interface, instant fiat to cryptocurrency conversion, customer support
– Cons: lack of privacy, high fees, and major target for hackers.
Most of these concerns over the custodial exchanges have prompted many users to push for more decentralized exchanges.
These exchanges, although still centralized, do not manage user wallets. They simply match orders through an internal order book and then take a fee on top for providing their services.
Some of the more popular noncustodial exchanges are Changelly and ShapeShift. The more popular exchange of the 2, Shapeshift, roughly takes in around 15,000 orders a day and averages around $10-$15 million in transaction volume.
The exchange’s internal mechanics are still not transparent, which is why they are still considered centralized. Foul play is still possible within these exchanges. Also worth noting, non-custodial exchanges tend to have low liquidity which scares away more sophisticated investors.
Last but not least, we have the decentralized exchanges, also known as DEXs. Many within the crypto community are rooting for their success. After all, isn’t the whole appeal behind cryptocurrency the idea of having a decentralized currency as well as a platform that no single party controls?
If that’s the case why do centralized platforms control so much of our crypto assets? On paper, decentralized exchanges are the perfect solution for concerns raised over centralized exchanges. They are extremely light in fees (if there are any fees at all), they are transparent in nature, and are highly secure as they allow you to control your own wallet.
There are several DEXs which execute orders under smart contracts. The chart below lists some of the current players in the space including companies that are building protocols around decentralized exchanges.
There are a few downsides to decentralized exchanges in their current state. Many of these downsides mimic the challenges of non-custodial exchanges.
No inter-chain trading (like ETC to ETH)
Inability to convert from fiat to cryptocurrency
Hybrid Exchanges – The Best of Both Worlds
Many within the crypto community agree that decentralized exchanges will take a more prominent role in the future. Megan Hernbroth, Head of Communications for Coinbase, stated that the decentralized exchanges are “very important to the ecosystem of cryptocurrency trading by acting as a middle ground”.
Also note, custodial exchanges play a major role in the future of crypto trading as they offer more convenience for the casual trader. Many enthusiasts believe that the future of crypto will contain more of a hybrid approach in which both centralized and decentralized exchanges are combined. These newly developed hybrids will utilize the benefits of both exchanges.
It’s inevitable that decentralized exchanges will continue to rise in popularity. With that said, it’s highly doubtful that they match the scale and popularity of custodial exchanges anytime soon. If the awareness of security and privacy continues to grow, we may witness the birth of these “hybrid solutions”.
With regulation concerns looming over the industry, presently those within the crypto community should not entirely comfortable with storing or trading their cryptocurrency with one particular exchange.
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