Bitcoin Beginners Should Do These Three Things... - Smart Contrarian by Equitymaster
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Bitcoin Beginners Should Do These Three Things...

Jan 10, 2018

Richa Agarwal, Research analyst

As I write this, Bitcoin is trading at US$14,225. It's down 7% from the levels a week ago and up more than 1,700% in last one year.

And who knows where it will be by the time this letter reaches you.

While regulators in India are making it clear that it's not a legal tender and comparing it to ponzy schemes, Japan has already legalized it.

Even the New York Stock Exchange Commission has filed to list bitcoin related exchange traded funds.

In Mumbai itself, I have seen certain shops that are happy to accept bitcoin as a medium of exchange.

Despite the regulatory concerns, bitcoin appears to becoming mainstream.

It has become big enough for institutional investors to warm up to them. Even though grudgingly.

Bitcoin Becomes More Mainstream

The bubble may burst.

Or, some outrageous predictions (latest suggests bitcoin at US$ 1,500,000 in next three years) may come true in future.

I don't know. Nobody knows!

The thing is - If you are willing to bet a little money (only what you can afford to lose - assuming the worst case), the ride might be worth it.

But before you roll up your sleeves and dive in, here is a piece of advice from someone who understands bitcoins the best.

Keep reading,
Rahul Shah (Research Analyst)

Tama Churchouse

Before buying bitcoin, start small

Speaking from personal experience, I highly recommend that folks buying bitcoin start with an extremely small amount... no more than a bitcoins worth, which today is the equivalent of a couple thousand U.S. dollars. (You can use less money and buy a fraction of a bitcoin also if you prefer).

The process of buying bitcoin, moving and storing it is not like traditional online banking or investing. If you send bitcoin to the wrong location, for example, you can't just call up your bank and cancel your transaction. So it's critical to familiarise yourself with the mechanics of buying bitcoin and moving it around first with a relatively small sum, before moving on to larger dollar amounts.

Write everything down

It's ironic that whilst bitcoin is a highly modern technology, you must make sure you keep 'offline' records of all your bitcoin information. That means a pen and paper, or at least using a Microsoft word document and printing it out as a back up.

Storing and sending/receiving bitcoin involves setting up a digital wallet. This is a where you 'keep' your bitcoin.

Your wallet has a public key (which might look a bit like this: 1GwV7fPX97hmavc6iNrUZUogmjpLPrPFoE) which is where the bitcoin gets sent to. This is like an account name.

Your wallet also has a private key. This will either be an alpha-numeric sequence that looks like the public key above, or a long sequence of random words generated by the wallet. This is the 'password' you use to access your wallet.

Either way, secure wallets do not have an 'I forgot my password' option.

If you lose or forget your private key, you lose access to your wallet. And you lose your investment. Period.

I write everything down, and I print out screen grabs (that is, printouts of what is shown on the screen).

Don't leave money at the exchange

In order to convert your cash into bitcoin, you need to open an account with an exchange.

This process will typically take a few days as the exchange will need to conduct KYC (know your customer) diligence on you. This means they'll do a standard identity verification so the exchange knows who you are, and that you're not a wanted criminal.

Once you've opened the account, you'll be able to fund it with a bank transfer - or by credit card in some cases - before you buy bitcoin.

If the exchange where you bought bitcoin (and left it there) gets hacked, then you can lose your money. This has happened in a couple of high-profile cases.

For example, in 2014 bitcoin exchange Mt. Gox, which at the tie was handling up to 70 percent of all bitcoin volume, filed for bankruptcy, saying that 750,000 of customer bitcoin was missing. That's US$1.5 billion-worth at today's prices.

The safest place to store your bitcoin is in a wallet. There's a good selection to choose from here.

Good investing,
Tama

Editor's note: This article was first published by Tama Churchouse here. You can get access to all of Tama's crypto expertise by signing up here.

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3 Responses to "Bitcoin Beginners Should Do These Three Things..."

Dhanraj K

Jan 11, 2018

We will be more clear in terms of selecting crypto currency, if you can suggest some upcoming new one. As the Bitcoin has become quite expensive already. For beginners, why not suggest with less value cryptos ? Also, does the crypto exchanges handle more than one type of crypto, is not clear. Please clarify.

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Dhanraj K

Jan 11, 2018

It will be better if you can throw some light on types of wallet and advantages/disadvantages of each. We cannot experiment by selecting any one without knowing much about them. Hope your guidance will be more complete for a beginner.

Like (1)

Santosh parab

Jan 10, 2018

Every country needs to bring own cyripto currency !!!!

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