The Total Beginner’s Guide to

Cryptocurrency Trading (Bitcoin, Ether

and More)
Last Updated: January 16, 2018 by Hugh Kimura

As traders, our job is to take advantage of

opportunities in the markets. Sometimes, these opportunities come in the form
of entirely new markets.

I've been interested in cryptocurrencies for a few years now, but I've been
very reluctant to trade them, much less write about trading them. I felt that
there was just too much risk.

Especially for the average trader.

…and quite frankly, I didn't understand them well enough myself.

The first time that I saw them as viable for trading was when I went to this
conference. I saw Chris Dunn talk about trading Bitcoin, but I was still
skeptical that it would stay around for the long-term.

…until recently.
I credit my friend for talking to me about it on Twitter and opening my eyes to
the potential in trading this emerging market. I'm not sure if he wants to be
named, but you know who you are. I sincerely appreciate the education and
helping me see the light!

This is a perfect example of the benefit of staying in touch with other traders
on platforms like Twitter.

Anyway, as I have done more research and have actually started trading
them, I have found that there are tremendous opportunties. With
some coins, it's potentially like being able to get pre-IPO shares of
Microsoft.

But there are also big risks.

Remember, the dot-com bust?

There will probably be losses of that magnitude too. That's just how these new
technologies work.

So in this post, I want to share with you my knowledge of the cryptocurrency

markets and give you a total beginner's guide to trading them. Be sure to
bookmark this page because I'll continually update the information, as things
change.

For you crypto veterans, this will be very simplified, but my goal is to make
this information as easy to understand as possible so new traders can make
an informed decision about the opportunities. Once people get the general
concepts, then they can geek out about the details.

This is the future of FX trading. So in addition to USD/CHF, CAD/JPY and

EUR/GBP, we also need to be aware of XLM/USD, ETH/BTC and XRP/LTC…

Table Of Contents
What is a Cryptocurrency?

Is Cryptocurrency Real Money?

Risks of Cryptocurrency Trading/Investing

1. Some Technologies Will Fail

2. It Requires Technical Savvy

3. There's a Lot of Broker and Technology Risk

What is a Blockchain?

The Characteristics of a Currency to be Aware of

What are the Different Cryptocurrency Use Cases?

Worldwide Financial Transactions

Application Platforms

Private Financial Transactions

Specialty Currencies

How do You Buy Cryptocurrencies?

How to Buy Altcoins

How do You Store Cryptocurrencies?

Cryptocurrency Tracking Apps

What Can Affect the Price of a Cryptocurrency?

Exchange Listing

Software Upgrades

Public Hype

Wallet Improvements

Platform Applications

Government Regulation
 Conclusion

What is a Cryptocurrency?

Let's start at the beginning.

You may have heard many things about what a cryptocurrency is, but you
may still be searching for an understandable definition. I hear ya, I was in the
same boat for a long time.
Instead of getting too technical, here's the easiest way to think about
cryptocurrencies:

A cryptocurrency is basically money on software platforms.

It's important to keep in mind that the teams/companies that are behind these
cryptocurrencies are not only creating a new form of currency, but a new
software platform. To demonstrate how this works, let's take a look at other
software platforms that you are probably already familiar with.

Examining how these platforms work will help you understand

cryptocurrencies. 

Here are a few software platforms that many people use:

 Windows: A software platform for personal computers

 Dropbox: A software platform for storing and sharing documents
 Fedwire: A software platform that sends money between financial
institutions

On each of these platforms, a type of money is used, in exchange for using

the platform:

 Windows: You pay US Dollars (or your local fiat currency) to buy a

license for Windows to use on your computer. If you buy a computer that
already has Windows on it, the license fee is included in the purchase
price.
 Dropbox: You pay US Dollars (or your local fiat currency) to buy a
subscription to use the software for a month or a year, depending on
which plan you buy.
 Fedwire: You pay a transaction fee to use the system and you send fiat
currency itself.

Each of these systems also have a database connected to it:

 Windows: Database is stored on your local computer

 Dropbox: Database is stored on the Dropbox servers
 Fedwire: Database is stored on the Fedwire servers
Cryptocurrencies essentially replace the US Dollars (or your local fiat
currency) that you use to purchase these software services. The
“database” that cryptocurrencies give you access to is based on
blockchain technology. 

More on blockchain technology in the next section of this guide.

But wait, what are the software services that you are getting? Isn't a
cryptocurrency like Bitcoin just a currency, like US Dollars?

Not quite.

The goal of cryptocurrencies is usually to improve on some type of

existing software system or network. When you send money via PayPal,
Fedwire or Western Union, you are basically sending fiat money electronically,
similar to Bitcoin.

However, that's where the similarity ends.

Platforms like PayPal have severe limitations on what you can and cannot do.
For example, you cannot send/receive money from certain countries (like
Nigeria).

Cryptocurrencies like Bitcoin want to make financial transactions more open

and accessible to everyone around the world.

Other cryptocurrencies solve other problems, which we will explore later in

this guide.

Is Cryptocurrency Real Money?

Yes.

Since this is a new concept to most people, it will take some time to become
widely accepted. This is where Bitcoin has been instrumental in paving the
way for this new technology.
Websites like Newegg take Bitcoin, along with the other traditional payment
methods. Here's what the checkout screen looked like after I added a drone to
my cart.

Payment processor Stripe also allows online merchants to accept Bitcoin.

Notice that other coins like Ether or Litecoin are not accepted. However, the
fact that Bitcoin is accepted, is a big step towards the adoption of other
cryptocurrencies.

Risks of Cryptocurrency Trading/Investing

Now that you understand the basics, what are the risks of trading these
cryptocurrencies? There are quite a few, but here are the top three.

1. Some Technologies Will Fail

Remember that cryptocurrencies are basically software, created by people or
companies. So just like Webvan or Pets.com in the dot-com bust, some of
these technologies will fail.
…and they will fail spectacularly.

Right now, there is a lot of buzz around certain cryptocurrencies increasing

several thousand percent, in a few months. This has a lot to do with ignorance
and hype.

Just like when people found out that this new thing called the “internet” would
change the world of business.

Did it change the world?

Of course.

But was there a lot of dumb money that overhyped the first wave of internet
companies?

Totally.

So just remember, trading cryptocurrencies is kind of like trading a software

stock. Some of the software will change the world.

Others will explode in a giant ball of fire.

There are also a lot of scam coins out there, so be careful. Like penny stocks
that are just a company on paper, almost anyone can create a new
cryptocurrency.

Learn how to separate the scams from the deeply underpriced currencies.

Then use proper risk management and play the odds.

2. It Requires Technical Savvy

Let's face it, cryptocurrencies were created by super nerds. Like with Linux,
there is still quite a bit of technical know-how that is required.

You don't need to know how to code, but if you are “not good with computers”
you may want to stay away from cryptocurrency trading, at least until they
start building more user friendly interfaces.

Don't get me wrong, I'm not calling anyone dumb. I'm just saying that if you
don't possess a certain skillset, then you shouldn't get involved in that area.
This could cause you to lose a lot of money, very quickly.
For example, I don't know how to sew, so I don't make my own clothes. If I did
try to make my own clothes, everyone who meets me would think I'm a weirdo
for wearing fucked up pants.

You get the picture.

So if you aren't so tech savvy, but still want to get involved, find someone you
trust to trade for you.

3. There's a Lot of Broker and Technology Risk

Since this is emerging technology, there are still a lot of unknowns with trading
at scale and how brokers and the software will react to certain surprise
events. If you think that Forex brokers are risky, then you should consider
cryptocurrency brokers at least twice as risky. Not just because they could be
shady, but there a still so many unknowns with the technology.

However, I would still trust the bigger cryptocurrency exchanges over a lot of
offshore binary options brokers 

So the lesson is: Don't keep too much of your coinage at the brokers.
Move them off to your own wallet as soon as possible.

I'll get to wallets later in this guide.

What is a Blockchain?
Simply put, a blockchain is a database.

However, there is one huge difference between how you probably currently
think of a database and how a blockchain database works.

In most cases, a traditional database sits on one computer or in one location.

Even if a company has redundant servers around the world, the data might
only be backed up between 3 to 5 locations. On top of that, these companies
collectively spend billions of dollars a year on cyber security, to protect this
data.

With a blockchain database, the data can be backed up on potentially

thousands of computers all over the world, for a much, much lower
cost. The information in these databases is heavily encrypted and sometimes
files are broken up into pieces, so even if one piece is exposed, it will not
expose the entire file.

If the information on one server does become compromised by hackers, the

other copies of the databases have to “agree” that the compromised data was
a legitimate change to the data. If the other copies do not agree, then the
change is rejected and it is changed back to match the others.

Obviously, this is an oversimplified explanation of the technology, but I hope

that you are starting to see the benefits.

Instead of just one point of failure, like on a single server, you now have
multiple copies of the same database all over the world that is almost
impossible to crack and will “fix” itself in the case of a hack. This can also
save a ton of money on cyber security software and services.

Example

Let's say that a hacker gets into your bank's computer tomorrow and transfers
all of your money to his account, then deletes any trace of the transaction.
With today's technology, you would probably be screwed.

But with a blockchain currency like Bitcoin, if one server was hacked and a
fake transaction was inserted into the database, then it wouldn't match the
transaction record on the hundreds other copies of the database. This
transaction would be seen as a fake and rejected.

Your money would be safe. 

This is one of the many reasons why blockchain technology is so exciting.

The Characteristics of a Currency to be
Aware of
Although cryptocurrencies are all based on blockchain technology, they are
not all created equal. Here are some differences that you need to understand
to make informed trading decisions:

 Transaction processing speed

 Total supply currently available
 Will there ultimately be a limit on the total number of currency available?
 Will there be an unlimited supply of currency?
 Is there a real-world need for this software/currency?
 Real world adoption of the technology
 Any big investors in the project?
 Does the use of the software make sense?
 Do the founders have a reputable background?

These are just a few of the characteristics that you should look at. But once
you start digging into these details, you will begin to see which projects could
work for their intended purpose and which ones are probably scams.

This understanding will also allow you to assess the long-term viability of
these different currencies and which ones will be more desirable in the future.

Example
Tether is a cryptocurrency that wants to be the proxy for fiat currencies. So
there is a Tether USD version, EUR version, etc. But each one is pegged to
the value of the currency, so you can never make any money trading it.

It is purely to provide stable and liquid transactions. So one USD Tether will
always be worth about $1.

If you didn't know this and bought a bunch of it, thinking that it's cheap
compared to Bitcoin, you will tie up your money in an asset that will never
appreciate. Sure, you won't lose money either, but you would have lost out on
other opportunties.

So understand the nuances of each crypto, it's very important.

What are the Different Cryptocurrency Use Cases?

Almost every currency software has a different intended purpose and
individual implementation, with inherent strengths and weaknesses.

It's like Windows vs Mac.

…or iOS vs Android.

Here are a few examples of the different types of cryptocurrencies and what
they are designed to do. This is not an exhaustive list, just a sample.

Note: I don't necessarily support these currencies, I'm just using them as
examples of the different use case niches within cryptocurrencies. 

Worldwide Financial Transactions

 Bitcoin
 Litecoin
 Tether
 Ripple
 Stellar Lumens

Application Platforms
 Ethereum
 Storj
 Siacoin
 MaidSafe

Private Financial Transactions

 Monero
  Dash
 Zcash

Specialty Currencies
 GameCredits
 ReddCoin

Take a look at these different use cases and figure out which ones make the
most sense to you. Then understand how each software implementation
works and think about what will probably do well in the future.

To see our extensive list of cryptocurrency sectors, read this post.

How do You Buy Cryptocurrencies?

First have to go to an exchange or service that will allow you to purchase
cryptocurrencies. Some of the bigger exchanges are:

 Coinbase
 Poloniex
 CEX
 Bittrex
 Bitfinex
 Binance
 LocalBitcoins

Many of them will allow you to use a credit card or link a bank account. As
much as possible, do not store your cryptocurrency at the exchanges because
they can be hacked. See the cold storage section in this post for details on
how to store you coins safely.

It's easy to get Bitcoin, Ether and Litecoin. But if you want the smaller altcoins,
you will have to do an exchange.

How to Buy Altcoins

First buy Bitcoin or Ethereum because those are the coins that are most easily
transacted against the smaller altcoins. When in doubt, buy Bitcoin. If you
want $10 of Bitcoin for free, use this link (while supples last).

Then find out where the altcoin that you want is traded. Go
to Coinmarketcap and click on the coin you want to buy.

Next, click on the Markets tab for that coin. For example, here's where you
can get NEM. The Source column will show you the exchanges where this
coin is being traded.

Notice how most of them are traded against Bitcoin or Ether. 

Open an account at the most reputable exchange on the list. Once you are in
your account, find the “deposit” wallet address for the altcoin you want to buy.
Here's an example from Poloniex. Copy this wallet address.

Next, login to the account where you bought your Bitcoin or Ether. If you
bought it from Coinbase, then you can go to: Accounts > Send and paste the
deposit address into that field.
Enter the amount you want to send, then click the send button.

It may take some time for the transaction to go through, so be patient.

When you see the balance in your destination exchange account, you are now
ready to buy altcoins. Here's what it would look like when you have a Litecoin
balance at Poloniex. This can be found in Balances > Deposits and
Withdrawals in Poloniex.
Now go to the Exchange area of the website. In Poloniex, it would look like
this:

Then click on the BTC tab. These are the currencies that you can exchange
for Bitcoin. Click on the altcoin that you want to trade. Here's and example
from Civic (CVC).
Next, scroll down and look for the buy/sell box. Enter the amount of altcoin
that you want to buy. If you want to trade all of your Bitcoin, click on the link at
the top with your total balance.

Click the Buy button and you are all set. The trade might not happen right
away, so check your Orders > My Open Orders page to see the status.

The exact process will be different at different exchanges, but the basic idea is
the same for all exchange.
How do You Store Cryptocurrencies?
With fiat currency like US Dollars, you can store them at the bank or in your
wallet. It's pretty straightforward.

But with digital currencies, there are a few wrinkles that you need to get your
head around, but the idea is similar. Let's take a look at how
cryptocurrency storage works.

You store your cryptocurrencies on the blockchain in a “wallet.” This is simply

an address on the blockchain. It's like how the website address
tradingheroes.com directs you to my website, on the internet.

Each wallet has a public address and a private address. The public

address is the address that people send funds to. The private address is the
“password” that you use to access and send your funds.

Never expose your private key until you are ready to spend your funds,
otherwise you will probably lose all the money in your wallet.

Here's an example from a Bitcoin paper wallet:

Image: bitcoinpaperwallet.com
Now that you understand the basics of cryptocurrency wallets, let's look at the
different wallet options out there. Here are the different ways that you can
store your loot:

 Online wallet: This is probably the easiest way to store your money.

But it is also the least secure. So it's not a good long term storage
solution, but it is fine for buying things and funding your trading accounts.
Exchanges like Coinbase also have their own wallets built in.
 Mobile wallet: You can download a mobile app like Mycelium to store
your spending money. It is more secure than an online wallet, but if your
phone ever breaks or it gets hacked, everything in your wallet will be
gone.
 Desktop wallet: Similar to a mobile app but just for desktop computers.
 Hardware device wallet: These are hardware devices that are built
especially for storing cryptocurrency keys. They are safer than the
options above, but they are still susceptible to the things that can
damage all electronic devices.
 Paper wallet: You can also store your private key on paper, like in the
picture above. This is the most hacker proof, but it is also the least
convenient. If you are going to go this route, be sure to store them in a
safe place (like a safety deposit box) and don't actually use paper.
Use something like this to make sure that your money isn't lost to
something as simple as a spilled beer.

Cryptocurrency Tracking Apps

Before I wrap it up, you will probably need an app to track cryptocurrency
prices on your phone. So here are a couple of apps that might work for you.

 Blockfolio: A simple app that allows you to add a watchlist and add
trades so you can track your portfolio, ala stock trading apps. The most
useful thing about this app is that it displays all currencies on your
watchlist in the currency of your choice. Some apps insist on displaying
the value in Bitcoin, which is annoying.
 Coincap: This app allows you to display currencies by market
capitalization, volume and other ranking factors. They also have cool
charts. Very useful for seeing what is being actively traded. Also displays
prices in your currency of choice.
These apps are not for storing or trading currency. They are just to check the
markets.

What Can Affect the Price of a

Cryptocurrency?
There are many things that can affect the price of a cryptocurrency…
sometimes very quickly.

Here is what you need to be aware of when you trade cryptocurrencies.

Of course, there is no guarantee that these things will move the market. But
based on what we have seen so far,

Exchange Listing
This is a big one.

When Coinbase added Litecoin to their already limited list of cryptocurrencies

that can be bought, they made it easily accessible to the average person.

Their interface is the best I've seen so far. It makes it so easy for the non-
technical person to buy Litecoin.

Soon after the Coinbase launch (marked with the arrow, in the chart below),
the price of Litecoin started to skyrocket and it has never looked back.
Now, you might be thinking that this could simply be a coincidence.

…and it could.

But it is very, very likely that exposing Litecoin to Coinbase's user base helped
boost the price.

So when a large exchange announces that they will start listing a

cryptocurrency that you are trading, take notice.
Watch exchanges like Coinbase, Bitfinex, Poloniex or CEX.

It could give it the boost you have been looking for.

Software Upgrades
Over the past few years, there has been a lot of discussion in the Bitcoin
community about upgrading the core software functions of Bitcoin. The
primary discussion has been around the transaction speed of Bitcoin.

If you have ever funded your trading account with Bitcoin or tried to buy
anything with Bitcoin, you will understand what I mean. For a digital currency,
the transaction time is a little slow.

It can take about 30 minutes or more, to do a single transaction.

Upgrading this speed has been hotly debated and finally led to the creation
of Bitcoin Cash. After the split of Bitcoin Cash, Bitcoin has taken off to new
highs.
There will be countless other software changes across all
cryptocurrencies, so make sure that you understand the implications of
those changes. 

Public Hype
Just like fake tweets can affect the price of a stock, any type of hype can
affect the value of a cryptocurrency.

Good or bad.
So before you dismiss something as just hype, remember that hype
moves markets too. But if you do trade hype, be sure to close your trade out
long before the hype has a chance to cool off.

Otherwise, it could be a very expensive lesson. 

Wallet Improvements
Since you are reading this post, you probably want to start actively trading
cryptocurrencies. But there are many other people who are investors and
want to buy and hold for the next few years.

This is where storage becomes an important part of the cryptocurrency

valuation equation.

Unlike traditional fiat currency that can be stored in a bank, your trading
account, or your mattress at home, cryptocurrencies need to have a
compatible wallet (or cold storage solution) to be stored safely.

Remember that cryptocurrency is simply software. So the wallet software

needs to be able to work with the cryptocurrency software.

It's like trying to use the Windows version of Microsoft Office on a Mac.

That simply won't work.

Therefore, if a cryptocurrency doesn't have a good wallet yet, that will prevent
less technical investors from buying the currency.

But as soon as one is available, then it makes the currency much more
accessible to the masses.

…and thus, more valuable.

If you find that a cryptocurrency does not have a good wallet solution yet, that
could be one signal that it is undervalued.

Looking for opportunities to buy, immediately after the launch of the

first high-quality wallet, could give you a nice short-term profit.  
Platform Applications
Some cryptocurrency platforms, like Ethereum, host other applications. These
applications, in turn, can have their own currencies or tokens.

If one of these DApps or Decentralized Apps does very well, this can have a
positive effect on the underlying platform currency.

The value of the tokens should theoretically be independent of the value of the
platform.

However, not everyone understands this and the success of one DApp can
drive the price of Ether…at least in the short term.

So if you are trading a platform cryptocurrency, watch promising apps

on the platform closely. 

Government Regulation
Finally, government regulation can have a huge effect on the value of a
cryptocurrency.

One example is in Venezuela, where the police have been arresting Bitcoin

miners on made-up charges. This has forced miners to go underground or
start mining Ether instead.

But this could happen in any country. Any decision by the NFA or SEC could
affect the value of certain cryptocurrencies. The SEC has already
banned certain Initial Coin Offerings (ICOs), due to the potential pump and
dump situation that could happen with those coins.

Be aware of current trends in government regulation and steer clear of

currencies that could get red flagged by government agencies. 

Conclusion
So that is the Trading Heroes Beginner's Guide to Trading
Cryptocurrencies. I hope that it answered any questions that you may have
had about trading currencies like Bitcoin or Ether.
There will be more detailed posts on specific currencies and how to do some
of the things mentioned above.

If you have any more questions or comments, leave them below.

Happy Trading!