Cryptocurrency Investing: How to Trade & Mine Bitcoin, Ethereum, and AltCoins

Last Updated on – Jan 10, 2023 @ 5:48 am

As of this writing, the cryptocurrency hype has grown significantly, and it’s only bound to get bigger.

These days, virtually everyone around the world who cares even a bit about finance at some level is aware of cryptocurrency at this point as the future of money.

Now that more people than ever are looking to invest in cryptocurrency, it’s important to first understand what it is and what it’s not.

Once you know more about what it is, you should then learn what investing in cryptocurrencies like Bitcoin entails.

The potential of cryptocurrency has not been completely fathomed yet, and it can be said that the surface is still barely scratched. Some say the recent monstrous growth of Bitcoin is yet another bubble ready to burst, while others are keen to defend how it bucks the trend and would continue to grow.

What is Cryptocurrency?

The easiest way to understand what cryptocurrency is would be to define it as a form of digital money, designed with security in mind. It makes use of cryptography to safeguard transactions, hence the name.

This form of digital currency came about with the creation of Bitcoin in 2009, and it has since grown to become a force in the global market.

The main concept behind cryptocurrency is decentralization, which allows for transactions without any need for any intermediary. Every transaction is then stored in what’s called the blockchain, which is a public ledger that contains every single transaction ever made with that currency.

Cryptocurrency is earned through mining, which is the lending of computer processing power in exchange for reward. The cryptocurrency is then stored in a digital wallet, from which cryptocurrency can be sent and received.

The use of cryptocurrency like Bitcoin for trade is growing, and it’s now becoming a part of people’s investment portfolios.

See: Top 100 Cryptocurrencies: Live Price List & Market Cap

What is Bitcoin?

Created by a man named Satoshi Nakamoto in 2009, Bitcoin (BTC) was designed to be a global payment system that is completely decentralized. That means there is no central authority governing the proliferation and regulation of Bitcoin, which makes it completely independent worldwide.

This is made possible through the use of cryptography and a worldwide peer-to-peer network, wherein transactions can be conducted between two users directly without any intermediary.

That means Bitcoin doesn’t need banks or governing bodies to keep an eye on it. As long as you have a wallet, you can have Bitcoins too.

Even now, no one truly knows who Satoshi Nakamoto is. Nakamoto himself claims to be a Japanese man born on 5 April 1975, and he now supposedly resides in either Europe or the United States, but he hasn’t really shown himself to the public.

It’s believed that he owns up to a million bitcoins, which is valued at around $10 billion as of November 2017.

His creation of the first blockchain database made it possible to create Bitcoin as it was intended to be—a decentralized digital currency that requires no middleman.

He had been active in the development of Bitcoin until December 2010, and his true identity still remains a mystery to this day.

Once Bitcoin was made open source by Nakamoto, other developers started coming up with their own cryptocurrency, which we know now as altcoins.

What are Altcoins (Alternate Cryptocurrencies)?

Bitcoin may be the most well-known cryptocurrency in the world, but it’s no longer the only one.

These alternatives are commonly known as Altcoins, and they are also based on the decentralized system in some way, much like using Bitcoin’s blockchain transaction database as a distributed ledger.

Cryptocurrencies are dependent on cryptographic hash algorithms to do their magic.

For instance, Bitcoin is based on SHA-256, whcih was designed by the US National Security Agency. Then there are others like scrypt (pronounced ESS-crypt), Zerocoin, Cryptonote, and Ethash.

Some of the more popular altcoins include Litecoin (LTC) and Dogecoin (DOGE, named after the meme), both of which are scrypt-based.

Then there’s the Ethash-based Ethereum (ETH), which has been picking up speed lately since its initial release in July 2015. There’s also Monero (XMR), based on CryptoNote and is focused on both privacy and scalability.

There are many others like Bytecoin (BCN), Zcoin (XZC), Namecoin (NMC), and many others, each having their own advantages and disadvantages.

Despite that, Bitcoin is still the biggest and most popular cryptocurrency with an ever-growing user base and now valued as high as over $16,000 per bitcoin as of this writing.

Below are the top 10 Altcoins, based on market capitalization (according to CoinMarketCap stats):

How to Get Started with Bitcoin

Do Your Homework

Cryptocurrency isn’t like the money you have in your wallet or the numbers in your bank account. Before you start diving into it, you must first learn about what you can and cannot do with cryptocurrency, as well as how you can use it securely and what common pitfalls you should avoid.

This is not a magic solution to your money woes, yet it’s also not just a passing fad. Many have predicted its collapse, but it has only become more relevant over time since its introduction to the mainstream. Doing your research on it is about being able to have the right expectations for it.

Research is key to succeed in crypto investing (whether for trading or mining).

Below are some of the best resources on the web you can utilize to learn more about the world of cryptocurrency:

Choose the Right Wallet for You

The good thing about cryptocurrency is that you can take it anywhere with you. Wallets can be used for both desktop and mobile devices, so you can engage in transactions anywhere you are as long as you have Internet access.

There are plenty of different wallets out there, with each of them having various advantages over their counterparts. You should choose one that you can use both in desktop and mobile so you have as much accessibility as possible.

Once you choose which wallet you want, setting it up should be a breeze. You can then immediately receive cryptocurrency for use from trusted sources. You should take note of your blockchain wallet address as it’s what you need to show in order to receive cryptocurrency.

Acquire Cryptocurrency

Once you have a wallet, you should be able to accept and keep cryptocurrency in it. There are various ways you can acquire cryptocurrency, either through exchanging physical currency for it or being paid with it through a transaction.

When someone is about to send you cryptocurrency, you should give them your blockchain wallet address so they know who to send it to.

Spend Cryptocurrency

While it’s not entirely commonplace yet in daily life, cryptocurrency (mainly Bitcoin) is being used more and more in trade and commerce.

There are now a growing number of services and merchants that are accepting Bitcoin as payment, so you can try to be more aware of who does indeed receive Bitcoin for payment. Most of them are online, but there may be traditional shops that are starting to accept it as well.

Different Types of Crypto Wallets

For the purposes of this list, we shall take mostly Bitcoin into consideration. The other cryptocurrencies work roughly the same way, so these should also apply to them.

There are seven main types of Bitcoin wallets, each with their own specific purpose. A Bitcoin wallet you may find on the Internet may belong to more than one of these categories.

Hot/Cold Wallets

Wallets can be either hot or cold, and it simply denotes whether a wallet is connected to the Internet or not. The nomenclature is mostly due to security concerns, with cold wallets (disconnected) being the most secure and hot wallets (connected) being less secure.

The recommended way of doing things is to store most of your bitcoins in a cold wallet, and whatever is in your hot wallet is for your frequent use. Basically, your long-term savings should be cold and your regular funds are hot.

Desktop Wallets

Simply put, these wallets are accessible on laptops and personal computers. There are wallets compatible with different operating systems, whether it’s Windows, Mac OS, or whatever distribution of Linux.

If a desktop wallet is all you need, Armory is recommended for most users. There are also Multibit, mSIGNA, and so on.

Mobile Wallets

Instead of using computers to access your wallet, you can use your smartphone to do the same. You can have your bitcoins right with you in a mobile wallet. If you have an Android phone or an iPhone, you can use either Blockchain or Mycelium. If you’re a Blackberry user, Bitcoin Wallet is a commonly-used app for that.

Another reason for using mobile wallets, aside from portability and enhanced security features, is being able to scan QR codes. You can make use of instant payments by scanning a shop’s QR code with your phone’s mobile wallet with little to no hassle.

Note: I personally use Bread.

Web Wallets

These are wallets you can only access when you’re connected to the Internet, making it perpetually hot.

However, the good thing about it is you can access it anywhere with an Internet connection, making it convenient for those who can’t be bothered to install software. Coinbase and Circle are examples of web wallet service providers.

There are also web wallets that allow multi-signature wallets, which let you have more than one signatory in an account, thus making it safer.

Physical Wallets

There are actually Bitcoin wallets that are not just digital. Paper wallets can be used to securely hold bitcoins in cold storage for long-term safety. You can put most of your bitcoins in there, then store it somewhere like in a safe or a safety deposit box like with any other of your valuables.

A paper wallet can be generated through sites like Blockchain.info or Bitaddress.org, which should let you store them and have a generated paper wallet printed out.

Bitcoin Clients

Before things were how they are now in the cryptocurrency world, there were Bitcoin clients, which served as Bitcoin wallets during the technology’s earlier years. They’re a bit more complicated, but can be pretty neat.

There are computers installed in these wallets that enable users to access their bitcoins and transactions on the blockchain through it.

A good example of this is BitcoinQt, which is said to be the first ever Bitcoin client there ever was, which Satoshi Nakamoto had used before. There is also Electrum, which is lightweight but also has a lot of other awesome features.

Hardware Wallets

These are very small devices made to serve as secure storage and for making online transactions. They come in different forms, shapes, and sizes, usually resembling a USB dongle or an electronic credit card.

The wallet is also making use of top-of-the-line cryptography and online security, which is then continually being scrutinized to keep the security updated. Trezor and Ledger HW.1 are well-known examples of hardware wallets.

Philippine Websites that Sell Bitcoin and Other Cryptocurrencies

For Filipino investors out there who are looking to buy bitcoins, there are services that let you do just, as well as other things on top of that. These services are geared towards making Bitcoin and other cryptocurrencies more accessible.

Bitcoin.ph lets you buy bitcoins through bank transfers via BPI, BDO, Metrobank, and different pawnshops throughout the Philippines. You can also mine for Bitcoin or other alternative cryptocurrencies too through this service. If you’re just starting out with Bitcoin, you may want to check this out.

Prepaidbitcoin.ph is perhaps the easiest way to get Bitcoin in the Philippines, taking the ever-present prepaid model and applying it here. You can buy vouchers from two physical locations in Makati City, which can then be redeemed online for bitcoins.

There are also other ways to buy through this site, like through Gamex.ph and Smart or Sun mobile payment. It does require a Bitcoin wallet in order to receive your bitcoins.

Coins.ph is one of the more popular services that let you buy bitcoins, as well as deposit cash in order to use your account for online payment. You can pay bills and services through Coins.ph, which can be pretty convenient.

BuyBitCoin.ph is another service that lets you buy bitcoins with pesos, much like how foreign exchange lets you buy foreign currency with pesos. There is a buy and sell rate, so be wary of how much you need to buy bitcoins from there.

Coinbase is one of the most popular bitcoin-selling sites on the Internet. You can get a $5 bonus upon signing up for an account, with which you can then make payments to Filipino online shopping sites.

LocalBitcoins is a platform that makes bitcoin processing easier, matching buyers and sellers and vice versa from all over the world.

Also, check out iMillennial’s post on how to invest in Bitcoin and other cryptocurrencies in the Philippines.

How Cryptocurrency Trading / Bitcoin Exchange Works

There is no such thing as an official Bitcoin exchange due to the decentralized nature of cryptocurrency. Instead, there are several exchanges wherein you can trade and exchange Bitcoin and other cryptocurrencies.

While users are spoiled for choice, important factors must be considered while deciding on which exchange you wish to go for.

Is the exchange trustworthy and have regulations in place to keep transactions safe?
Where is the exchange based? Local is best if you have to deposit cash (fiat currency) and make payments.
What percent of each trade is charged?
Does the exchange have high liquidity and good market depth?

Go for these cryptocurrency exchanges if you wish to mix your forex game with your crypto game. For instance, Kraken is great for exchanging between Bitcoin and either Euro or US Dollar.

Meanwhile, Bitfinex is one of the best when it comes to US Dollar trading volume, topping 25,000 BTC traded per day. You can trade through here without verification needed if you deposit with cryptocurrency.

Poloniex is an exchange with advanced trading features, as well as providing over 140 Bitcoin and Monero markets—giving it strong liquidity with huge exchange volumes.

Bitstamp is one of the oldest Bitcoin exchanges still in operation, having been founded in 2011. As of this writing, it’s the world’s second-largest exchange based on US Dollar volume, with just under 10,000 BTC traded per day.

Binance is one of the largest exchanges in the world, which offers vast coin offerings and low transaction fees.

How Bitcoin Mining Works

If you want to get your own bitcoins, you mine for them. Mining is the legal way of “creating” your own cryptocurrency, which done by running double round hash verification processes to validate Bitcoin transactions and provide security for the blockchain.

Basically, you’re lending processing power to the whole system when you mine, and you’re then rewarded with some cryptocurrency over time.

The bitcoins given in compensation to miners are a combination of both newly-issued bitcoins and a portion of the fees charged to the transactions that were validated during the mining.

The speed at which you mine cryptocurrency is measured in hashes per second—the higher it is, the more quickly you mine. The more processing power contributed, the bigger the reward.

At first, miners relied mostly on CPU power to mine. Then somewhere down the line, it was figured out that mining can be done more efficiently if they tap into the power of GPUs on graphics cards.

Creating a mining rig is all about efficiency since you’re consuming energy in order to mine for bitcoins. If you spend more on your electricity bill than what you earn in bitcoins or just break even, then it’s a useless exercise.

Using GPUs to mine was determined to be the more efficient way of doing it. However, due to miners hoarding graphics cards for their rigs, it affected the graphics card market as prices went up, much to the chagrin of other consumers who just want a cool graphics card for their gaming computers.

Tips on Succeeding in Bitcoin and Altcoin Investing

Don’t Trade for No Reason

Initiate a trade only when you have a good reason for it and if you have a clear strategy going in. Not all trades result in gains due to the economy being a zero-sum game, even if it’s cryptocurrency.

With altcoins, the market is mostly driven by whales—individuals who trade big. Whales wait for the small fish—ordinary traders—to make mistakes, after which they capitalize and earn from the mishaps of others.

Do know that if you wish to trade on a regular basis, you will suffer losses. However, it’s best to trade and lose than not trade at all since the experience is what you truly earn.

Learn About Risk Management

As with any kind of trading and investing, risk is always a factor. Therefore, you should know how big returns usually come with big risks.

Becoming a successful trader is not in being lucky with big trades that net you big profits, but putting together trades that net you small profits that add up to big profits down the line.

Being able to manage risk wisely doesn’t just apply to cryptocurrency investment, but with investment in general. As you learn your way around, you get to know certain things like how you should never invest more than just a smidge on a non-liquid market, which would be very high risk.

You try those markets out with great cautiousness to see if there’s something to learn from it. Otherwise, you stick to what you know works.

Overcome FOMO (Fear Of Missing Out)

You may be getting that faint feeling of remorse for not having thought of investing in Bitcoin before 2016? The fear of missing out tends to come up when you come upon a new market and contemplate on whether you should get into it or just wait and see.

Having felt regret of not jumping onto a prospect before, you may then start to push hard for something, even if it turns out that was actually a dud.

The fear of missing out makes you want to get into new ventures not simply with hopes of cashing out big later on, but also because you don’t want to miss out on that potential down the line.

The problem is that feeling will always be there, whether you’re investing in cryptocurrency or something else or you’re running a business. It can make you go with decisions that may not be prudent and actually yields bad results in the long term because you fear missing out on something big.

If you “missed out” on something, don’t feel too bad about it. No one is psychic and people are always playing the market with imperfect information. Such things happen to everyone, and there’s no use crying over spilled milk. Become familiar with that feeling and don’t fall prey to it.

Lastly, always try to stick to this conventional wisdom and principle in trading: Buy low, sell high.

Conclusion

Getting into cryptocurrency these days is easy due to the wealth of information and the global community that surrounds it, both of which are easily accessible on the Internet. However, as with most investments, it’s not just some get-rich-quick scheme, even when it’s something as radical and envelope-pushing as cryptocurrency.

In order to enter, survive, and thrive in the cryptocurrency world, you must know what it’s about, why you should add it into your investment portfolio, and both the principles and nuances of cryptocurrency trading.