An Intrepid Investors Guide To

Buying Bitcoin
And Other
Crypto Assets

By Laura Shin
C
ryptocurrencies are the latest investing craze, attracting everyone from technology executives
and Wall Street pros to novice speculators. Bitcoin, for example, has gone from $611 to a high
of nearly $5,000 in the last year and cryptomillionaires are being minted on a daily basis. With
bank savings rates at record lows, speculators are pouring money into so called initial coin offerings or
ICOs. These new unregulated crowdsales of crypto assets have pulled in more than $2 billion this year.
The pace of them nearly doubled from April to May, and the amounts keep getting bigger. The
latest record was broken by blockchain data storage network Filecoin, which raised $257 million.
But the everyday buyer has no idea how this new technology works or how to get their hands on
tokens. Below is a technical guide to buying crypto assets. Warning: Investors should only commit funds
they are willing to lose, read the white papers associated with coin offerings, and proceed with caution.

How To Buy During An
Initial Coin Offering (ICO)
1. Get Bitcoin or Ether
This is easily done at leading cryptocurrency
exchange and wallet Coinbase. Hook up your bank
account or credit card, make a purchase and then
wait a few days for your bank to process it. Just
make sure to do it at least a week in advance of the
token sale you want to participate in, as it takes days
for these transactions to go through since they use
the traditional banking system. Also, note that on
Coinbase the fee for using credit cards is higher
3.99%, as opposed to 1.49% for bank transactions.
If you plan to keep some Bitcoin or Ether here,
move the Bitcoin into the vault and make sure not
to use two-factor authentication via SMS but
instead on Google Authenticator or a Yubikey.
(More on why this could be a disaster for you later.)
2. Move Your Bitcoin Or Ether To A Wallet
You Control
This step is important because you cannot
participate in an ICO from your Coinbase account.
The reason for this is that when you use a
centralized service such as a company like
Coinbase, you do not own the private keys to your
Bitcoin or Ether address. The way the ICOs
typically work, you send them your Ether or
Bitcoin, and the smart contract immediately sends
the tokens back to your address. But since you
dont have private keys in a Coinbase account, if
you send Ether or Bitcoin to an ICO address from
your Coinbase account, youll simply be enriching
Coinbase instead of getting your desired tokens.
If youre using Ether, which is commonly
accepted in ICOs, you can use a site like
MyEtherWallet to create a new Ethereum key
there and transfer your Ethers on Coinbase to that
wallet. Another option is Parity, which enables you
to do things like invest in an ICO at an exact time
a feature you might want to use if you believe the
ICO will sell out within seconds. If youre using
Bitcoin, Blockchain.info has a good user-controlled
wallet. (Many token sales accept other coins as
well, but Bitcoin and Ether are the two most
popular.) Once youve transferred your coins to a
user-controlled wallet, youll have an Ether or
Bitcoin address whose private key you control
and that means that youll be able to receive tokens
there as well.
3. Participate In The ICO By Sending Your Crypto
To Their Address
The token sale will post an address where money is
being collected during a certain window of time.
Be very careful that the address to which you are
sending coins is actually the address of the token
sale. Scams trying to get people to send their Ether

W W W. F O R B E S . C O M / N E W S L E T T E R S 2
and Bitcoin elsewhere abound. In fact, during its designed to hold Bitcoin, Ether and other crypto
ICO, Coindash.ios web site got hacked, and the tokens securely. The two most popular hardware
crooks appear to have made off with $7.9 million wallets are Trezor and Ledger. Whichever you get,
worth of Ether simply by changing the address on plug it into a USB port, transfer your coins to the
the web site to their own. address that comes with your hardware wallet, and
Its also possible to use a smart contract to make afterward, unplug it from your computer. Youve
your bid. During the crowdsale for prediction just stored your coins so they are secure even from
market Gnosis, because there viruses on your computer.
was concern the crowdsale If you lose your
would be over quickly, people
who were, say, living in a part ...digital assets hardware wallet, you can
recreate it using whats
of the world where theyd called a paper backupa
likely be asleep during the ICO will revolutionize a series of words that you can
made their bids via smart- use to obtain your
contract-powered bidding myriad of industries, private keys again.
rings. Because of the time
5. If You Want To Store A
crunch that occurs during
many ICOs, many investors
including financial Coin Not Supported By
try to get in before others Your Hardware Wallet
during a limited window by services, health This isnt very common now
paying exorbitant fees to make that almost all tokens follow
sure their transaction care, government, whats called the ERC-20
goes through quickly. standard (a standardized
For the Gnosis ICO, technology, energy, token on the Ethereum
these bidding rings network), but in case you
collected peoples money
beforehand and made the
real estate, have an obscure coin that
isnt supported, one option

and more.
bid for them at the
appropriate time, thereby
saving individual investors
money because the
exorbitant fee was now split among all bidding
ring participants, rather than just one person
shouldering it. This also meant the investors didnt
need to trust a person or institution to return their
fair share of tokens to them.
4. Once You Have Your Tokens, Figure Out How
To Store Them
If you have a significant amount of money
invested, its best to use a cold wallet (one not
connected to the internet), and particularly a
hardware wallet, which is a device specifically
is to store those coins in an
encrypted text file on a USB
drive. Afterward, unplug it
from your computer and
keep it stored in a safe place such as a safety
deposit box until you need to use the coins.
Again, create a piece of paper with the
information necessary to recreate the private keys.
Each coin should have a guide on how to do this
since the method differs slightly coin to coin.
Another option would be to store those coins on
an exchange. However, if you do so, be sure to
secure those coins with whats called two-factor
authentication, not with your phone number, but
with either Google Authenticator or a Yubikey.
(More on that below.)

W W W. F O R B E S . C O M / N E W S L E T T E R S 3
How To Buy Tokens After Instead of using your phone number for backup,
use the Google Authenticator app, which creates
Their ICO new codes tied to each specific service at short
intervals, or an external device such as the YubiKey.
1. Get Bitcoin or Ether
Same as Step 1 outlined earlier. 4. Exchange Your BTC Or ETH For The Token
Once your tokens on a centralized wallet are safe
2. Transfer It To An Exchange That Has The from being whisked away by two-factor via SMS,
Coins You Want To Buy find the trading pair you want. Lets say you have
Typically, crypto exchanges Poloniex, Kraken or Bitcoins and want to exchange them for REP, the
Bittrex have a large number of tokens on offer, coin of the prediction market Augur, which should
including some of the newest ones. launch later this year. Choose how many tokens
When you find an exchange offering the token you you want to buy, and if youre making a limit order,
want, create an account and obtain your how much Bitcoin youd like to pay per REP.
address on that exchange. Copy it, and then go to Coin-
base and paste that address into the send box. Within a 5. Store Them Securely On A Hardware Wallet
few minutes, your money will show up on that exchange. If youre not planning to trade, transfer your new
coins to your own hardware wallet as outlined
3. Set Up Two-Factor Authentication On Your above. Then, be sure to secure that, perhaps
Account, But Not With Your Phone Number putting it into a safety deposit box at a bank and
This is an incredibly important step, and the part keeping your recovery backup in more than one
about not doing this with your phone number is key. geographically distinct and secure locations.
Do not skip this step and do not use your phone
number for security unless you are willing to let
hackers come and steal your coins, which they will do.
They have been targeting people both well- Get Crypto Confidential!
known and not well-known in the crypto space
Blockchains and digital assets such as
and plundering their accounts on centralized
Bitcoin and Ether, will revolutionize a
exchanges. Their method is to persuade a
customer service rep at a telco that they are their myriad of industries, including financial
target (say, you) and that you want to move the services, health care, government,
money from, say, Sprint to T-Mobile (in reality, technology, energy, real estate, and more.
their device). Once all the phone numbers and Be among the first to know the most
cell phone messages meant for you are going to important news and information in crypto,
their phone, they then go to your crypto and with this free e-letter delivered to your
other accounts (such as your Kraken or bank
inbox every Tuesday and Friday. Click here
account or Gmail or Twitter or Dropbox) and
to sign up for Crypto Confidential now.
select forgot password. If you have two-factor
via SMS or text message enabled, they now change
your password, lock you out and move your
Bitcoin or Ether to their own walletand since
crypto transfers are not reversible, you will then
be out of luck.

W W W. F O R B E S . C O M / N E W S L E T T E R S 4 4
Top 25 Crypto Assets
Market Cap Recent Price YTD Return
Coin/Token ($, millions) ($) (%)
Bitcoin 64,740 4,130.81 314
Since only 21 million will ever be produced, the original cryptocurrency is the best store of value but s!ll very vola!le.
Ethereum 25,864 291.46 3,467
A blockchain for "smart contracts" (programs that will execute contractual terms automa!cally), Ethereum launched the token craze.
Bitcoin Cash 8,371 510.41 24
This fork of the Bitcoin blockchain created a new cryptocurrency that diers by a parameter that enables more transac!ons at any given !me.
Ripple 7,735 0.21 3,170
Its XRP coin has soared. Wants to disrupt the slow, opaque and pricey world of interna!onal wire transfers. It already has 75 banking and payments partners.
Litecoin 3,272 64.23 1,324
Litecoin has long marketed itself as digital silver to Bitcoin's gold, in part because it's less energy-intensive, with faster block !mes.
Dash 2,274 325.97 2,803
Originally called darkcoin, with an emphasis on privacy, Dash touts itself as digital cash, but its average transac!on size is more than $10,000.
NEM 2,088 0.25 7,226
A cryptocurrency that is popular in Japan, where banks are tes!ng an enterprise version. Many Western crypto enthusiasts have li&le idea what it is.
Monero 1,668 11.89 -15
Privacy coin that aims to be a base layer for other privacy apps, such as messaging. Accepted on Dark Web marketplace AlphaBay.
IOTA 1,586 0.59 0*
Bitcoin and Ethereum may be too expensive and slow for Internet of Things micropayments. IOTA could someday be in demand by Fitbits everywhere.
Ethereum Classic 1,350 14.44 931
This coin is from the original Ethereum blockchain, which was upgraded a+er a $50 million hack.
OmiseGo 1,038 11.59 1,890*
This decentralized exchange for mid-size e-wallets such as Venmo and Alipay oers market liquidity, orderbook matching and execu!on with a central counterparty.
NEO 1,000 20.97 14,688
Formerly AntShares, NEO wants to be China's version of Ethereum. To that end, it enablers users to register, trade and circulate assets, including physical ones.
BitConnect 779 123.50 84,721*
Cryptocurrency portal that aggressively solicits investments and promises suckers eye-popping returns as high as 120%.
Lisk 741 7.02 4,761
Decentralized blockchain version of Apple and Google app ecosystems. In 2016, it was integrated into Microso+ Azure's blockchain-as-a-service pla:orm.
Qtum 707 13.51 118
A hybrid smart contracts pla:orm aims to compete with Ethereum but with some of Bitcoin's technical features.
Stra!s 489 5.53 7,538
A blockchain-as-a-service geared toward Microso+ pla:orm users and targeted at enterprise customers.
Zcash 436 207.77 329
This privacy coin has beaucoup buzz: AngelList's Naval Ravikant is on the board of its founda!on, and JPMorgan Chase is using its tech in its private blockchain.
Tether 415 1.01 1
This token is supposedly 100% backed by at currency in reserves so 1 USDT equals $1 in value. But rumors of fraud and price manipula!on have dogged the coin.
Waves 389 4.38 1,879
Insiders call it a cross between Ripple and a decentralized exchange. Fuels bubble trading by making it easy for members to create their own tradable tokens.
Hshare 378 11.41 -44*
This cryptocurrency has mul!ple features, including privacy and a vo!ng system to help govern the network, as well as applica!ons in ntech, AI and IoT.
Ark 345 3.71 12,226*
This token aims to hasten consumer adop!on with speed, security and prac!cal applica!ons--and to enable tokens on dierent pla:orms to transact with each other.
BitShares 296 0.12 2,905
One-stop supermarket for crypto nancial services, founded by controversial crypto serial entrepreneur Dan Larimer.
Steem 289 1.22 657
Crypto-Reddit of sorts. Rewards users who post and up-vote popular content. Has a dubious founding team and poor token distribu!on.
Bytecoin 287 0.00 2,900
Marketed as a private, untraceable cryptocurrency designed for enterprise clients by an anonymous team. Crypto insiders say steer clear.
Stellar Lumens 254 0.02 552
Sister to Ripple's XRP, which is targe!ng its services--remi&ance, mobile money--at the unbanked. Founder had been associated with troubled Mt. Gox.
Source: CoinMarketCap. Prices as of Sept.12, 2017. *Since incep!on.

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Bitcoin's Wild Ride

2017
Source: CryptoCompare

When it comes to volatility, crypto assets are unrivaled. This six-month chart of Bitcoin (BTC)a
widely owned blue-chip among cryptocurrenciesdemonstrates its breathtaking rise but also shows how
in a short period of time it can lose 30% or more of its value. In the beginning of September, for
example, Bitcoin traded close to $5,000 but by September 15 it had fallen to about $3,000.

Are Crypto Riches Tax-Free? By Kelly Phillips Erb

With billions being made in the crypto-bubble, Uncle Sam wants his cut. Getting his hands on it will be
another matter. In 2014, the IRS issued controversial guidance stating U.S. taxpayers should treat
digital currencies as capital assets, provided they are convertible into traditional cash. (In other words,
play money in an online game doesnt count.)
The upside of capital-asset treatment is that anyone who sells a digital position hes held for more
than a year is taxed on his profit at the lower long-term capital gains ratecurrently 0% to 20%. The
downside is that traders who hold their positions for shorter periods are taxed on gains at ordinary
federal income tax rates of up to 39.6%.
But an even bigger problem with the IRS position is this: Anyone using digital coins to pay for some
service onlinesay, buying data storagewould, it appears, have to treat each purchase as a capital sale.

W W W. F O R B E S . C O M / N E W S L E T T E R S 6
And if the value of the coin being spent has gone up since he acquired it, hed have to report and pay tax
on a gain. (By contrast, if you hold a conventional currencysay, euros or yenand you happen to spend
it after it has gained value against the dollar, the IRS doesnt consider that taxable income.)
Reporting on the taxpayer side isnt optional: Income is income, whether from trading stocks or
Bitcoin or spending the latest token. The reality, however, is that there is no current requirement that
cryptocurrency exchanges report transactions to the IRS the way brokers like Schwab must report stock
sales on form 1099-B.
Is tax avoidance adding fuel to the current mania? Consider this: In 2016, only 802 individual tax
returns out of the 132 million filed electronically with the IRS reported income related to cryptocurrencies.
The government wants more compliance. Last November, the Department of Justice filed suit in federal
court seeking to issue a summons forcing Coinbase to turn over records on all U.S. customers who
transferred convertible virtual currency between December 31, 2013, and December 31, 2015.
The court sided with the IRS initially, but Coinbaseand Coinbase customershave pushed back,
delaying enforcement of the summons. Even if the IRS gets all those customers names, however, it still
has a big problem if it wants to tax all the crypto-gains: Much of the trading is done on overseas
exchanges, and even more could migrate there.

Laura Shin is Forbes senior editor who manages Forbes crypto and blockchain
technology coverage. She is also the host of the podcast "Unchained: Big Ideas From The
Worlds Of Cryptocurrency and Blockchain. Follow her on Forbes and on Twitter.

Kelly Phillips Erb is Forbes Taxgirl. Follow her on Forbes and on Twitter, hang out on
Facebook and Google, play on Pinterest or check out her YouTube channel.

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