Contents

Introduction: .......................................................................................................................................... 4
Chapter 1: Basics & History ....................................................................................................... 9
Chapter 2: Cryptocurrency Fundamentals............................................................................. 10
Chapter 3: The Government vs. Cryptocurrency .................................................................. 10
Chapter 4: Hands On - How To Invest in Cryptocurrency .................................................. 11
Chapter 5: Initial Coin Offerings (ICOs) and Inside Info/News ......................................... 11
Chapter 6: Trading Crypto & Advanced Strategies ............................................................. 12
Chapter 7: Mining for Digital Gold......................................................................................... 12
Chapter 1: Basics & History ............................................................................................................. 15
What is blockchain technology? ................................................................................................. 16
Cryptocurrency Vs. Fiat Money................................................................................................... 20
What led to the invention of Cryptocurrency? ........................................................................ 23
A Quick History of Bitcoin ........................................................................................................... 25
Chapter 2: Cryptocurrency Fundamentals ......................................................................................... 32
How Does Cryptocurrency Work? .......................................................................................... 33
The Anatomy of Cryptocurrency ............................................................................................ 35
The Cryptocurrency Ecosystem ................................................................................................... 42
OG Blockchain: ........................................................................................................................... 43
Apps and Decentralized Services: ........................................................................................... 44
Enterprise Blockchain Organizations: .................................................................................... 47
Complementary services to blockchain organizations: ...................................................... 48
Self-regulation: The Hard Fork ............................................................................................... 51
Chapter 3: The Government Vs. Cryptocurrency............................................................................... 54
Tax specific: ................................................................................................................................ 57
Chapter 4: Investing In Cryptocurren................................................................................................. 63
How to invest in cryptocurrency ................................................................................................ 65
What to buy?.................................................................................................................................. 72
.......................................................................................................................................................... 75
Storing it safely ............................................................................................................................. 76
Mobile Wallets ........................................................................................................................... 80
 Desktop Wallets......................................................................................................................... 81
Hardware Wallets ...................................................................................................................... 82
Paper Wallets ............................................................................................................................. 83
Security ........................................................................................................................................... 85
Tracking your investments .......................................................................................................... 89
Cryptocurrencies to Invest in 2017 ............................................................................................ 90
Chapter 5: Initial Coin Offerings (ICOs) and Inside Info/News ......................................................... 92
What is an ICO?.............................................................................................................................. 93
...................................................................................................................................................... 95
ICO Regulation ........................................................................................................................... 95
Launching an Ethereum Token ICO ........................................................................................ 97
Investing in ICOs........................................................................................................................ 98
Evaluating ICOs for Investment ............................................................................................ 100
ICO resources for investors ....................................................................................................... 101
ICO resources for startups ......................................................................................................... 105
Chapter 6: Trading Crypto & Advanced Strategies ........................................................................ 106
........................................................................................................................................................ 111
........................................................................................................................................................ 112
Active Trading ............................................................................................................................. 112
Advanced Technical Trading ..................................................................................................... 117
Trading on Autopilot .................................................................................................................. 126
Lending Bitcoin for Interest ...................................................................................................... 126
Trading For Non-Owners ........................................................................................................... 129
Chapter 7: Mining for Digital Gold................................................................................................... 130
How to setup a Bitcoin miner ................................................................................................... 139
Mining Altcoins ........................................................................................................................... 141
Proof-of-Work vs. Proof-of-Stake ........................................................................................... 146
Chapter 8: Conclusion ....................................................................................................................... 150
Introduction:

When you see someone get a 1,000x return on their investment, turning
$1,000 into $1 million, it’s hard not to take notice. Bitcoin is constantly in
the news, and every time the experts say it’s going to crash, it doubles in
value. Clearly, the experts don’t understand what they’re talking about.

The real experts are out there on the web, making amazing things with
the world’s first decentralized monetary platforms, often in obscurity. The
experts are high school kids in China on Reddit, and CS professors pushing
the theoretical boundaries of what cryptography is capable of. Wall Street is
only just beginning to pay attention, and probably doesn’t even really
understand what it is they’re dealing with. Put simply, cryptocurrency is the
hottest asset class of all time, and it is experiencing incredible growth.
 While crypto is a young market, and there will certainly be a fair amount
of volatility in the crypto markets, it would be shortsighted not to take the
time to understand why this asset class has attracted so much attention.
The internet was built to withstand thermonuclear warfare, and
cryptocurrency was built to be slightly tougher than that. No government
can control cryptocurrency, and even when they outlaw use by their
citizens, these governments find it extremely difficult to enforce prohibition.
Distributed digital assets are the future, and you can either get on board
now, or wish you did later.

Cryptocurrency is something new in the world, born out of distrust for

manipulative government monetary policies and onerous regulation, but
governments are learning to play nice.
 And, even in its infancy, it is already evolving and powering a new breed
of decentralized autonomous applications (dApps), all powered by the
innovations at the heart of cryptocurrency, blockchain and the trustless
transactions that blockchain enables. Cryptocurrency might sound
confusing at first, and that’s not unreasonable, because it absolutely does
represent a new form of both software and money. But, like anything, it can
be broken down into its component pieces and understood, even by a
layperson with little investing or technical knowledge.
 The goal of this course is to give you a solid education in the history
and evolution of cryptocurrency up to the present. We’ll focus on Bitcoin,
the cryptocurrency that got all of this started, but will quickly veer into the
ever-expanding world of altcoins and dApps.

If you don’t know what I’m talking about, that’s fine, because you will.
By the end of this course, you will have the knowledge and the tools to
confidently own cryptocurrency, trade cryptocurrency, buy and sell goods
in the real world with cryptocurrency, mine cryptocurrency, and do all of
this with a solid understanding of how US law and tax rules apply. And, if
you do it right, you might just make your fortune.

Cryptocurrency is digital gold, and we’re about to give you the

keys to the gold mine.
HERE’S WHAT YOU’LL LEARN:

Chapter 1: Basics & History

The innovation behind Bitcoin that made it different from other attempts at
a digital currency is the blockchain, a trustless, decentralized, p2p ledger
system that makes sure everyone can participate but no one is in charge.
We’ll explain in in depth what blockchain is and how it works.

We’ll also go through the history of cryptocurrency so you can see why it
was invented, how it evolved, and why. The more you learn, the more you’ll
come to realize that this is not some little bubble, it’s an evolution of
software and value exchange that will power the billion dollar startups of
the next decade.
Chapter 2: Cryptocurrency Fundamentals
Cryptocurrency truly is a different animal than the paper stuff we know as
money. To really wrap your mind around it, we’ll do a deep dive into the
anatomy of cryptocurrency, getting into some of the technical details of
how it all works. We’ll show you how to safeguard all the money you make
from hackers, and explain what keeps the whole system running smoothly.

Chapter 3: The Government vs. Cryptocurrency

There are two certainties in this life: death and taxes. You can’t really enjoy
your newfound crypto wealth if you’re in prison for tax evasion. Let’s be
sure that doesn’t happen. Some aspects of cryptocurrency are still in a legal
gray area, but a basic legal framework does exist and can be easily
understood. This chapter will explore how the government classifies crypto,
and how to make sure that you stay on the right side of the law.
Chapter 4: Hands On - How To Invest in Cryptocurrency
Cryptocurrency is utterly unlike the money you’re used to using, and it
requires an entirely new set of tools to hold, buy, and trade it.

We’ll take an in-depth look at cryptocurrency wallets and exchanges,

showing you how to trade dollars (or your local currency) for Bitcoin, how
to exchange Bitcoin for altcoins (essentially every other cryptocurrency
besides Bitcoin), how to store your coins securely and safely, and how to
track your investments over time.

We’ll also get more in-depth with Ethereum, the concept of decentralized
apps (dApps) that run on the Ethereum network, and look into a variety of
altcoins.

Chapter 5: Initial Coin Offerings (ICOs) and Inside Info/News

While Bitcoin may hog the headlines, new altcoins are created every day,
and established altcoins already have massive market caps. As of this
writing, the Ethereum market cap is over $23 Billion USD! While Bitcoin is
making millionaires by the minute today, altcoins represent the future of
cryptocurrency.

An ICO is the introduction of a new altcoin into the

world, and while regulation can make investment
tricky, ICOs offer a chance at ground floor
investment into startups and products that have
the potential to revolutionize their
industries.

This chapter is devoted to

understanding how ICOs work,
where good ICOs can be found, and
how to invest wisely in them.
Chapter 6: Trading Crypto & Advanced Strategies
Crypto trading is often compared to Forex trading (e.g. exchanging dollars
for euros). Savvy investors can increase their profits by swapping
overvalued cryptocurrencies for undervalued cryptocurrencies, and we’ll get
into how that’s done and which exchanges to do it on.

We’ll look at more advanced trading strategies including margin trading.

We’ll also look at some passive investing strategies, and even examine ways
to trade crypto without ever even owning any cryptocurrency.

Chapter 7: Mining for Digital Gold

Mining is the process by which individuals willing to lend their computer
hardware to work on computation for the network can earn “free” coins
distributed by the Bitcoin codebase. We’ll take a long look at how this is
done, and whether it makes sense for you to do it. We’ll also look at a
promising new method of mining known as proof-of-stake that allows
normal people to collect dividends as well as free coins.

By the time you’re done with this

course, you will belong to a small but
elite group of individuals that actually
understand cryptocurrency. By putting
this knowledge to work, you have the
potential to out-earn just about any
investment out there.
These tactics are legal, and the fundamentals of the technologies we’re
investing in are sound. At this moment in time, there simply is not a better
way to use money to make money. So, let’s get started.

If at any point you want to dig further into a subject, head to www.cryptominded.com
Chapter 1: Basics & History
First and foremost, we need to focus on the concept of the blockchain,
since this is the innovation at the core of every cryptocurrency, and
potentially many other crypto-technologies that haven’t even been
invented yet. We’ll think about the fundamentals of monetary theory (e.g.
what gives money value?) and take a hard look at the practicality of Bitcoin
as an alternative to government-issued money, or fiat currency.

We’ll put all this together to show how the invention of Bitcoin perfectly
addresses the trouble with fiat currency by using blockchain. And finally,
we’ll go through a condensed history of Bitcoin so you can see how and
why it evolved into the present. If you want to jump ahead to the part
where you make money and aren’t worried about how it all works, feel free
to skip ahead to Chapter 4.
What is blockchain technology?

Blockchain might sound complicated, but it’s actually one of the easiest
concepts to grasp within the complex world of cryptocurrency. A
blockchain is simply a distributed public ledger, or record of transactions.
You could also think of it as a public database in which only new records
can be added, and each record is grouped and given a number.

The group number is the block, and each block contains many
transaction records. Hundreds of thousands of individuals around the world
store their own copy of the records in the blockchain, and every few
minutes, they compare their copies with the group and update the shared
record to the latest version. If all the copies are in agreement on a new
record, that block becomes a permanent link in the chain.

When a new record is added to the end of a blockchain, there is a very

small window in which it could potentially be challenged if another copy of
the blockchain has a conflicting version. In this rare event, the version that
more copies of the blockchain agree with would override the version that
fewer copies of the blockchain agree with.
 But again, once that window passes and all the copies of the blockchain
agree on a final version of a record, it is basically impossible to change.

If you have ever registered an internet domain, you have used a service
that is similar to a distributed blockchain. When you register
www.mydomain.com, you point it at your files. That record then gets
propagated out across the web to all the other ISPs, who all maintain a
copy of which domain points at which files. For the internet to work
properly, all the ISPs need to agree.

Blockchain works similarly, but with one crucial difference, which is that
a blockchain that doesn’t agree with the others will not work. In China, the
government can change ISP records to redirect traffic away from certain
websites. This is done by altering their copy of the domain records, making
it an inexact copy. This would not work with a blockchain.

If someone were to alter a record on their copy of the blockchain, it

would be overwritten by the other copies, or simply stop functioning.
 For any copy of the blockchain to function, it must submit to global
agreement and global majority rule.

The beauty of blockchain is that it is not, and cannot be controlled by

any one government or entity. A blockchain is a permanent, public, global
record of ownership. Anyone can sign up to be a miner and add blocks.
And, anyone can look at it, including you. Take a minute and go check it
out yourself: https://cryptominded.com/collection/blockchain-explorers/

Blockchain explorers let you open and examine any block in the chain,
from the first block added by the creator of Bitcoin to the last. Because the
ledger is public, it allows for some interesting analytics; it’s possible to view
the entire history of every transaction on the chain.

Blockchain was employed for use in cryptocurrency because a global,

virtual currency needed a bulletproof system of ownership to function. For
strangers to trust each other, you need a system that requires no trust in
others to work.
 This is ideal for cryptocurrency, but the blockchain concept can be
employed in many other contexts where the powers that are supposed to
guarantee property rights can’t necessarily be trusted.

During war, governments may burn or destroy property records, making

it difficult or impossible for the rightful owners of a property to reclaim it
when the war is over. For a blockchain record to be destroyed, you would
literally need to destroy the internet.

No system is infallible, but it is not unreasonable to ask yourself which

entity you trust more to safeguard your property rights: a global
decentralized system, or your local government. In a place like the USA, you
might reasonably trust the government to safeguard your property rights,
but in much of the world, property ownership by blockchain seems like a
much safer bet than hoping the dictator or warlord in power this month will
respect one’s property rights.

If you haven’t internalized this yet, one really important concept to

grasp about blockchain is that a blockchain literally contains every single
record, every single transaction, and every single user of the system.

If you buy or sell any amount of Bitcoin, it will be recorded forever in

the Bitcoin blockchain. If you promise someone that you will pay them 100
BTC, they can look at the public record and see whether you actually own
100 BTC before they accept your offer (technically, the software does this,
but you get the idea).
 It is essentially impossible to bounce a Bitcoin check because all
available Bitcoin is accounted for within the Bitcoin blockchain. There is no
Bitcoin outside of the blockchain. The Bitcoin blockchain essentially IS
Bitcoin.

Just as any app can be built on top of a database technology like SQL,
any app can be built on top of blockchain technology, and store data
records in a public, distributed, blockchain.

Cryptocurrency Vs. Fiat Money

Think for a moment about the paper money in your pocket. Why does it
have value? It’s just paper with a picture of someone you’ve never met on
it. The money that governments issue is known as fiat currency, and the
only reason it has value is because the government says it does.
 Government issued currency started out much more like Bitcoin, where
a gold coin was made from a scarce, mined material, and it was worth
whatever the market value of its weight in gold was. The value of gold
fluctuated, but it always retained some value.

When governments switched to the more practical paper currency, we

moved to a more conceptual concept of money, which is the debt
obligation. In an economy where a $100 paper bill represents $100 worth of
gold, when we spend that money, we are essentially trading debt. If I hold a
$100 bill, the government owes me $100 worth of gold. If I give that $100
bill to you, I have transferred the debt obligation. The government now
owes you $100 worth of gold.

Similarly, if I put $100 in a centralized bank, this relationship is based on

debt. The bank now owes me $100. If I transfer $100 from my bank account
to your bank account, the bank now owes you $100.
 The United States officially ended its adherence to the gold standard in
1973, which means that the value of money printed by the US government
is now abstract. The value of a dollar bill is determined not by a reserve of
gold, but by whatever the market is willing to pay for it. The US Treasury
can print money out of thin air if it wants to lower the value of the currency,
or it can destroy it if it wants to increase the value of the currency.

Traders using Forex, the foreign capital exchange, trade one currency
for another based on constantly fluctuating relative values. These values are
tied to nothing but trust. The entire economy is based on the idea that we
trust the government to cover its debt obligations and protect our
property.

When you think about government issued currency in this way, and
start to realize just how precarious the whole system is, you start to see why
even conservative, rational individuals are hedging their bets by moving a
portion of their stored wealth into gold and cryptocurrency.
 Because Bitcoin exists entirely outside of a government controlled
currency, it should theoretically hold or increase its value in the event of
rapid fiat currency inflation or war. This quality makes Bitcoin a lot like gold.

What led to the invention of

Cryptocurrency?

There are many different cryptocurrencies, but Bitcoin was the first, and
has over twice the market capitalization of the number two cryptocurrency
in circulation, Ethereum. That could change quickly if there is a
cryptocurrency bubble or crash, but let’s assume that Bitcoin will remain
dominant for the foreseeable future and use it as a proxy to explain how
cryptocurrencies, in general, work.
 A problem that has plagued property rights on the internet is the ease
of copying. If I email you an MP3 file, we now both have that file. Digital
cash would have no value if I could email you a dollar, and then we both
have a dollar. Every Bitcoin, however, is unique. By design, there will only be
21 million Bitcoins, ever.

The rate of their release decreases over time, until the last coin is mined
sometime in 2140. The smallest unit of Bitcoin it’s possible to transact is
0.00000001 Bitcoin, and it is known as a Satoshi, named after the inventor
of Bitcoin, Satoshi Nakamoto. Bitcoin is often abbreviated as BTC.

There were plenty of “e-cash” startups before Bitcoin that tried and
failed to create centralized digital currencies. Nakamoto’s major innovation
with Bitcoin was to find a way to enforce scarcity on a decentralized system.
Unlike a centralized e-cash bank, there is no central point of failure. Hackers
and thieves can’t target the central bank because in a decentralized system,
there is no bank, there are only individual wallets. Each individual is
responsible for their own wealth, and that’s it.
Since Bitcoin launched in 2009, hundreds,
maybe thousands, of other cryptocurrencies
have been created. Some, like Ethereum,
could be considered major improvements
over Bitcoin (more on this later). Others are
simply knock-offs trying to capitalize on the
success of Bitcoin, and some are outright
scams. It is imperative that anyone investing
in the space educate themselves on the
underpinnings of any cryptocurrency before
investing.

A Quick History of Bitcoin

2008

● Bitcoin was invented by a mysterious figure known as Satoshi

Nakamoto in October 2008 when he published a research paper
called "Bitcoin: A Peer-to-Peer Electronic Cash System". There were
plenty of attempts at making digital money prior to Nakamoto’s
paper, but they all relied on a centralized system, similar to a bank.

Nakamoto was the first to use a blockchain as a way of establishing a

decentralized system. There is plenty of speculation over who exactly
Satoshi Nakamoto is, as that may not be his (or her, or their) real
name.
2009

● Nakamoto released the first version of the

Bitcoin codebase in January 2009, and
established the first block in the
Bitcoin blockchain, which allowed for
mining of Bitcoins to first take place.
The first exchange was between
Satoshi Nakamoto and a developer
named Hal Finney.

● At first, Bitcoin had no exchange rate or

equivalency in fiat currency, but October 2009, it was established at
the rate of $1 = 1,309 BTC. The exchange rate was designed to cover
the cost of electricity that it took to mine and create Bitcoin.

2010

● In February 2010, the first Bitcoin market, named dwdollar was

created, and in May, the first transaction took place on it. A Florida
developer named Laslo Hanyecz paid 10,000 BTC to someone in
England, who in exchange, spent $25 to order a pizza for Laslo. At the
time of this writing, 10,000 BTC is worth approximately $40,000,000
USD. We really hope that was a good pizza.

● In August 2010, a vulnerability was discovered in Bitcoin that allowed

hackers to generate 184 Billion Bitcoin. This briefly crashed the
currency.
● Bitcoin exchange MtGox was created, and Bitcoin ends the year with a
market cap of a little more than $1 million USD.

2011

● Silk Road, an illegal online drug marketplace, is established and

accepts Bitcoin payments as a way to make anonymous transactions.
● The value of Bitcoin quickly jumps, and for the first time 1 BTC is
worth more than $1 USD.

2012

● BitPay launches, allowing online merchants to accept payment in

Bitcoin.
● Wikileaks starts accepting donations of Bitcoin, pushing the currency
into the media spotlight.
● The first mining reward halving occurred on November 28, dropping
the amount of Bitcoin received for mining from 50 to 25.
2013

● Bloomberg starts experimenting with the inclusion of Bitcoin on their

terminals, speculative trading of Bitcoin begins in earnest, and the
value of Bitcoin explodes, ranging from $13 in January to over $1000
by the end of the year.
● FINCEN releases initial guidelines regarding Bitcoin.
● The US government worries about Bitcoin’s ability to fund terrorism,
but recognises its usefulness and legality. A judgement in the
Trendon Shavers Ponzi scheme case establishes that Bitcoin can
legally be considered an asset of value with equivalent monetary
value.

2014

● US, UK, and China issue varying degrees of rules and regulation
regarding the use and taxation of Bitcoin, which makes mainstream
adoption by the financial industry possible.
● Enterprise and more mainstream adoption pick up as companies like
Overstock.com and Microsoft begin accepting payment in Bitcoin.
● In February, the major Bitcoin exchanges are hit with DDOS attacks,
MtGox, the largest exchange, is hacked, loses millions of dollars worth
of Bitcoin and quickly closes. This lowers the price significantly, but
prices remain in the $200-$350 range and stabilize.
● In July, the first regulated Bitcoin investment fund is launched by
Global Advisors Bitcoin Investment Fund.
● In October, TeraExchange executes the first bitcoin derivative
transaction on a regulated exchange.

2015

● Throughout 2015, the Bitcoin exchange rate remains relatively stable,

and Bitcoin gains steam as a legitimate currency.
● Ross Ulbricht, the founder of Silk Road, is sentenced to life in prison,
signaling to the world that Bitcoin can’t be used for criminal purposes
without consequence.
● New York State releases the BitLicense, the first ever comprehensive
set of governmental regulations on Bitcoin. It includes the
requirement that employees of companies with a BitLicense be
fingerprinted for the FBI. Ironically, many Bitcoin exchanges and
services around the world responded by banning New York users.

2016

● The second mining reward halving occurred on July 9th, dropping the
amount of Bitcoin received for mining from 25 to 12.5.
● Bitfinex, a multi-signatory wallet provider, is hacked, resulting in a $72
Million loss.
● The price of Bitcoin tops $1000.

2017

● August 1st, Bitcoin developers do a hard fork of the Bitcoin

blockchain, effectively creating two different types of Bitcoin, Bitcoin
Classic and Bitcoin Cash.
● Huge gains are seen as speculative trading drives the price of Bitcoin
up past $4,000 per 1 BTC.
 Chapter 2: Cryptocurrency Fundamentals
In this chapter, we’ll take a look at the technical and literal building
blocks of the first and biggest cryptocurrency, Bitcoin, in order to really
understand what Bitcoin is and how it works. We’ll also explore the
cryptocurrency ecosystem, so you can see the big picture of how all the
moving pieces come together.

We’ll look at the role cryptography plays in the cryptocurrency

ecosystem, and explain the technical details of how cryptography enables
transactions and mining. This might sounds complicated, but computer
software does most of the heavy lifting, and while it’s important to
understand the concepts, humans don’t really have to deal with the hard
math behind cryptocurrencies.
 There are many services and startups that deal with and augment
existing cryptocurrencies, and we’ll take a look at some of the bigger and
better ones. These services have done a great job of making it easier for
regular people to mine, buy, trade, and spend cryptocurrency without ever
writing a line of code

How Does Cryptocurrency Work?

This is a very simplified flow, but here are the basics of how a
cryptocurrency works. We’ll dig deeper into each of these pieces later on.

● A user obtains a software wallet, which facilitates the buying, selling,

and storage of coins.

● Early in the life of a currency, a user might download the software

that powers the peer-to-peer currency exchange onto their personal
computer hardware, and get free currency in exchange for helping to
power the network. This is known as mining.

● As the currency matures, there is less free currency to be had, and

mining becomes less lucrative, so a user is more likely to simply trade
non-cryptocurrency for cryptocurrency (e.g. trade Dollars or Euros for
Bitcoin).
● Whenever cryptocurrency changes hands, the buyer’s wallet
interfaces with the seller’s wallet, and a unique transaction record is
produced. This transaction record goes into a pool of pending
transactions.

● All the miners running the currency software have access to this pool
of pending transactions. To process a transaction, they must solve a
cryptographic puzzle. Once they solve the puzzle, they can add it to
the blockchain.

The more puzzles they solve and transactions they add to the
blockchain, the more chances they get to earn “free” currency. This
process is known as mining, and it powers the addition of records to
the blockchain. Miners can augment their income by adding small
transaction fees paid by the buyer and seller.

● Once a pending transaction is added to the blockchain, it is basically

permanent, and currency is considered to have changed hands.
 The Anatomy of Cryptocurrency

At this point, you should understand the basics of how a technology like
Bitcoin works, but let’s dig a little deeper and examine the technology itself.

Every cryptocurrency has a fixed set of rules, known as a computer

protocol. When two computers communicate via API using JSON, they are
using a predefined computer protocol. If the block of JSON code isn’t
formatted correctly, or if the API Key is missing, the data transfer will not
work. The Bitcoin protocol is similar, in that there is no ambiguity regarding
the data that each computer involved in a transaction is expected to
provide and receive.

Every coin has a unique identifier, just as every account has a unique
public and private key. Even if someone else knows your public key and the
unique ID of your Bitcoin, as long as they don’t know your private key, they
can not access or change ownership of Bitcoin. Unless every piece of this
puzzle is present and correct, the computer protocol will not function.
 Blockchain:

The Bitcoin blockchain quite literally contains every transaction ever

made with Bitcoin. While the Bitcoin blockchain is the core of what Bitcoin
is, it is also only a record of ownership, not a fully functioning
cryptocurrency in and of itself. The Bitcoin codebase sits on top of the
Bitcoin blockchain, and this software is what enables updates to the
blockchain. For more info on what a blockchain is, refer back to the
blockchain section.

Wallet:

For a currency to be functional, there must be a mechanism for

exchange, and a secure way to store and access one’s currency. This is done
with a wallet. A wallet is a piece of software that enables any individual that
has one to buy, sell, or store their Bitcoin. The wallet is essentially the
mechanism through which an individual interacts with the Bitcoin
marketplace. The wallet has many important functions, including:
 ● Assigning and storing a Public Key. The Public Key is like a User ID or
Account Number. It looks like a long, random string of numbers and
letters. When a record is added to the blockchain, it contains both the
buyer’s and seller’s Public Key, as well as the amount transferred.

● Assigning and storing a Private Key. The Private Key is essentially a

password, and it too is a long, random string of numbers and letters.
If anyone is able to steal a Private Key, they can steal anything in that
account. For this reason, security of the Private Key is extremely
important (read more about this in the security section).
● Making transactions. A Bitcoin transaction happens when the buyer’s
wallet sends an encrypted message to the seller’s wallet, the seller’s
wallet returns an encrypted response, and a unique transaction ID is
then generated and put into a pool of pending transactions.

If you go to the website blockexplorer.com, you can actually see

transactions being added to the pending pool in real time.
Cryptographic Hashing:
Cryptography is best known for spies sending encoded messages, or
military headquarters sending encrypted messages to their submarines and
planes.

The goal of cryptography is to be able to send a private message over

public channels and not worry about it being intercepted, since only the
intended recipient can decrypt and understand the message. Any prying
eyes viewing the encrypted message will see only a garbled bunch of
meaningless characters.

Cryptocurrency relies on cryptography for two distinct tasks:

● Wallet-to-Wallet transactions: The buyer wallet and the seller wallet

must send their owner’s Public Key and an encrypted version of the
Private Key to each other. Each wallet validates the information in a
 way that does not reveal the Private Key, but does validate that the
Private Key is correct. This is done through a complex mathematical
equation known as a secure hash algorithm, or SHA-256.

● Mining and adding records to the blockchain: Each transaction in the

pending transaction pool contains a cryptographic puzzle. The only
way to solve the cryptographic puzzle is with raw computing power
cycling through every possible answer, and luck. This is known as
Proof of Work.

Mining:

Because cryptocurrencies are decentralized systems running on peer-

to-peer networks, and there is no central server farm, it’s necessary to build
into the system an incentive to get people to run the software that powers
the system on their personal hardware. Mining also answers the problem of
how to distribute the currency, by forcing individuals to work for it.
 Miners must pay non-cryptocurrency for the computer hardware they
use and the electricity that hardware uses. Miners with slow hardware will
have trouble competing with those using large, custom-built farms of
mining hardware. In the early stages of mining when a cryptocurrency is
new, mining can be an easy way to earn. However, as mining become
progressively more competitive, unsuccessful miners will probably spend
more on electricity than they will earn in free currency.

Once a miner successfully decrypts a transaction hash, it is added to the

block. Blocks are added to the blockchain roughly every ten minutes, at
which point the miner earns a set amount of Bitcoin. As you can see in this
example from blockexplorer.com, there are about 2000 transactions per
block.

There is no guarantee that a transaction will make it into a block any

time soon. In theory, it could sit in the pending pool indefinitely. This is
where fees come into play.
 The first blocks that were mined produced a reward of 50 BTC per
block. However, the system is designed to cut the number in half every
210,000 blocks. For a while, miners earned 25 BTC per block, but when it
reached block 420,000 in 2016, it halved again, at which point the reward
for mining became 12.5 BTC per block. As you can see in the image above,
the most recent block at the time of that screenshot was 477,493. The
reward for mining will remain 12.5 BTC per block until it reaches block
630,000, when it will halve again to 6.25 BTC.

Mining Fees:

When a transaction goes into the pending transaction pool, there is no

order to these transactions. A miner can set their minimum fee amount,
choosing to work only on transactions that offer the minimum transaction
fee they have set. In practice, this means that the larger the fee attached to
a transaction, the faster it will be added to the blockchain.

As the amount of Bitcoin distributed to miners continually decreases,

mining becomes less of an incentive for miners, and it is expected that the
fees charged by these miners will increase to compensate.

Given that there is a finite amount of Bitcoin to be mined, and the last
coin will be released in 2140, at some point, mining Bitcoin will be a thing
of the past, and the individuals running the peer-to-peer Bitcoin software
will essentially become brokers. We are already seeing the rise of hyper-
efficient server farms dedicated to the decryption of Bitcoin transactions
that earn more from fees than they do from mining Bitcoin.
 If the blockchain bottleneck grows
worse and fees rise too high, however,
users may abandon Bitcoin for cryptocurrencies
with faster and cheaper transactions, such as
Bitcoin Cash or Litecoin.

Putting it all together

The genius in the system that Satoshi

Nakamoto put together is that he created a
completely decentralized system that
allows for completely transparent
transactions, and by creating built-in incentives for a large number of
people to run the system on their own hardware, the whole thing becomes
a self-reinforcing feedback loop that strengthens the system.

The more people who use it, the stronger it gets. Even if your
government somehow manages to cut off access to the Bitcoin blockchain
through the ISPs it controls, you can still simply go to another country, or
use a VPN to access an ISP outside of your country. Like the internet itself,
cryptocurrencies are incredibly hard for any one party to control.

The Cryptocurrency Ecosystem

Thus far, we have talked primarily about Bitcoin, but it’s equally
important to understand some of the other cryptocurrencies out there, and
how they differ in design and intent from Bitcoin. The ecosystem can be
roughly split into four categories, each of which we’ll explore further:
 1) Original blockchain organizations
2) Apps or decentralized services that sit on top of the original
blockchain organizations
3) Enterprise blockchain organizations
4) Complementary services to blockchain organizations

OG Blockchain:
These include but are not limited to Bitcoin, Ethereum, Litecoin, Dash,
and Monero. At 8 years old, Bitcoin is the granddaddy of the
cryptocurrency world, and many others have tried to improve on it. Litecoin
is very similar to Bitcoin, but tries to remove the bottleneck of the pending
transaction pool and speed up how fast transactions clear and get recorded
to the blockchain.

Dash is similar to Bitcoin, but while Bitcoin is pseudonymous (your

Public Key is your pseudonym), Dash is totally anonymous. Monero also
offers more anonymity, and at the moment, seems to be the currency of
choice for purchasing illegal goods on the dark web. Before we move on to
apps that sit on top of the blockchain, we first need an in-depth primer on
Ethereum. If you think Bitcoin is complicated, take a deep breath and go
get a cup of coffee, because Ethereum is a level of magnitude more
complicated.

The Ethereum codebase was designed to host and execute smart

contracts, the outcomes of which get recorded to the Ethereum blockchain,
and are powered by Ethereum’s native currency, Ether. Bitcoin is relatively
“dumb” by comparison, allowing only simple payments. Ethereum smart
contracts, in contrast, allow developers to code IF/THEN statements into
executable contracts that dictate when a payment is made and how much is
paid out. A common analogy for a smart contract is a vending machine.

IF a user inserts the correct amount of currency, THEN the vending

machine will dispense a frosty can of cola.

Apps and Decentralized Services:

A (relatively) easy way to think about Bitcoin is that it functions like a

peer-to-peer calculator app using a blockchain database. Ethereum, on the
other hand, functions like a peer-to-peer computer/operating system that
runs other apps.

This massive, distributed computer is known as the Ethereum Virtual

Machine (EVM). Ethereum has its own currency, the Ether Token, but the
apps that run on the EVM also have their own currencies (App Tokens). This
is a huge conceptual leap from Bitcoin.
 Ethereum apps are extremely hot right now, exciting both developers
who want to push the boundaries of what computers are capable of, and
investors wanting to get in on the ground floor of these start-ups. Listing
just a few, we have:

● Cosmos, which calls itself “The Internet of Blockchains” and says it “is
a network and a framework for interoperability between blockchains.”
● Swarm, which is a peer-to-peer web server.
● Storj, which offers peer-to-peer file storage.

To help explain how these peer-to-peer apps work, here’s an example

of how someone might use the Ethereum app, Storj. Storj is a file backup
system, but instead of storing it on a corporate server like Dropbox or AWS
that is vulnerable to attack, it encrypts and stores the files across a
distributed peer-to-peer network of computers.

If you are familiar with BitTorrent it works in a similar fashion, except

you’re the only person that can decrypt the files you add to the network.
 In order to incentivize a large group of people to download the Storj
codebase and lend their processing power to the peer-to-peer network,
those running the network can earn (mine) Storj tokens (similar to miners
earning Bitcoin). Anyone wanting to use the Storj app would need to pay in
Storj Tokens. Storj, in turn, pays out Storj tokens to the network in
exchange for space on their hard drives, and Ether to Ethereum in exchange
for borrowing their smart contract blockchain platform.

To sum up this transaction:

● A user exchanges their fiat currency (Dollars, Euro, Yuan, etc.) for a
cryptocurrency like Bitcoin or Ether, exchanges that for Storj tokens,
which they then pay to Storj to use the Storj app, which runs on the
Ethereum peer-to-peer network.
 ● The app developer, Storj, accepts Storj tokens, which they then
convert to Ether, Bitcoin, or fiat currency (Dollars, Euro, Yuan, etc.)
● Anyone with unused storage space they don’t need essentially rents
out space on their hard drive to the Storj network, and in return, they
get paid in Storj tokens.

If your head hurts and you need to re-read the last few paragraphs,
consider yourself normal.

Enterprise Blockchain Organizations:

This group of organizations look a lot like industry associations. They all
aim to bridge the gap between blockchain tech and enterprise software.

The Ethereum Enterprise Alliance is the largest blockchain consortium,

includes members like Cisco and Mastercard, and has a stated goal of
“connecting Fortune 500 enterprises, startups, academics, and technology
vendors with Ethereum subject matter experts.” Hyperledger is a similar
organization, but focuses on open-source innovation for industry. They’re
part of the Linux organization, and work to create open-source standards
for building enterprise-class applications on top of blockchain.
 Complementary services to blockchain
organizations:

Cryptocurrency exchanges first came on the scene in 2012 and have

been a huge success. Prior to the introduction of exchanges like Coinbase,
one of the hardest things about cryptocurrency was exchanging it for fiat
currency. Like a cryptocurrency FOREX, Coinbase makes it relatively simple
to trade dollars for coins or tokens, or one token for another.

Exchanges and financial services that aid cryptocurrency traders are

considered complementary services because instead of being focused on
blockchain infrastructure, they are focused on layering useful services on
top of existing blockchain infrastructure.

An important aspect of services like these that are based in the United
States is that they have probably done the due diligence of getting licensed
by the government, and in doing so serve as a bridge between regulated
securities and unregulated cryptocurrencies.
 Trading through a licensed exchange does not remove liability or risk,
but it can help you avoid running afoul of the law in the USA. If you prefer
to live on the edge, or don’t live in the USA, many of the exchanges based
elsewhere operate without government licensing. If you live in a country
where you trust strangers on the internet with your money more than your
government, this may not be a bad option.

Bitcoin payment services are another complementary service, allowing

individuals to easily pay directly for goods IRL or online with Bitcoin. BitPay
is one of these companies, and works in a very similar way to PayPal or
Stripe, by providing easily implemented payment plugins. A good example
of how this works in the real world is Shopify, the largest e-commerce
platform.

When someone sets up a site selling goods on the Shopify platform,

they have the option to implement payment plug-ins so their users can pay
however they want. Stripe powers credit card payments, PayPal powers
PayPal payments, and BitPay powers Bitcoin payments.
 This is particularly convenient for the site owners, since they have the
option to have Bitcoin payments sent to their Bitcoin wallets, or
automatically converted to fiat currency and deposited into their bank
accounts.

The cumulative effect of all these services is to normalize these new

payment options. When non-technical people feel just as comfortable
paying in Bitcoin as they do paying with a credit card, that will signal a
tipping point in the ubiquity of cryptocurrency use.
Self-regulation: The Hard Fork

Every once in a while, something happens that forces all the power
users of a cryptocurrency to come together and collectively agree to break
the blockchain. This is known as a hard fork, and it’s important to
understand what this means. Let’s say I figure out how to steal $20 Billion
worth of Bitcoin from an exchange.

I stole the exchange’s private key, and transferred all their assets to my
own account, then submitted a new block. It was a valid block, since I had
all the proper keys, so it went through and was recorded to the blockchain.
 At this point, the entire world of cryptocurrency users would collectively
freak out, and all the miners and exchange owners would get together and
decide whether or not to do something about my theft. Inevitably, there
would be two camps: the purists, and the hard forkers.

The purists would insist that it’s heresy to mess with the blockchain, and
the theft should stand. The hard forkers would want to roll back the block,
and restart it at the block before the theft occurred.

This works kind of like the Time Machine backup function on a Mac. If
your computer gets infected by malware on Wednesday, you can go into
the backups and return to the version of the machine that existed on
Tuesday, pre-malware infection.

In the case of blockchain, if there was a massive theft in block number

500,001, everyone can agree to roll back their copy of the blockchain to
500,000 and start a new version of the blockchain that begins with a new
version of block 500,001.

This is a hard fork, and it’s exactly what happened to both Bitcoin and
Ethereum.
 When this happened to Ethereum, it split the currency in two, which is
why there is now both Ethereum and Ethereum Classic. One version of the
blockchain retains a massive theft that happened, while the other simply
erased the theft from the chain, forking off as if it had never happened.

Hard Forks don’t always happen because of a theft or something

terrible. On August 1, 2017, there was a hard fork of Bitcoin that created
Bitcoin Cash. When Bitcoin was first created, nobody expected it to gain
such widespread adoption, and the block size was given a limit of 1 MB.

This creates a bottleneck in terms of how many transactions can be

added to the blockchain, meaning that many transactions were stuck in the
pending transaction pool for hours or even days. The problem was only
expected to get worse, so the Bitcoin Cash fork was created in order to
have a version of Bitcoin where the block size limit is 8MB. Obviously, the
increases the number of transactions that can be recorded to the
blockchain in each block, and removes the bottleneck.

Whenever a currency forks, there is always a period of uncertainty

where no one really knows for sure whether the old version or the new
version will gain traction.
Chapter 3: The Government Vs. Cryptocurrency
Cryptocurrency puts the governments of the world in a somewhat
awkward position. Governments enforce their laws and tax their citizens by
controlling their currency and their banks. Cryptocurrency exists outside of
the sphere of direct government control. If a citizen of a country uses
money that exists outside the system the government controls, this creates
a lot of issues.

The government can either ignore, criminalize, or attempt to solve these

issues with regulation if they want their governmental systems to continue
to function. The US government currently does a mix of all three of these.

First, we need to consider: is Bitcoin money, or is it pretend money like

Monopoly money? For a government to regulate a cryptocurrency as
money or a security, they need to first recognize it as such. Unless they
legally classify Bitcoin as a recognized currency or security, they can no
more regulate it than they can regulate Monopoly money.
 This was put to the test in the courts when a Texan named Trendon
Shavers created a Bitcoin Ponzi scheme designed to defraud investors.
When he was caught, he argued that it wasn’t really fraud, since Bitcoin isn’t
really money. The government decided that Bitcoin still qualified as an asset
(if not legal currency) and sent him to jail for 18 months anyway.

Getting conceptual for a minute, let’s talk about the nature of crime.
Crime is simply defined as being whatever the government with current
geographical jurisdiction over you has decided is illegal.

To ensure that everyone in the USA is earning their money through

legal means, the government demands that you report the source and
amount of all your income. The government’s system of taxation would
break down if they did not do this, since taxes are based on percentages of
income, spending, and property ownership.

The government can’t enforce perfect compliance, but to make sure

that the majority of people follow the rules the majority of the time, the
government criminalized the possession of unreported income or assets. If
they determine that you have income or assets that are unaccounted for, it
is assumed that these are either ill-gotten gains or a deliberate attempt to
avoid taxation.
 Successful criminals (those that don’t get caught in the act) tend to end
up going to jail for nonviolent crimes like tax evasion (e.g. Al Capone)
rather than their violent crimes. A good way to think about cryptocurrency
from a legal perspective is gambling.

If gambling is illegal in your state, you’ve broken the law as soon as you
convert your fiat currency to chips, whether or not you win or lose. Let’s say
you go to Las Vegas, where gambling is legal, and win $10,000. The
government requires that you report your winnings and pay 25% tax on it.
It might not sound fair, and you might get away with breaking the law by
not reporting your winnings, but it is the law nonetheless.

Another big reason that governments typically have for not liking
cryptocurrency is that it’s easier to break the law when you can pay for
illegal goods using a currency the government has no control over. If you
buy heroin with your credit card, you create a record of the transaction, and
a paper trail the government can follow if they want to investigate you.

When Bitcoin was still new, it became infamous for being used as a
supposedly untraceable method for buying and selling drugs on the dark
web site Silk Road.

Even though there was a relatively small subset of Bitcoin holders using
it to buy drugs illegally, the media hype was huge, and the government
absolutely hated it. As we now know, Bitcoin is not entirely untraceable, and
the government was able to shut down Silk Road and send Ross Ulbricht,
its creator, to prison.

It should shock no one to learn that mailing drugs to your home

address is a really bad idea. You also have to remember that if a server is on
the grid, it is subject to governmental jurisdiction.
 In the case of Silk Road, the government was able to find the server and
get copies of the site files using a warrant served to the hosting company.

Intrigue and drama aside, what came out of all this was some
interesting legal precedent. When the FBI shut down Silk Road, they seized
the Bitcoin accounts of the people they arrested, then auctioned them off
as assets, just like they would seize and auction off the Corvette of an
arrested drug dealer. By doing this, it solidified the legal designation of
Bitcoin as an asset with real-world value.

It is absolutely not against the law to hold, trade, or buy goods with
cryptocurrency in the USA as long as you report it and pay taxes on it. It is,
however, just as illegal to buy black market drugs with Bitcoin as it is to buy
black market drugs with cash. As my mother would say, “make good
choices kids”.

Tax specific:

While we can’t say this for sure, it’s

easy to guess that a big part of why the
US government decided to recognize
Bitcoin as an asset having value is so
that they can tax it. This helps to drag
Bitcoin into the government-controlled
economy.
 While it’s certainly possible to have a Bitcoin account and never report it
or pay tax on it, just like it’s possible to have an all-cash business and never
report it or pay tax on it, it’s definitely illegal.

If you’re reading this, we assume you’re not interested in breaking the

law, and want to play nice with the US government. While these rules will
probably change, and you need to do your due diligence when tax season
rolls around, we can offer some guidelines for dealing with tax on your
cryptocurrency holdings in the USA.

As we’ve said before, the US government treats Bitcoin as an asset. Here

are some examples of how the IRS views the buying, selling and trading of
assets:

● If you buy something (stocks, bonds, a house, a ferrari, etc.) and then
sell it for a profit, there are lots of rules in place dictating how much
tax you must pay on that profit.
● If you flip Bitcoin for short-term profit, any profits will be subject to
short-term capital gains tax, whereas if you hold Bitcoin for over a
year, then sell, any profits will be subject to long-term capital gains
tax.

● Whether you pay someone for a job or services in cash or in trade,

you must report that payment or trade on a 1099 or W2 form. As
much as we wish this was legal, it’s not possible to legally avoid
paying income tax by accepting payment in Ferraris (or Bitcoin).

● A wash sale (converting/trading one asset into another asset of

similar value) is not a taxable event. This is still gray area, but in
theory, you can trade one virtual currency for another, and it would
be a wash sale.
● It would only become a taxable event once you trade the virtual
currency for a fiat currency, with profit calculated by subtracting the
original purchase price.

● The IRS considers mined virtual currency to be income, so the safe

option is to report its total value as income at the time it is earned,
 then also report any increase in value as capital gains at the time it is
converted into fiat currency.

● As long as your virtual currency stays virtual, you will not have to pay
taxes on it. However, the second you convert it to something tangible
in the real world, such as a hamburger or cup of coffee, that is a
taxable event.

Always remember that it is your responsibility to ensure compliance

with the IRS.

Keep in mind that the statute of limitations is six years if you partially
report or accidentally incorrectly report earnings (e.g. they can’t legally
come after you after six years if you fudge your reporting). However, if you
“willfully” attempt to evade taxation, there is no statute of limitations. They
can come after you for the rest of your life, and penalties are much more
severe.

A great place to start is by using a cryptocurrency tax calculator site like

the one listed below, but it’s always a good idea to consult the IRS website
directly.
Crypto tax calculator:

https://bitcoin.tax/

IRS Virtual Currency policy:

https://www.irs.gov/uac/newsroom/irs-virtual-currency-guidance
 Chapter 4: Investing In Cryptocurren
Now that you understand the fundamentals of cryptocurrency, it’s time
to get to the fun part, making money! It’s important that we emphatically
state something from the get-go here: investing is inherently risky. The
first rule of investing is to never invest more than you can afford to lose.

We see over and over again that these new currencies are prone to
previously unimagined problems, such as DDOS attacks on exchanges,
vulnerabilities that allow thieves to steal millions from supposedly secure
software wallets, and malware that gives hackers access to Private Keys. You
can make a lot of money, but you can lose it just as easily if you’re not
careful.

Remember that there is no one in charge, and no one to help you when
things go badly. Bitcoin is not like a credit card where you can complain to
the credit card company, or like a bank where the FDIC insures your
deposits. If your Bitcoin gets stolen, it’s gone. If you get cheated, there is no
one to complain to. If the value of Bitcoin plummets, you will lose money.
These are the realities of dealing in a decentralized unregulated currency.
 However, the second rule of investing is just as true, the more you are
willing to risk, the greater the potential reward. Within the world of
cryptocurrency, Bitcoin is just one of many currencies, and it isn’t even close
to being the most interesting one. Even if you think Bitcoin offers limited
future gains, or is overvalued, there are dozens of other methods for
investing in amazing early stage blockchain-based technologies. Remember
that this world is very new.

You can think of the coins issued by blockchain startups a lot like the
internet stocks of the late 90s and early 2000’s. For every Pets.com bust,
there’s an Amazon.com boom, and a lot of people made a lot of money on
those web 1.0 IPOs. We believe that the Amazons of tomorrow are today’s
blockchain startups, and that by doing your due diligence and investing in a
portfolio of these companies, anyone has the potential to make 1000x
return on their investments.

This chapter will start with some Bitcoin investment strategies because
Bitcoin tends to be more straightforward. This will offer anyone new to
investing with easily executable trading strategies. However, the profit
potential and strategic complexity will increase as we progress.

Whether you simply want to buy and hold $100 worth of promising
cryptocurrencies, or execute complex trades on futures and derivatives, we
have some ideas for you.
How to invest in cryptocurrency

Despite all the talk about mining, the easiest way to actually obtain
some cryptocurrency of your own is to simply trade fiat currency for
cryptocurrency. Just as you can trade $100 USD for Euros or Yuan at the
currency exchange in the airport, you can go to an online exchange that
specializes in cryptocurrency, and exchange your $100 USD for its
equivalent value in Bitcoin, Ether, Litecoin, or whatever other currency the
exchange is trading.

Anyone familiar with Forex, or the foreign exchange for trading

international currency, will quickly recognize where these cryptocurrency
exchanges got their inspiration. It is more or less the same thing, the only
difference being that the fiat currencies were created by governments while
the cryptocurrencies were created by decentralized groups of individuals.
 Picking a cryptocurrency exchange is a lot like picking a bank or online
trading platform. If you want anonymity, you will probably not want to pick
a company based in the USA, but if you care more about ease of use and
security, you should. If you want low fees, you will probably sacrifice ease of
use or security, while exchanges with higher fees may offer more features.

It’s really up to you in the end to determine which company hits the
right balance for you of service, anonymity, ease of use, advanced
functionality, and safety. It’s not a bad idea to shop around and see who’s
offering the best deal when trading. There are lots of exchanges out there,
but we’ll look at the top five. As you pick one (or more) to work with, make
sure you consider all of the following:

● Reputation: Will this company be around in two years? Five years? If

they fold or get hacked, what happens to your money?
● Low fee vs. high fee: Are lower fees worth sacrificing safety, features,
and reputation?
● Exchange rate: If working with more than one comparable exchanges,
check the exchange rates. One may have a better exchange rate at
the moment you want to make a trade.
● Geographic footprint: Does the exchange support your country?
● Fiat currency and payment methods: Does the exchange support your
currency? How easy or hard is it to convert fiat currency to
cryptocurrency?
● Cryptocurrencies offered: Does the exchange just support the top
cryptocurrencies by volume, or does it offer new and low-volume
cryptocurrencies and tokens?
● ID Verification: This is a requirement in many countries, including the
US and UK. It protects against fraud and scams, but means giving up
anonymity.
 ● Platform: Does the exchange have an app for Android, iOS, or does it
just work on a web browser?
● Security: Is your cryptocurrency stored digitally, where it’s vulnerable
to hackers, or do they pull it offline into cold storage when not in
use?

Coinbase

Founded in June 2012, Coinbase is one of the first big exchanges

established in the US. It was born in the Y Combinator startup incubator
with serious Silicon Valley cred, including Series A funding by Union Square
Ventures. Since then, the NYSE, USAA, and even some big banks have
invested in Coinbase.

The reason that all this is important is that if you’re forking over your
money to a stranger, you want to make sure that stranger is credible, and
Coinbase is about as credible as it gets in the world of legal, licensed, US-
based cryptocurrency companies.
 The other reason we love Coinbase is ease of use. The US has strict
reporting standards for banks, all of which are aimed at combatting crime,
particularly money laundering and funding terrorism.

Coinbase makes it fairly simple to create an account, include a

cryptocurrency wallet, attach your bank account (just like you would do in
PayPal), and verify your identity. If the US government thinks you’re using
Coinbase to launder money, they will comply with requests for info to stay
compliant with US law.

The Coinbase exchange is called GDAX, and amazingly, they offer FDIC
insurance on any USD balances kept with them (up to $250,000) just like
any other big bank. It’s important to note that FDIC doesn’t cover non-USD
currencies, so once you convert to a cryptocurrency, there are no
guarantees. Still, for a cryptocurrency startup, this is basically the gold
standard of companies.
 Given how buttoned up Coinbase is, if you’re a budding crime lord
hoping to start a drug empire on the dark web, Coinbase probably isn’t for
you. However, if you’re non-technical, and/or an investor looking for an
easy way to hold or trade cryptocurrency, Coinbase is fantastic. We use it,
so should you.

If you would like to sign up and get $10 of bitcoin free, (we get $10 free
too) just follow this affiliate link:

https://www.coinbase.com/join/54c6ee853f322b1180000141

Kraken

For more experienced traders, or individuals outside the US, Kraken is a

particularly popular exchange. It is supported in more countries, and does
the highest volume of trades in Euros. Similar to Coinbase, it can act as a
cryptocurrency wallet, a bank account, and a currency exchange. Unlike
Coinbase, Kraken offers margin trading and more advanced trading
features. Kraken supplies users of the Bloomberg terminal with all their
cryptocurrency valuations.
 Cex.io

Based in London since 2013, Cex.io is another good option for UK-
based traders looking for personalized dashboards and margin trading. It
has a reputation for ease of use, good trading tools, good exchange rates,
and worldwide support. However, it also has a drawn out deposit process
and expensive fees on deposits.

ShapeShift

For more advanced users, ShapeShift is an exchange based in

Switzerland that does not offer trades between fiat currency and
cryptocurrency. It only allows trades between cryptocurrencies. It’s a much
more stripped down exchange that offers fast trades with minimal fees, and
a huge variety of currencies.

To get up and running on the ShapeShift exchange, you would first

have to use an exchange like Coinbase or Kraken to trade your fiat currency
for Bitcoin or Ether, then move your new cryptocurrency over to ShapeShift.
 Because ShapeShift does not handle fiat currency, there’s a lot less
regulation and hassle involved with using them, and they have been vocal
about resisting attempts by government regulators to de-anonymize their
users.

Poloniex

Similar to ShapeShift, but based in the US, Poloniex is another fast, low-
fee cryptocurrency exchange with low fees, but no support for fiat currency.
They offer over 100 cryptocurrencies and specialize in high-volume trading
between cryptocurrencies and provide advanced trading tools and
analytics.

If you live outside of the US or UK, or are just curious, there are many
other cryptocurrency exchanges out there. They are not always stable, and
are prone to hacks, but depending on your particular needs, may offer a
better option than one of the top five exchanges. Have a look at
https://www.cryptocompare.com/exchanges/#/crypto for more info.
What to buy?

The two fundamental, most stable coins are Bitcoin and Ethereum. Even
if if you trade them for other cryptocurrencies at a later point, they make
sense as entry points when you first trade in fiat currency for
cryptocurrency.

Bitcoin is the largest market cap crypto coin, and is somewhat unique in
that it is considered both digital “gold” and digital “cash”. What that means
is that Bitcoin has gold-like properties because it generally holds or
increases in value over time, making it a good asset to buy and hold, and
yet it is also very easy to make everyday transactions with Bitcoin, giving it
cash-like properties.

Unlike trying to pay with a brick of gold, you can walk up to the counter
at a coffee shop and pay for your coffee with Bitcoin. It’s worth thinking
about this for a moment: is the cash in your wallet gaining value while it sits
there?
 Ethereum is the next biggest cryptocurrency in terms of market cap, but
as we discussed in the last chapter it works a little differently from Bitcoin
and is quite a bit more complex. The Ethereum Virtual Machine (EVM) is a
decentralized computer platform that was designed to run smart contracts
powered by it’s own cryptocurrency, Ether, not just a cryptocurrency in and
of itself. You can think of Ethereum a bit like a video game arcade where all
the video games run on proprietary tokens.

To play, you trade your fiat currency for tokens, then feed those tokens
into the different machines when you want to use them. Similarly, when you
trade your fiat currency for Ethereum, you can then use those Ether coins to
power smart contracts that run on the EVM. There are basically three things
you can do with Ethereum Coins, which are:

● Buy and hold hoping

speculators will bid up the
price.
● Use Ethereum as a currency to
pay others via a smart
contract.
● Trade Ethereum Coins for
distributed app (dApp)
Tokens.

While Bitcoin is very useful for small, uncomplicated transactions, like

buying a cup of coffee, Ethereum is the better option for big, complicated
transactions, like trading options, buying a house, or paying a group of
programmers to all contribute to a central project.
 Developers have just begun to scratch
the surface of the possibilities for building
new and innovative smart contracts with
Ethereum, so the hype around it is probably
justified.

Even if you have no interest in using

smart contracts on Ethereum, it’s still an
interesting investment for multiple reasons.

As a relatively young and promising

currency, it still has a lot of upside and
potential to be bid up by speculative
traders. As buy-and-hold strategies go,
holding Ethereum is definitely not a bad
idea.

Trading Ether for dApp Tokens takes a bit more explaining, but it’s an
important concept and potentially the most lucrative way to invest
indirectly in Ethereum. When someone builds a distributed app (dApp) that
runs on the EVM, that dApp is powered by its own coins. For example, Storj
is built on the EVM, and if you want to use the Storj dApp for decentralized
file storage, you would need to trade Ethereum for Storj coins, which then
get paid to Storj for usage of their app. Convoluted? Yes. Potentially very
profitable? Also yes.

Just like Ether coins, Storj coins are susceptible to speculative trading
and can potentially skyrocket in price.

There are dozens of dApps running on Ethereum like these, most of

which issue their own coins.
 If you believe that one of these apps has the power to transform an
industry, the same way AirBnB or Uber did, you would be wise to hold on to
some of their coins. On the other hand, if the company tanks, they may take
your money with them.

Keep an eye on the top coins by market cap at coinmarketcap.com. The

long tail of smaller cryptocurrencies changes often, but the big ones tend
to stick around. Consider the enormity of this market: as of this writing, all
of the top 10 cryptocurrencies have market caps exceeding $1 Billion!
Storing it safely
In case this point hasn’t been made enough yet, the world of
cryptocurrency is still very much in the wild-west phase. Robberies and
fraud occur on a regular basis, and there is rarely any recourse or anyone to
appeal to if this happens to you. If you lose control of your private key for
any reason, your coins cannot be accessed.

If someone obtains your private key and moves coins from your wallet
to their own, even though you will be able to see which account your coins
go to, due to the anonymous nature of cryptocurrency it would be
extremely difficult to track that individual down.

We will list a lot of options here for keeping your currency stored safely,
but the best option will always be to diversify and spread your coins
around in different wallets, and even different types of wallets.
Remember the old adage, don’t put all your eggs in one basket? Don’t put
all your coins in one wallet.
 Coin storage can be considered either cold or hot. Cold storage
essentially means that your private keys are stored in a way that is not
internet connected, making it difficult for hackers to get at them using
malware or through exploits of software bugs. Hot storage means that your
private keys are stored in an online service, like an exchange or software
wallet, where hackers could potentially get at them.

As a general rule of thumb, you should only keep coins in an online

location (hot storage) while you’re trading, and only what you’re trading.
Once you’re done trading, move your coins out of hot storage into cold
storage.

Cold storage can be as simple as printing a piece of paper with your

public and private keys on it, or storing them on a USB device. A hacker
can’t get at it via the web, but your roommate, your mom, or your maid
can. With cold storage, you have complete control over your bitcoin since
you’re “storing” them on a physical object that is in your possession.
However, with cold storage you are also your own worst enemy.
 If you opt for cold storage of large amounts of cryptocurrency, treat it
like a brick of gold and put it in a safe or safe deposit box. Whatever you
do, don’t lose it.

It might be hard to wrap your head around this at first, but keep in
mind that cryptocurrency is not like normal money. It’s not physical, and
you don’t need a bank to have an account, any more than you need a bank
to own a hunk of gold. The one and only thing you need to safeguard is
your private key.

As long as you have your private and public keys, you can access the
blockchain. Without them, anything the blockchain says you own is
inaccessible. If you buy Bitcoin, then lose your private key, you can no
longer access that currency. It’s locked away for good in the blockchain,
accessible only with your private key. If someone uses your private key to
transfer your Bitcoin to their own account, it’s gone. There’s nothing you
can do to get it back.

What all of these wallets are designed to do (with varying degrees of

security) is to hide your private key(s) from prying eyes. Before you get too
freaked out, don’t think that everyone needs Jason Bourne levels of
encrypted security.
 One of the quirks of the blockchain is that it’s possible for anyone to
look at the ledger balances and see how much currency each public key
holds. You can think of those public keys as unique wallets.

A hacker probably isn’t going to bother hacking into your wallet if it

only has a couple thousand dollars worth of coins in it, unless it’s part of
some larger hack. Hackers will go after the wallets with many millions of
dollars in them, so they can get as much as possible as quickly as possible,
before the hack is discovered and the vulnerability corrected.

For the average person, the convenience of some of the less secure
options will probably outweigh the inconvenience of the more secure
options.

Let’s go through some different types of wallets, going from least-

secure / most-convenient to most-secure / least-convenient.

Companies that provide online wallets generally make their money

through small fees earned by selling wallet users their coins. An exchange
like Coinbase.com is a good example of this. When you sign up for an
account, they automatically create a wallet for you, and once you trade in
your fiat cash for cryptocurrency, that’s where they put it.
 There are a few others like Circle.com and Blockchain.info that offer
slightly different features, but we’ll focus on Coinbase.

The big downside to using an online wallet is that you are forced to
trust that service provider.

They have access to your private keys, and these online wallet services
are very tempting targets for hackers. Coinbase does a lot to try to mitigate
the risk by insuring their digital currency holding against theft, storing “the
vast majority of the digital assets in secure offline storage”, and adding
additional security features.

If you’re trading currency on a regular basis, or simply want the

convenience of being able to access your account from any web browser
anywhere in the world, online wallets are a great option. However, if you
are holding on to large amounts of currency and want to make sure it’s
stored securely, you will want to transfer your coins to a more secure wallet.

Mobile Wallets

A mobile wallet is simply an app on a

smartphone. They can be standalone apps
that store all your information on the
actual phone, or they can connect to an
online wallet account. Coinbase and many
of the online wallet providers offer iPhone
and Android apps that allow users to
access their accounts remotely. Other apps
like Mycelium and Xapo actually store all your keys on your phone, but
have encrypted online backups just in case you lose or destroy your phone.

Mobile wallets are the best option for anyone that actually wants to use
Bitcoin as a currency out in the real world. With a mobile wallet, you can
actually walk up to a counter and pay for a coffee with Bitcoin. It’s not
impossible to hack a mobile wallet, but it’s difficult. If you login with a
fingerprint, someone could steal your phone and lift your fingerprint right
from the phone itself.

Desktop Wallets

Similar to mobile wallets, these computer apps store your keys securely
on your computer, often with some sort of encrypted backup option in case
of hardware failure. Desktop wallets were popular in the early days of
Bitcoin but have largely fallen out of favor.

The original Bitcoin Core software not only mined for Bitcoin, it also
created wallets for the first Bitcoin users.
 The reason they are used less is that desktop wallets don’t offer the
convenience of a mobile or online wallet, and assuming your computer
connects to the internet, can be hacked fairly easily.

If your computer gets infected with malware that records your

keystrokes, hackers can pretty easily get into your desktop wallet account
and steal your coins. For new users and the non-technical, we would not
recommend a desktop wallet. However, advanced users might want to dig a
little deeper.

Armory is a desktop wallet software that specializes in highly secure

desktop wallet setups, but to use it, you have to have both an air-gapped
(not connected to the internet) computer to store your private keys and an
internet connected device to actually make transactions.

This is a pretty solid option for anyone willing to go through the hassle
of setting up an air-gapped machine and getting the system working. But,
there’s still a risk of someone physically stealing your air-gapped computer.
Nothing is foolproof.

Hardware Wallets
 Hardware wallets are ingenious devices that act a bit like a mobile,
encrypted, air-gapped computer. They tend to be small enough to fit in
your pocket, and when needed, can be plugged into an internet connected
computer to move currency around, or to create an encrypted backup.
Trezor makes one of the better hardware wallets.

The basic idea behind it is that all your info is stored on this encrypted
little machine that never really sees the internet. To use it, you manually
punch your PIN into a screen on the device. It’s somewhat complicated, but
the idea behind all this is that even if you plug it into a malware infected
computer to make a trade, hackers still can’t get at your private keys.

Whenever you use the wallet, an encrypted backup is stored online. The
only way to decrypt that backup is with what’s called a “recovery seed”
which is basically a complicated set of random words the user manually
prints on paper.

So, if you ever lose or destroy your Trezor

device, you can create a new wallet and access your
coins using the recovery seed. Obviously, the
recovery seed is the intentional Achilles heel of the
device, so be sure to keep it stored somewhere
extremely safe.

Paper Wallets

This is the least technologically advanced option,

but probably the easiest. Simply put, someone
wanting to put their Bitcoin into cold storage could
sign into a service like bitcoinpaperwallet.com, and
generate a printable PDF with two QR codes, one that will pull up the public
key, and another with the private key. This PDF or printed piece of paper
serves as the only record for that Bitcoin on the blockchain.

From a security perspective, the biggest problem with printing sensitive

information onto paper is the act of printing itself. A PDF can be password
protected and stored offline, but the act of printing that PDF opens you up
to some vulnerabilities.

You’ll need to delete the file after printing, and when printing, consider
whether thieves can access the printer itself. A network connected printer is
even less secure than your network connected PC. A printer may even save
the file locally where anyone with access can reprint it. You definitely don’t
want to print these at work, where your IT guy can probably pull up every
file that goes through the printer network.

Paper can burn, the ink can fade, or it can get too wet to read, so be
really careful if you decide to use a paper wallet. Your paper wallet may be
safe from hackers, but is it safe from you? On the other hand, a paper
wallet would make a pretty cool present if you want to give some coin to
an uninitiated friend, or physically pass coins to another person.
 Generally speaking, the experts agree that a hardware wallet is the way
to go. The best options keep changing, so do a little homework before you
invest. Here is one review site, but make sure to look around before you
buy.
https://99bitcoins.com/best-bitcoin-wallet-2015-bitcoin-wallets-comparison-review/

Security

In case we haven’t mentioned this enough, let’s repeat it. You are in
charge of your security. There is no one to go to if your cryptocurrency gets
stolen or lost. If you lose it, it’s gone, so protect yourself! The history of
cryptocurrency is largely a history of hacking and the adaptations that
arose as a result. There will always be an arms race between malicious
hackers and those trying to provide security.
 Big heists involving hundreds of millions of dollars worth of Bitcoin have
temporarily crashed the value of Bitcoin markets. Between 2011 and 2014,
hackers stole over 700,000 BTC from the hot wallet of the biggest Bitcoin
exchange at the time, Mt. Gox. In 2016, hackers stole $70 Million worth of
Bitcoin from the Bitfinex exchange.

In a couple cases, the dollar value of these thefts were so high that
trading was suspended, the blockchain was forked, allowing for the
blockchain to actually be rolled back, removing and invalidating the hacked
blocks from the chain. There have been thousands of other mid-range
thefts and hacks that involve malware, and exploiting flaws in wallet
software.

We can talk about how to avoid the most obvious pitfalls, but the smart
move is to assume that even the best security can be beat, and to diversify
your security strategies.
 As we mentioned when talking about wallets, cold storage, or offline
storage, is much harder for hackers to access than hot storage, or online
storage. Using wallets that offer offline storage is definitely the first, best
place to start.

Another vulnerability is your password. When logging in to a service

that stores your public and private keys, such as an online or software
wallet, you log in using a username and password, just like you would when
logging on to a bank website. Should someone steal your password, they
can control your account.

Turning on two-factor authentication (2FA) is the most common way to

avoid giving a password thief access to your account. Most bank websites,
email providers, and web hosts already offer 2FA. The most common way
that 2FA works is when a second piece of information is required to login,
in addition to the password, usually a text message with a unique code sent
to the user’s phone. While this is certainly better than nothing, phone
numbers can easily be hacked too.
 It’s common for hackers to call the phone carrier and talk an unwitting
agent into giving them access to a target’s mobile account--something to
think about the next time you sign up for two-factor authentication.

To provide hackers with a bit more of a challenge, try using the 3rd
party 2FA app Authy. Alternatively, just use one of the hardware wallets we
suggested, Trezor or Ledger, since they have 2FA built in. When setting up
the device, it will prompt you to create a recovery seed. The device will
produce a random set of twenty four english language words, which you
then write down on a piece of paper (and hide somewhere safe). Using that
list of words, it’s possible to access your backup should you lose your
wallet.

Finally, when storing Bitcoin, you can use a wallet service like Armory to
create a multi-signatory wallet. In other words, instead of creating just one
password, it will create multiple passwords, and all of those passwords must
be presented to actually spend or transfer the Bitcoin.
 Armory allows for up to seven signatures. Imagine the look on a would-
be thief’s face when they realize they are six signatures short of being able
to spend their ill-gotten gains.

Tracking your investments

Assuming you paid attention

to the last section, you’re
convinced that it’s a bad idea to
pile all of your cryptocurrency
into a single trading account,
where it would have been easy
and convenient to track. So, if
you have multiple currencies
spread out over multiple wallets
in hot and cold storage, and are
possibly even using multiple
exchanges, how do you keep
track of everything?

A good option is to use blockfolio.com. Blockfolio works a bit like Mint,

aggregating information about all of your accounts, and has a convenient
mobile app to help combat any FOMO you might be experiencing as prices
soar and plunge (and they will).
 If you just want to keep an eye on the current $USD values of the big
currencies like Bitcoin and Ethereum, you can find these in the built-in stock
tracker apps on your iPhone or Android device.

Some other good options are:

Altpocket.io

Cointracking.info

CryptoCompare.com

CryptoTrakr.com

CryptoTrack.com

CoinData.io

Cryptocurrencies to Invest in 2017

In the time it took to write this chapter, the price of Bitcoin has ranged
from $2300 to $4500. By the time you read this chapter, Bitcoin could be
worth $1000 or $6000. We don’t know. What we do know is that investing
in cryptocurrency is not exempt from the first law of investing: buy low and
sell high. Any of the top 20 are good bets, but do your research on them.
We’re not here to give you an equivalent of a “stock tip,” so if you don’t
want to dig into the details of each coin, buy some of the top 20 coins and
hold onto them.

If you want to really know what you’re investing in, which we

recommend, read the whitepapers provided by the team developing the
coin, look at the developer team’s credentials, see what people are saying
on reddit threads and twitter, etc.
 You can find the current top 20 coins by market cap here:
https://coinmarketcap.com/

For more resources for all things crypto, and to get more up-to-date
info on what the hottest currencies to trade in the moment are, head to:
https://cryptominded.com/
Chapter 5: Initial Coin Offerings (ICOs) and Inside Info/News
 It’s hard not to hear wild tales of ICOs making individual investors
overnight millionaires while dumping hundreds of millions of dollars of
funding into dApp startups in just a few hours. Like the crowdfunding site
Kickstarter, ICO’s were intended to provide a way for individuals looking for
startup funding to get around onerous financial regulation using
decentralized funding mechanisms. But did it work?

What is an ICO?

An Initial Coin Offering, or ICO, is a recent invention. Developers looking

for funding for their dApp projects running on Ethereum came up with a
novel idea: why not sell the tokens that will run the dApp before building it?
It looked like a win/win: the startup would hand out their newly invented
tokens in exchange for cryptocurrency with very real value, like Bitcoin or
Ethereum, which they could convert to cash and fund development. These
early token buyers could buy up tokens for pennies, potentially making big
gains as the coins gained in value.
 The term ICO is intentionally intended to mimic the acronym IPO, or
Initial Public Offering (of stock on a regulated stock exchange). Realistically,
however, an ICO is quite different. Simply put, an ICO is really a pre-sale of
coins that only have three possible uses/functions: 1) to pay for usage of
the dApp, 2) to make early buyers of the coins rich once speculators bid up
their price, and (optionally) 3) to act as proof-of-stake (way more on what
this means in the mining section).

Because the product often hasn’t been built at the time of the token
sale, ICOs really are more like Kickstarter crowdfunding campaigns than
IPOs. Think of it like an arcade game maker pre-selling tokens for a penny
each that will only work in the future on the arcade game they intend to
build. ICOs truly are more of a pre-sale mechanism than a stock-like
investment. However, the amount of speculative trading that occurred
around these tokens generated enough attention that it attracted the
interest of the US government.
ICO Regulation

In July 2017, the SEC decided that ICO Token sales are considered
securities, and should be regulated as such. In other words, if you live in the
USA, it just got a lot harder to participate in an ICO. And, startups that want
to use an ICO to raise funds will need to be careful, which means that if
they’re based in the USA, they need to follow the SEC guidelines and only
sell to accredited investors.

If they’re based outside the USA, they are probably better off not
dealing with US-based investors at all. It is not uncommon for startups
wanting to hold ICOs to base themselves in Switzerland, where regulations
are lax, and refuse anyone with a US-based IP address.
 The impact of this move by the SEC doesn’t really affect investors
directly, but it has very big implications for any startups wanting to fund
themselves via ICO. SEC regulation makes ICOs much riskier fundraising
vehicles, since a wrong move could mean jail time. This won’t stop ICOs,
but it will have a cooling effect, and decrease the total number of ICOs.

Startups may look for alternative methods of funding that involve less
risk, or simply exclude the US. US-based companies issuing ICOs are
becoming a LOT more careful about KYC (know your customer) laws, and
are making sure to collect info to verify customer identities.

The SEC, for better or worse, claims that it is helping to protect investors
with regulation. Because ICOs were completely unregulated, it is possible
for absolutely anyone to dream up and launch an ICO. When there are no
gates or gatekeepers, scammers and fraud inevitably show up.

However, many would argue that external regulation was unnecessary

given that the industry was actually doing a relatively good job of self-
regulating. Similar to crowd-funding a project on Kickstarter, it’s possible
that the promised product will never materialize, but the best projects do
tend to get more funding and actually happen. Crowdfunding is, by its very
nature, a vote for what people think will succeed.

Launching an Ethereum Token ICO

When a team of developers decides that they want to launch a new

Ethereum dApp, they may choose to use an ICO as a way to get funded.
Here’s how an ICO works, in a nutshell:

● A group of developers write a whitepaper, detailing what they plan to

build, why it’s important, and what the potential market looks like.
This is similar to a startup pitch deck or business plan.
● The group registers their domain and posts their whitepaper, along
with information on when the ICO will occur, and how to invest.
● At the appointed time, they will open the ICO, and anyone who wants
to can send them Ethereum in exchange for their new coin (let’s call it
MyNewCoinX).
● The exchange rate for MyNewCoinX is set at a favorable rate, so early
investors get a lot of MyNewCoinX in exchange for their Ethereum.
● Once the funding goal is met, the ICO is over, and if everything went
well, the startup now has millions of dollars worth of Ethereum in
their wallet, which they hold on to, pay their workers with, or trade in
for any currency they like.
Investing in ICOs

Putting aside the limitations we’ve discussed, ICOs and early stage dApp
tokens are still a very promising vehicle for investment. If you live in the US,
it’s definitely legal to invest in ICOs if you’re an accredited investor. The law
gets a little murky about whether or not the average US crypto trader can
legally participate in an ICO, but they can definitely trade any new tokens
listed by an exchange shortly after an ICO, which is very nearly the same
thing.

We can’t endorse these tactics, but if you’re willing to risk breaking

some laws, by using a VPN (like the free Chrome plug-in Hola) and
anonymous cryptocurrency like zCash, it’s relatively easy for US citizens to
participate in ICOs happening overseas, even from US soil. Decentralized,
anonymous systems naturally make enforcement of regulation of individual
participants extremely difficult. Not impossible (the government will track
you down if it decides you’re worth the effort), just difficult.
 ICOs are risky investments, and as such, you should follow the two
golden rules of speculative investing: 1) Don’t bet money you can’t afford
to lose, and 2) Diversify, diversify, diversify. You’re trying to find the Google
of the decentralized age, and maybe you will, but you’re probably going to
find a lot of stinkers in the process. Like any VC fund, you’re more likely to
succeed with lots of small bets instead of one big one. If one good bet gets
a 30,000% return, that’s going to take care of a lot of those bad bets (and a
scenario like this is not all that uncommon).

While ICOs are definitely risky on a lot of levels, it is also important to

remember that some of these new dApps really do have the potential to
reshape entire industries, particularly the first-movers coming onto the
market now. Investing small amounts in coins for a variety of these startups
via their ICO, or shortly after the ICO during a price dip, could be the best
investment of your life, akin to getting in on the IPO a decade ago of one of
today’s modern internet giants.

There are lots of ICOs out there, and

many are US-based and accept
participation by US citizens, pending some
KYC paperwork. In the end, it’s really up to
the ICO issuer, not the investor, to ensure
they are following the rules set forth by
the SEC. Be careful, but not so careful
you fail to take advantage of some
great opportunities.
 Evaluating ICOs for Investment

The first thing you can do is look at the project

whitepaper, particularly if you’re relatively technical
and feel like you can tell the difference between
a great idea with huge monetization
potential and a scammy work of science
fiction. Nearly any dApp startup planning
an ICO (or not) will have a whitepaper on
their website outlining what the dApp will
do, and how they plan to develop it.

If you feel the idea is sound, the next step is to evaluate the legitimacy
of the developer team. If the team is anonymous, walk away. They should
be listed with their real names and pictures, and ideally a link to their
LinkedIn or GitHub profiles so you can verify that they are real people and
are qualified to create the software they’re promising.

Finally, check the internet for the opinions of others, keeping in mind
that online opinions are generally worth what you pay for them. It’s best to
find a few consistently good sources and ignore random claims from
suspect sources. If someone is telling you this is going to make you a
billionaire overnight or that it’s a giant scam, be skeptical. The answer is
usually somewhere in the middle. You can keep reading and see our list of
trusted sources below.
 The point is, you need to do your homework. ICOs can be extremely
lucrative if you find a good one and play it right, but there’s also a lot of
crap out there, and potential legal liability. Caveat emptor.

ICO resources for investors

ICOrating.com

This is an easy one-stop-shop for anyone wanting to find promising

ICOs. The site attempts to objectively assess new ICOs on their potential as
investment vehicles using three primary metrics: Risk Score, Hype Score,
and Investment Potential. Also cool is a SCAM tab that shows which ICOs
they think are scams.

smithandcrown.com/icos/

Smith + Crown are one of the more reputable sources for info on ICOs
and crypto news in general. They offer a sortable list of ICOs that show
which are open to individuals in the USA.

CoinSchedule.com

This site does a lot of the heavy lifting for you by creating an up-to-date
list of ICOs that they deem worthy of interest and investment. This is a
good first stop to check out new and interesting dApp projects.

ICOCountdown.com
 If you want to browse current projects that are in the pre-ICO and
crowdfunding phases, this is a cool site to try. It’s a good first stop to get
some ideas about what kinds of opportunities are out there.

ICO-list.com

Simple list of current and past ICOs. Interesting data on past ICOs, as
you can see what sorts of projects actually get funded.
 Cyber.fund

List of active ICOs, and offers a way to compare different coins at a

glance.

Bitcointalk.org

This is a good first stop for discussions on interesting ICOs, and to

check on what other other people are saying about any interesting ICOs or
altcoins.

Coinfund.slack.com

The coinfund slack channel is another good resource for anyone

wanting to have conversations about cryptocurrency. Not sure about a new
ICO? Ask around and see what the community has to say.

Cryptocompare.com

This is a bit more general purpose, and hosts a broad range of topics on
everything from mining software to interesting new ICOs.

If you’re interested in digging further, here’s our short list of good sites
to check out for tips, news, and analysis.

News:

https://coins.newbium.com/

https://cointelegraph.com/

http://www.coindesk.com/
 Twitter accounts to follow of crypto trading experts:

https://twitter.com/notsofast

https://twitter.com/maguraaa

https://twitter.com/SecretsOfCrypto

https://twitter.com/onemanatatime

https://twitter.com/loomdart

https://twitter.com/RNR_0

https://twitter.com/Fatih87SK

https://twitter.com/LegendOfCrypto

Reddit threads to follow:

https://www.reddit.com/r/icocrypto/

https://www.reddit.com/r/CryptoMarkets/

https://www.reddit.com/r/ethereum/

https://www.reddit.com/r/crypto/

https://www.reddit.com/r/CryptoCurrency/

https://www.reddit.com/r/Bitcoin/

Cryptominded Mastermind:

[EDIT] [I don’t have the info for this. You’ll need to link it in yourself]
mention and link to our cryptocurrency mastermind upsell page that they
can join and get questions answered etc, hear the latest tips and all that
 ICO resources for startups

While this guide is intended primarily for investors, there are lots of
companies out there that will help startups wanting to develop blockchain
dApps with funding through ICO. Given the uncertainty and ambiguity of
regulation in the industry, it’s a very good idea to get expert guidance if
you want to wade into these waters.

Ambisafe.co

The Ambisafe platform is designed to make it easy for anyone wanting

to issue their own token on Ethereum to do so. Want to hold your own ICO
and issue your newly minted CoolDudeCoins? You can do it simply using
the Ambisafe platform.

Tokenmarket.net

While this site is primarily a place to research ICOs, they also help
launch ICOs.
 Chapter 6: Trading Crypto & Advanced Strategies

In this chapter, we’ll look at some more active strategies for trading
cryptocurrency. Not everyone is content to buy and hold, and that’s ok. At
the conceptual level, trading cryptocurrency is really not all that different
from Forex trading, or trading foreign currencies. Let’s look at a simple
example.

In this chart, we’re looking at the exchange rate for the Euro against the
US Dollar over the course of a day. A Forex day trader with $10,000 and a
10x leverage account could potentially buy 85,470 Euros at $1.17 for
$100,000, then quickly turn around and sell those 85,470 Euro at $1.175 a
few hours later for $100,427. This trader would have netted $427 in just a
few hours without doing much work. Using leverage and time, they turned
$10,000 into $10,427. It is more or less free money.
 In this chart, we’re looking at the rate for Bitcoin against the US Dollar.
It is nearly identical to the Forex chart. But, let’s do the math again. Let’s say
a crypto trader did the same thing, and using $10,000 and a 10x leverage
account bought $100,000 worth of Bitcoin at $3150, then sold it a few
hours later at $3380 for $107,301. On the exact same day, in just a few
hours, using roughly the same amount of money, this trader would have
made $7301.587 compared to the Forex trader who made $427. This trader,
using the exact same method, turned their $10,000 into $17,301. That is not
insignificant.

Obviously, the culprit here is volatility. The value of cryptocurrency is

much less stable than the values of fiat currency, so there are huge swings
on a regular basis. For day traders, this is an ideal situation. It is not
uncommon for some of the altcoin currencies to change in value by
anywhere from 10% to 1000% in a single day. As long as the timing is right,
it’s possible to make a lot of money on these swings.
 In addition to buying and selling crypto with dollars or euros, you can
trade between cryptocurrencies to maximize profits that way too. The two
biggest cryptocurrencies are Bitcoin and Ethereum, and while their
independent values in $USD tend to trend together, there are constant
changes in their values relative to each other.

This chart is similar to the previous two charts, with two differences. The
first difference is that we’re looking at the value of Ethereum (ETH) against
the value of Bitcoin (BTC) instead of Euros vs. Dollars, and the second is that
we’re looking at the exchange rate over a month rather than a single day.
The value of cryptocurrency is often affected by media coverage, so even
though they trend together, a media report of an Ethereum hack, or some
new Bitcoin millionaire, might spike or tank the value of one currency
compared to the other.
 This provides a great opportunity to trade between cryptocurrencies,
essentially trading an overvalued currency for an undervalued currency
under the assumption that the currencies will normalize, and the net fiat
currency trade-in value will increase over time relative to what the original
currency would have been worth if you’d just left it alone.

Aside from pure profit, one of the big advantages of trading

cryptocurrency over Forex is the ease of entry and exit. The biggest hurdle
is simply creating an account and trading your fiat currency for
cryptocurrency, but even that can be done in less than an hour. It can take
weeks to set up a Forex account.

Once you have an account and have currency loaded into an exchange,
trading is a simple matter, and once you’re done, you simply leave the
exchange. You don’t need to leave your currency in the exchange account,
you can just load it onto your cold storage wallet and leave.
 While there is no guarantee that this will last forever, another reason to
prefer trading cryptocurrency to Forex can be smaller fees and spreads. The
amount of money going to the exchange or other middleman is generally
smaller when trading crypto.

For more experienced traders, many of the features you know and love
can be found in the world of crypto as well.
Active Trading

Every exchange is going to have the basic functionality you would

expect of being able to buy and sell cryptocurrency, but they will probably
have different lists. Some will offer more, some less.

Margin trading and leverage trading may be offered by your exchange,

allowing you increased buying power by borrowing money you don’t have
at a small interest rate. The assumption, of course, is that the interest rate is
covered by increased gains thanks to trades of greater volumes.

These strategies can quickly amplify gains in a bull market, but also
amplify risk. If the currency loses value, you’re on the hook for both the loss
and the interest.
 When choosing your exchange for trading, a good place to start is
always going to be an exchange that offers low fee trades of fiat currency
for cryptocurrency. But if you intend to keep keep trading between
cryptocurrencies, buying Golem with Bitcoin, for example, you’re better off
moving to a crypto-only exchange that offers lower fees and better
exchange rates. There’s no penalty for having accounts on multiple
exchanges--quite the opposite.

Some traders report that they have found profits just through variations
in the exchange rates between exchanges. The practice of simultaneously
buying on one exchange with a lower exchange rate, while selling on
another exchange with a higher exchange rate is known as arbitrage, and
it’s just about the lowest risk form of trading possible.

All one needs to do to make money with arbitrage is to keep an eye on

the exchange rates across multiple exchanges and take advantage of any
differences as they appear.
 Trading a major cryptocurrency for another, smaller cryptocurrency, is
known as altcoin flipping.There are thousands of altcoins, most of which
have values that are a fraction of the price of the established coins, Bitcoin
and Ethereum. Just looking at a random sample, they have names like
ripple, dogecoin, synero AMP, steem, bitshares, golem, gridcoin, stratis, and
pinkcoin.

Like penny stocks, a little traction in the market can produce small
fluctuations in price that result in altcoin prices doubling or tripling
overnight. The trick, of course, is picking them.

Any developer team that wants to can create an altcoin currency, and
these software developers range from being brilliant visionaries to outright
scammers. So, if you want to speculate on altcoins, how do you choose?

First, consider the reputation of the developers behind any altcoin. If a

team full of famous developers is launching something new, that altcoin
has a high probability of success. If the altcoin comes from some shady
corner of the web with unknown developers accompanied by promises that
sound too good to be true, it’s best to avoid it.

If you don’t want to do the work of combing

through linkedin profiles and reading about
developer teams, a decent proxy for reputation is
trade volume. The projects that those in the know
trust are generally going to get a lot more
interest, which results in higher trade volume.

On most exchanges, you can sort the altcoins

they offer for trading by trade volume.
 This will quickly surface the altcoins that are gaining traction within the
community, giving beginners an easy way to find legitimate altcoins. If a lot
of people are buying into an altcoin, that’s a very bullish sign, and probably
offers a chance to jump in and ride that wave up.

New coins are a little more risky, given their untested nature, but the
price of a new altcoin generally trends up after being introduced. The price
is often highly volatile for the first few days after being introduced too,
offering speculative day traders the chance to make a quick buck.

Similar to stock markets, cryptocurrency markets tend to move based

on media stories.

Positive or negative reports on crypto-focused news sites like

deep.dot.web will push the markets one way or the other, but if a particular
juicy story on deep.dot.web or the Ethereum sub-Reddit gets picked up by
a mainstream media news outlet, you can expect much bigger swings in
price.

News of an exchange hack can send prices spiraling down, while news
of a big event like the introduction of Bitcoin Cash can send prices shooting
up. By paying attention to the early chatter and first-wave reporting, it’s
possible to get in front of these predictable swings in price.

As discussed, one of the big selling points of cryptocurrency is the

ability to buy and sell anonymously. Traders may not care much about this
feature, but those who use these currencies as cash to anonymously buy
and sell over the web care very much, and they make up a big chunk of all
usage. If a dark web marketplace decides to adopt a new altcoin that
specializes in anonymity, the price of that altcoin is very likely to surge.
 Conversely, whenever someone gets arrested and we find out the
“anonymous” altcoin they were using turns out to not be totally anonymous
after all, the price and usage of that coin tends to plummet.

If you’ve been trading stocks or Forex for a while, you’ll recognize that
many of the best practices for trading crypto are similar to or borrowed
from these markets. Rules are meant to be broken, but here are a few rules
to follow anyway.

- Keep your holdings in stable(r) coins like Bitcoin or Ethereum. Just as

a Forex trader might speculate with obscure currencies, but always
hold long term money in a stable currency like the Euro or Dollar, it’s
unwise to hold on to altcoin for too long. The world of altcoin is just
too unstable, and you never know what’s going to happen.
 - Don’t catch falling knives (or buy into a coin after a big dump).
There’s generally a good reason if people exit an altcoin en masse.
- Learn how the blockchains of the coins you’re trading work.
- Spend some time understanding the correlation between Bitcoin and
different altcoins.
- Pay attention to candlestick charts, since they help predict which way
the market is about to move.
- When trading, use limits and stop losses to automate your sale. This
will help guarantee a profitable exit, and limit your downside if the
price should crash.
- Never bet more than you can afford to lose!

If, after all this, the idea of owning cryptocurrency and participating in
altcoin exchanges seems too intimidating, there are still ways to make
trades on cryptocurrency without ever actually owning it. Skip ahead to
“Trading for Non-Owners” if you’d like.

Advanced Technical Trading

Up to this point, most of what we’ve discussed is very specific to the

world of cryptocurrency, which you’ve no doubt figured out by now is a
world unto its own. When it comes to technical trading, however, we will
simply borrow the tactics and strategies that are already working well in the
wider world of finance. All of the information in this section is just as useful
when day trading penny stocks on the NASDAQ as it is when flipping
altcoins on the Poloniex crypto exchange.

An old adage in the world of trading is “bulls make money, bears make
money, and pigs get slaughtered.” In other words, you can make money
when stocks go up (buy low, sell high) and you can make money when
stocks go down (short sell high, buy low), but if you try to time every low
and every high and sell at the exact right moment, there’s a very very very
good chance that you’ll miss that brief window, and all your gains will
evaporate.

The nature of any tradable asset

is that its value is constantly
changing. While a stock or token
may only go up or down 1% or 2%
in a day from the start of trading to
the close of trading, over the course
of that day it has probably traveled
20% to 30%, were we to add up all
the cumulative rises and falls. Every
rise and every fall represents an
opportunity for profit.
Thanks to price volatility, it is possible for a day trader to trade a stock like
this in such a way that you could easily earn 10% or more on a stock that
only increases in value by 1% during the same time-frame. The trick is to
recognize the conditions that produce these ups and downs before (or as)
they happen and and act quickly enough to get in and out with your gains
intact.

So, how do we figure out if the price will go up or down? The reality is
that we can’t ever know if price will go up or down, we can only make an
educated guess. This requires paying close attention to indicators of
volatility, and thinking like a statistician. When a statistician says there is a
70% chance something will happen, that means there is a 30% chance it will
not happen. Statistics is not a democracy where the majority wins. The
point is not to win every time, the point is to win 70% of the time (or more)
so that your wins outweigh your losses.

When you find yourself losing a big bet, it’s easy to succumb to
emotion or stress and abandon your disciplined approach. Do not do this. If
you can’t stick to your plan and trust the math, day trading is not for you.
However, if you can handle being wrong less often than you are right and
are willing to be disciplined in your approach to trading, proceed.

1) Using trend lines, determine what the trajectory and normal

range look like. Anytime you’re calculating averages, more data is
generally going to be better, and give a bigger picture view of the
data you’re looking at. However, you’ll want to limit the data you’re
averaging to just look at current market conditions. Start with a
moving 20-day average.

That tends to be the sweet spot between too much and too little data
when capturing the current trend. However, trends change, and we’re
only interested in the current trend. If the market saw a big correction
or a huge price increase, you may want to omit that data, and only go
as far back as the point where prices stabilized. If big news comes out
that affects the trend going forward, that’s something to watch out
for too. The chart below offers a simple visualization of a trend.
a) The center line is the trend line. This moving average is
“normal” and in the absence of big changes, the price should
generally come back to this center point.
b) The outer lines are usually called Bollinger Bands, and they
represent a range of two standard deviations above and below
the average. When a price approaches or goes outside of a
Bollinger Band, that is a strong signal that the short term trend
is about to change and revert to the mean.
c) A technical trader would see three fairly obvious points on this
chart, represented by the arrows, in which to consider executing
a trade.
2) Using indicators of support and resistance, double check the
stats. Remember, statistics just tell us that there is a chance
something will happen. Just because something happens 95% of the
time doesn’t mean that this time isn’t the other 5%. The more
indicators you can check, the better. These will get you started.
a) Use candlestick charts to help predict whether a trend is
about to reverse.
i) Candlestick charts group all the Ask prices and all the Buy
prices into time based chunks. The time-frame can be
anything from 1 minute to 1 week. The Ask prices are
represented by the “wick” or the skinny line, while the Buy
prices are represented by the “wax” or the fat line.
ii) When the wick extends far above the wax, that means that
the asking price is higher than what buyers are willing to
pay, which means that the price will probably come down.
iii) When the wick extends far below the wax, that means that
buyers are willing to pay towards the top of the range of
asking prices. This means that the price is probably about
to go up.
 iv) If the wick extends equally from both the top and bottom,
that means that prices are probably staying pretty stable.
v) The longer the candle, the more volatility there is, and the
greater the change in price.
b) Pay attention to volume. This is nearly always represented as a
bar graph at the bottom of a candlestick chart. Notice that
every big fluctuation in price is accompanied by an increase in
trading volume. This is a good way to determine whether a
change in the price trend is “real” or not.
c) Pay attention to the news. Prices tend to move erratically
whenever there is a press mention. By monitoring mentions of
anything you’re day trading you can predict possible dips or
spikes in real-time.
3) Decide whether to buy (bet the price will rise) or sell short (bet
the price will fall).
a) Buying low is intuitive. When the price drops below the normal
range, then reverses and starts to come back up, statistics tells
us that the chance of the price going lower is smaller than the
chance of the price going higher. More often than not, the price
will return towards the average trend line, and when it does,
you can sell at a profit.
b) Selling short is much less intuitive, but put simply, it’s a way to
bet that the price will go down. Short selling is more dangerous
than buying, because your losses are potentially infinite. When
you pay $10 for a stock, you can never lose more than the $10
you spent because the price will never drop below $0. However,
if you short sell a stock for $10, and the price suddenly spikes to
$100, you would lose $90. This can make short selling in volatile
markets extremely risky. However, if done well, it’s a great way
to make money in a bear market. Breaking it down, short selling
works like this:
i) I notice that stock A is either very overvalued, or has a
strong downward trend line, and I’m willing to bet that
the price will go down in the near future.
ii) I don’t own stock A, but I borrow 10 shares of stock A
from my broker, who will connect me with someone who
does own the stock and is willing to lend it.
(1) My broker will probably require that I have 50% of
the value of the borrowed stock in a margin account
to ensure I can cover any losses. If I borrow $1000
worth of stock, I will need $500 in cash in my margin
account.
 (2) The broker will charge a small fee.
(3) The stock owner will collect interest on the value of
the stock borrowed, usually between 3-4%.
iii) I sell the stock I borrowed at the time I borrow it. No
matter what, I have to return the same amount of stock I
borrowed. If I borrow 10 shares, I have to return 10 shares.
The longer I hold onto it, the more I pay in fees.
iv) Let’s say stock A is selling at $100 at the time I borrow it,
but dips to $80 a few hours later. I decide to buy it back at
$80. This means that I short sold my 10 borrowed shares
for $1000, but bought them back for $800.
v) I return the 10 borrowed shares, keep the difference in
price, which is $200, minus whatever fees and interest I
pay.
vi) ON THE OTHER HAND… If the stock is selling at $100
when I borrow it, and the price suddenly spikes to $120, I
have a hard decision to make. If I buy it back at $120, I
now have to pay $200 out of the cash reserves in my
margin account on top of the interest and fees. If I wait,
hoping the price will go back down, I take a huge risk,
because the price could easily keep going up!

4) Use automatic stop losses and trailing profit exits. Also known as
a bracket trade, this means that you enter a conditional order to sell
as soon as you buy. A profit exit will be triggered once the price
reaches a set increase (let’s say 5%) and automatically sell.
 A trailing profit exit will do the same thing, except it will follow the
price up until it goes down, so if it gets triggered at 5% but the price
rises to 10% before slipping, your trade should execute at 9%. Stop
losses work the same way, only going the other direction. You can set
a stop loss at -1%, meaning that if the price drops 1% below the price
you bought it at, it will automatically sell.

This is a good way to protect yourself from bad bets. If your upside is
5% and your downside is 1%, you could be wrong 80% of the time
and still make money. However, it’s easy to accidentally trigger that -
1% stop loss if you mis-time the buy, which leads to the next point.

5) Don’t buy at the peak or sell at the bottom. The point of day
trading should not be to predict every possible increase and
decrease, the point is just to beat a buy and hold strategy. You can’t
pick up every 10% swing, but if you pick up two 3% swings, and make
6% profit in a day, compared to 1% profit you might have made
buying and holding, you’ve won. Ideally, you want to pick up lots of
middles by buying after a trend has reversed, and selling it before it
reverses again. Stay away from the peaks and valleys.
Trading on Autopilot

Bitcoin trading bots offer one solution for the hands-off trader. The idea
is relatively simple: when the bot predicts that prices will go up, it buys, and
when the bot predicts that prices will go down, it sells. In theory, this means
that you get the best of both worlds, active trading and a hands-off buy
and hold strategy. To learn more or to try it out, head here:
http://btcrobot.com/?cbid=larz54321

Lending Bitcoin for Interest

Whenever you borrow to buy on margin, that asset is coming from

somewhere. In the case of cryptocurrency, some exchanges offer the option
of putting your stored coins into that borrowing pool. If your goal is to buy
and hold, even for just a week, why not earn a little interest? This can either
be an extra payday on top of increases in the valuation of the currency, or
at worst, a hedge against any decreases. A good place to start lending out
Bitcoin is on the Poloniex exchange, here:
https://poloniex.com/lending#BTC

If you want to take it one step further, someone has gone to the trouble
of creating an automated way to continually lend out any held currency for
top dollar.

https://www.poloniexlendingbot.com/
 Lending is relatively uncomplicated, but some good guidelines to follow
are:

- Even if lending, continue to spread your currency around. It’s never

wise to park all of your coins in one place. Even the biggest
exchanges can get hacked or go out of business overnight.
- Choose a competitive lending rate, or you may not be able to get
anyone to borrow your funds. Better to earn a little less than nothing
at all.
- Set time-frames you can live with. If there’s a huge uptick and you
want to sell, you may not be able to if you offered a 30 day lending
period.
- If lending altcoins, keep in mind that the longer you hold these coins,
the more risk you take on.
Trading For Non-Owners

Some brokers offer what’s called a CFD or Contract for Difference. It is

what it sounds like, which is an agreement to pay or be paid the difference
in price of a set amount of currency over a set amount of time. If the price
goes up, you make money without ever touching a single Satoshi of Bitcoin.
On the other hand, if it goes down, you now owe the difference. CFD sellers
are usually much more regulated and better established companies, so
they’re less risky than dealing with crypto exchanges, but they also tend to
charge much higher fees.

Another way to avoid crypto exchanges entirely is to buy Bitcoin

Investment Trust (GBTC), a kind of Bitcoin index fund, through your regular
stock broker. GBTC is tied to the price of Bitcoin, and for someone with a
self-directed IRA that wants to diversify, it makes sense to invest a little in
that just as you might invest in an index fund tied to the price of gold. A
Bitcoin hedge makes a lot of sense for safeguarding wealth in uncertain
times.
Chapter 7: Mining for Digital Gold
 First, let’s demystify what mining is. Simply put, if you lend your
computer hardware to the network, the network rewards you by paying out
coins. What your computer hardware is actually doing differs depending on
what you’re mining for.

- Mining Bitcoin means that your computer is running hash algorithms

to decrypt transactions for other people and add them to the
blockchain.
- Mining Ethereum means that your computer is actually running the
Ethereum P2P decentralized smart contract computer, or EVM.
- Mining a dApp coin like Storj, which runs decentralized file storage
via the Ethereum decentralized computer, means that your computer
is actually storing bits and pieces of other people’s files. You’re
contributing gigs of harddrive space for file storage as well as
computer processing power.
 So, why call it “mining”? Why not just “earning”? The reason why the
word “mining” is used to describe the act of earning Bitcoin is because
Bitcoin was intended to be scarce. There are a finite amount of Bitcoin that
will be released (21 million to be exact) and the number of Bitcoin released
as a reward for processing a block into the blockchain decreases by half
every 210,000 blocks. In this way, Bitcoin distribution was modeled after
gold, which is naturally scarce, and becomes harder to obtain over time.

Other coins are a little more straightforward. You simply earn coins for
doing work. Regardless of what you’re earning, the question of whether to
mine or not pretty much always comes down to one thing: is it profitable?

Mining is a bit like driving for Uber. You are lending Uber your car, and
getting paid by the mile. It costs money to operate your car.
 You have to pay for gas, and upkeep like new tires, oil, and brakes. Let’s
say the average Uber driver earns $1 per mile.

● A dumb Uber driver would sign up to give rides in their gas-guzzling

Hummer that costs $1.10 per mile to drive. This person would
effectively be losing 10 cents on every mile they drive for Uber.
● A normal Uber driver would give rides in a small efficient car like a
Prius hybrid. If this person spends 50 cents per mile to operate their
car, that means they’re earning 50 cents per mile in profit.
● A very smart Uber driver would get an electric bus, and drive for Uber
Pool. This person might spend 60 cents per mile driven, but earn $3
per mile by taking multiple riders, which would mean they make $2.40
per mile in profit.
 When mining, you have to factor in the cost of your hardware, plus any
costs of running the hardware, such as electricity, plus the costs of
connectivity (e.g. a fiber broadband connection). Similar to the Uber
metaphor, there are dumb ways to do this and smart ways to do it. There
are also a lot of factors you need to consider before making a final decision
on whether to go ahead with mining or not.

- Hardware speed: computer processors come in a few flavors, each an

order of magnitude faster than the next. CPUs (central processing
unit), GPUs (graphics processing unit), and ASICs (Application Specific
Integrated Circuit) can all be used to mine, but only ASICs or GPUs
will be competitive. The average laptop relies heavily on the CPU to
do sequential tasks, and farms out a few tasks that take lots of
processing power to the GPU, like rendering graphics in a video
game. This makes sense for normal computer use, but hash
decryption is not a normal task that your computer is designed for.
- You can run mining software on your home computer, and you may
eventually earn some coins, but like the Uber driver with a Hummer,
the inefficiency of your hardware will make it very difficult to compete
against miners running highly efficient strings of GPU rigs. Better
hardware will simply out-compute your hardware, making it difficult
to earn coins. At this point in time, owning a bunch of ASICs is pretty
much the only way to successfully compete as an individual miner.
- Cheap vs. Expensive electricity: The more expensive your electricity is
(measured in kilowatt hours), the harder it will be to earn money.
Think of it like the price of gas in the Uber example. If you’re burning
lots of energy to produce coins, you have to factor in the cost of that
energy, and figure out what the net profit is. If you’re spending $1.10
on electricity for every $1 worth of Bitcoin you earn, you’re losing
money. For this reason, serious miners tend to use renewable energy
sources like solar, wind, and hydroelectric. Most of the Bitcoin mined
in the world is mined in China, and the reason for this is that China
has some of the cheapest electricity in the world. A Chinese miner
with a rig using dozens of ASICs running on solar power will be many
orders of magnitude more profitable than someone trying to mine
with a laptop CPU using expensive electricity coming from a coal-
fired power plant.
- Mining alone vs. group mining: Every time a transaction is released to
the network, a giant race happens. Every miner is trying to be the first
to solve the cryptographic puzzle so they can add the transaction to
the block. As a result, miners have banded together to compete as a
networked group rather than as individuals. Everyone in the group
contributes, which increases the overall odds of earning coins, and
then everyone shares the wealth. There are two main ways of group
mining.
- Cloud mining: this is a great option
for individuals that want to mine but
don’t want to invest in hardware. It
works kind of like a web hosting
company, where you rent space on
their server. Instead, you rent out
part of their mining rig. This allows
US residents to be part of these massive GPU farms in China
running on renewable energy. You need to be cautious that the
cloud mining company is legit, and not a ponzi scheme, but
assuming your money really is going towards mining hardware,
this is a good option. We recommend checking out
coinomia.com.
- Pool mining: If you have your own hardware setup, you can
improve your chances by joining a mining pool. Pool members
all contribute the hash power of their hardware, and get a
percentage of any coins earned based on how much hash
power they contributed. So, if your hardware generates, 0.001%
of the total group hash power, you will earn 0.001% of any
coins earned. It’s fairly simple to try out different pools and see
which one produces the best results. The chart below shows the
approximate size of the different mining pools out there based
on the number of blocks in the blockchain they are responsible
for adding.
-
 - Currency value: Coin values are constantly changing. If the value of
Bitcoin doubles, then the whole equation changes, as does the level
of competition. The same goes for mining altcoins. If you do decide
to mine altcoins, it’s a good idea to pick one that’s rapidly increasing
in value.

When Satoshi Nakamoto set up Bitcoin, he wanted normal users to run

the codebase on their home computers. The idea was to build a true P2P
network that was so decentralized, no one could control it. For better or
worse, we’re seeing a sort of arms race when it comes to mining hardware.
People keep putting together bigger and faster machines to outcompete
other miners.

To be clear, we do not recommend trying to mine Bitcoin as an

individual, unless you’re simply a hobbyist that wants to try it out. Group
mining is basically the only way to mine Bitcoin efficiently at this point.
 You would be far better off buying into a cloud miner than going
through all this hassle. However, if you’re the kind of person that likes to do
things the hard way, be our guest.

How to setup a Bitcoin miner

For hobbyists that just want to try out mining, all you need is a wallet
and mining program, and you too can turn your desktop into an inefficient
and unsuccessful mining operation in minutes. CGMiner is an open source
Bitcoin miner that runs on Linux, Windows, and Mac OSX. It supports CPU
or GPU hardware setups, so it will pretty much run on any normal
computer. All you need to do is download the software, connect it to your
wallet, and you’re up and running. You will probably earn about one cent
worth of Bitcoin per year, but good for you.

https://en.bitcoin.it/wiki/CGMiner
 If you want to spend a little cash for a proper mining setup, you’ll need
to buy some ASICs and join a mining pool. If you go on Amazon and search
for “ASIC miner” you’ll get a list of the fastest gear currently on the market.
AntPool is the largest mining pool, and if you do a search, you’ll notice that
Antminer ASICs designed specifically for mining with the AntPool come up
at the top of the search. Searching myself, I found the Antminer S9 for
$2,999. This device runs a whopping 13.5 terahashes per second, or
13,500,000,000,000 hashes every second. For comparison, your computer’s
CPU can run about 5 megahashes per second, or 5,000,000 hashes per
second.

Once you get your faster hardware in place, the basics remain the same:
you want to hook up your wallet so your mined currency can be deposited
somewhere, you want to install the mining software, then fire the thing up
and let it run. Most mining software systems will automatically optimize the
miner for minimal energy use.

Image: Antminer S9
 Mining Altcoins

A big part of why mining Bitcoin is so competitive is because Bitcoin is

so valuable. If 1 Bitcoin is worth USD $4,000, the 12.5 BTC mining reward is
worth $50,000, and these are being given out every ten minutes as new
blocks are added to the chain! That’s $7,200,000 that just appears out of
thin air every day. Given that, of course the competition is fierce.

Altcoins, on the other hand, are worth much less, so competition is

much lighter. If the reward for mining a block of some brand new coin is
worth the USD equivalent of $5, it doesn’t make a whole lot of sense to
spend energy and devote the time of an expensive ASIC mining rig into
mining coins that pay out less than the cost of mining. This means,
however, that miners with more modest GPU mining rigs actually have a
decent chance of collecting coins.
 Still, why would anyone bother with this, given that after the cost of
electricity is factored in, an altcoin miner might be earning the equivalent of
a few cents an hour? The answer, like many answers to questions about
cryptocurrency, is gambling. It doesn’t matter how much a coin is worth at
the time you mine it, what matters is how much it’s worth at the time you
sell it. Newer types of coins might be worth pennies at the time they’re
mined, but over time can grow in value.

Someone mining Bitcoin in 2013 was only earning $89 per Bitcoin. A
block of 25 would have been worth $2,225. This is decent money, but
consider that those same 25 BTC are worth about $110,000 at today’s
prices. Not only does the price go up, but the trickle of coins released
generally goes down. Bitcoin is not the only cryptocurrency that decreases
the rewards given to miners over time. There is a lot of advantage to
getting in early and mining altcoins while they are still cheap and plentiful.
 What the decision to mine really comes down to is simple: if you have
some spare computer power laying around (maybe an old gaming PC with
a decent GPU?) and not enough cash to simply buy a bunch of altcoins on
an exchange, why not put your old computer or rack server to work mining
something that might potentially be worth many multiples more in a few
years? As long as you’re at least breaking even on the cost of electricity and
depreciation of your hardware, having a mining machine running 24/7 out
in your garage or basement would not take a whole lot of effort, and could
potentially be very lucrative.

The best altcoins to mine are going to change regularly as price and
competition fluctuate, however, as of mid-2017, altcoin miners tend to be
favorable towards the following:

Dash, https://www.dash.org/mining/

deCRED, https://docs.decred.org/
 Ethereum, http://www.ethdocs.org/en/latest/mining.html

Ethereum Classic, http://ethereum-classic-

guide.readthedocs.io/en/latest/mining.html

Expanse, http://pool.expanse.tech/

Lbry, https://lbry.io/faq/mining-credits

Groestlcoin, http://www.groestlcoin.org/pools/

Monero, https://getmonero.org/get-started/mining/

PeerCoin, https://peercoin.net/mining

QuarkCoin, http://www.quarkcoins.com/mining-quarkcoin.html

SecureCoin, https://securechain.info/wiki/index.php/Main_Page

StartCoin, https://startcoin.org/blog/startcoin_mining_pools

WorldCoin, https://worldcoin.global/faucet/
 Zclassic, http://zclassic.org/

Zcash, https://z.cash/blog/why-equihash.html

As we said, the best altcoins to mine are going to change, so it’s good
to visit a site like https://whattomine.com/ to get a reasonably current
calculation of mining profitability. If you can figure out what your actual
cost is for electricity, you can plug it into the calculator and get a rank-
order list back of the best coins to mine by projected profitability using the
hardware you have at home.

Altcoin mining using pools is common, and many of the links above will
direct you to existing mining pools for that coin. They work the same way
as a Bitcoin mining pool, by pooling computational resources and
distributing any coins earned.

Altcoin cloud mining pools are also common, and offer a way to simply
rent mining resources on a virtual computer without having to own or deal
with hardware or installing your own software. As with anything where
you’re handing over cash today for the promise of future returns, be sure
you’re dealing with a reputable company and not scammers. You might
also consider just buying altcoins on an exchange rather than paying for
cloud mining. At least that way you know exactly what you’re getting.
Proof-of-Work vs. Proof-of-Stake

The debate between proof-of-work and proof-of-stake gets pretty

wonky, but if you’re serious about mining altcoins, it’s important to
understand the difference between the two, and what that difference
means for mining competition and hardware needed to mine.

Bitcoin, Ethereum, and nearly all the cryptocurrencies that emulate

them, use what’s called a proof-of-work to create a cost for mining. When a
mining computer does the difficult task of decryption, that difficulty is the
“work” in proof-of-work. This work isn’t really needed to make the
cryptocurrency function, but it was included because it makes it very
difficult to game the system by successfully adding fraudulent blocks, or
commit a denial-of-service attack.

Because there is a real-world cost of electricity, gaming the system

would be incredibly expensive.
 It is absolutely possible to commit fraud and add a fake block to the
blockchain, but to do that you would need enough computing power to
overpower the rest of the network. This is known as a 51% attack. However,
to commit a 51% attack would take an enormous amount of computing
power and electricity. The cost of doing 51% of all the computing work on
the Bitcoin network is greater than the funds available to steal.

A criticism of Bitcoin is that it’s not very “green”. All of this electricity is
being spent decrypting meaningless puzzles. The innovation behind
Ethereum, which also uses proof-of-work, is to harness that electricity and
put it to use running the Ethereum Virtual Machine. The “work” of mining
Ethereum actually runs the EVM.

Proof-of-stake mining works a little differently, but is designed to

thwart fraud and DDOS attacks just like proof-of-work mining. In a proof-
of-stake mining operation, anyone who wants to mine the coin can sign up,
but they have to contribute a deposit (usually Ethereum).
 If that miner tries to commit fraud or acts badly, they would lose their
deposit. Again, it’s possible to game the system by creating enough fake
miners to commit a 51% attack, but if all those fake miners require a
deposit that is then lost, the cost is so high that it makes no sense to ever
do that. The only reason anyone would ever commit a 51% fraud attack on
a proof-of-stake system is if they are able to steal more money than they
would lose by forfeiting the sum total of all deposits.

As a miner, the distinction between these two systems is a very

important one. Any proof-of-work system is going to require a lot of heavy-
duty hardware to compete. The more a currency is worth, the greater the
competition will be. Worse, this leads to consolidation of power among
fewer and fewer miners. The more mining is consolidated, the greater the
chance is that one of those powerful miners could successfully pull off a
51% attack.

Proof-of-stake systems are attractive because a miner has just as much

of a chance to mine on a CPU as on a GPU or ASIC. Miners are chosen at
random by the system.
 This is great for average crypto users that want to get in on mining
without spending a pile of money on hardware and electricity, and is
considerably more environmentally friendly. All a proof-of-stake miner
needs to spend money on is their stake (the deposit at sign-up).

A lot of people are predicting that currencies will switch from proof-of-
work to proof-of-stake in the near future. As long as PoS proves to be as
hard to game as PoW, this will be a good thing for the world of
cryptocurrency.

Just to sweeten the deal, many PoS stakes earn interest or dividends,
meaning you’ll get some income just for putting your stake in. It’s worth
taking the time to shop around and check out staking PoS coins rather than
opting for traditional PoW mining. It may be a much easier way to earn
money.
 Chapter 8: Conclusion

Knowing all the opportunities and risks that come with cryptocurrency,
you have all the tools to invest wisely. But, given how much information the
preceding pages covered, let’s go through a list of the important points
you’ll need to remember in your day-to-day trading and usage of
cryptocurrency.

● Remember that Bitcoin is a store of value, not unlike gold. Treat it as

such, particularly when your investment horizons are short.
● Remember that Ethereum is a functional currency, designed to run
the Ethereum Virtual Machine. There is huge potential for an entirely
new class of decentralized applications that challenge current market
leaders. Where there is disruption, there is money to be made.
 ● Keep an eye on the dApps and their Tokens that are built on top of
the EVM, and consider what some of these companies might be
worth a few years from now.
● Shop around: there are a lot of exchanges out there. Work with those
that give good rates and have strong reputations.
● Stay safe: get multiple wallets, back up your private keys, and make
sure you keep your currency in a hard-to-hack format like a cold
storage hardware wallet when you’re not trading.
● Watch out for scams: stick to the big cryptocurrencies like Bitcoin and
Ethereum at first. Do your homework when investing in altcoins and
ICOs.
● Maintain a healthy respect for the law: Cryptocurrency does offer
legal gray areas that can allow you to get around many of the rules
and regulations of the country you live in, but if you poke the bear
enough you’re going to wake it up. Be sure to report your earnings,
pay tax on your gains, and never assume you’re totally anonymous.
● Make money: whether buying and holding Bitcoin or day trading
altcoins, good timing combined with a well chosen portfolio should
see far stronger gains than just about any other type of asset. By
being here now, you are a pioneer, and as such, you get to reap the
rewards.

At this point, you should be confident enough in your knowledge of

cryptocurrency to get out there and start trading. Don’t forget that you can
get $10 of free Bitcoin when you sign up with $100 at Coinbase. So go buy
some Bitcoin from an exchange, stick it in your new wallet, and get in the
game.

Thanks for taking our course, please tell your friends about it, and good
luck!
 We want to ensure you have the best knowledge and resources and
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