This post is intended to help identify some bitcoin considerations I’ve found to be important – that would have been nice to know when I got involved last February. I’ve researched the bitcoin community before making decisions and my experience has been a smooth one. But it took months to investigate and understand what is summed up below, and I hope it helps others 🙂
So, you’re hearing about Bitcoin and other crypto-coins in the news a bit, and some of your friends have “made it big” with Bitcoin, Ethereum, Litecoin…etc. – and you’ve found this BitcoinPam website that shares what I’ve learned and how good the experience has been… So, now the question is “Should I buy Bitcoin?” Before you make that decision, I’d like to share what I’ve learned about the responsibility of owning digital currency. While I wholeheartedly recommend participation, the one thing it is important to understand is this: YOU ARE 100% ACCOUNTABLE FOR YOUR OWN ACTIONS.
Cryptocurrency is not user-friendly at this point in time. Yes, it is improving and yes, it is completely “do-able” – but know what you’re getting into and accept the reality of the situation so you can enjoy the risk-reward vs. lose your money. This is EMERGING TECHNOLOGY, and all participants need to be clear on what that means. The crypto-space is attracting new buyers rapidly due in large part to the price of Bitcoin – but you need to understand that technology for services will need to play “catch-up”. Systems get overwhelmed with mass influx of new users, and developers need time to scale for that growth. Deal with it and don’t get upset, because it will only frustrate and discourage your participation. Take steps to avoid issues by understanding this space vs. blindly buying and risking what is becoming increasingly more valuable.
Here are a few things you need to be aware of …
- If you lose your Bitcoin (or altcoins), they are gone forever. There is no company to call, no one to complain to, no agency to file charges with. If you can’t handle the responsibility of keeping your cryptocurrency safe, then it is best not to buy any at all.
- Prepare for the time KYC verification takes. There are identification verification processes that you will need to complete before you can buy cryptocurrency. Due to the massive number of new accounts being created, Coinbase – which happens to be the easiest exchange service for those of us in the USA – has recently been overwhelmed just verifying accounts. Nothing more frustrating than to make the decision to buy Bitcoin only to be told it will take 5-7 days to be approved. If you even think you’ll be buying crypto – create a free account and get it all setup, approved and ready. You don’t have to buy a single coin to do that, and if/when you do decide to move, you can.
- Buying fractions of Bitcoin. While this will quickly become obvious once you get used to Bitcoin, many think they have to “buy a whole Bitcoin” and have missed out because that is not possible with the price now close to $20K. Bitcoin is divisible to 8 decimal points and you can buy any fraction desired. That said – also understand buying fractions of Bitcoin and then transferring a balance to your offline wallet will result in higher fees. Unlike traditional financial institutions that charge fees for transactions, Bitcoin fees are NOT dependent on how much money you’re sending. The fees for sending $5 worth of Bitcoin can be the same as sending $5,000. Fees are not measured in dollar amounts, or even Bitcoin amounts. They’re measured by “satoshis per byte of data” or sat/byte. Instead of paying for every Bitcoin you send, you pay for the amount of data in a block your transaction is taking up. So, if you’re combining multiple transactions into one that totals say, 0.1 BTC – it takes up more data space and costs more to send than if you received 0.1 BTC in one transaction and are sending it to another wallet address.
- But you thought Bitcoin transactions were low. Unfortunately the effects of Segwit on transaction capacity won’t be seen for weeks or even months. The only transactions that help increase capacity are transactions from a “Segwit address.” A Segwit address is simply an address that comes from a wallet that supports Segwit. Currently, there are almost no wallets that are Segwit ready, so very few Segwit addresses are getting created. To really see the effects, a large majority of transactions that are transacted regularly will need to be moved to Segwit addresses, which will take some time. When most those coins are moved, more transactions will be able to be included per block, lowering fees. Better software will lead to average people setting very competitive fees, leading to a more accurate fee market. But this is going to take time. Meanwhile, the price of Bitcoin keeps going up – so, might not want to fret over the fees right now.
- Educate yourself on wallets. If you plan to buy and hold crypto, your coins need to be in a safe wallet (desktop, hard or paper wallet) and inaccessible. You can read all about the various wallets and decide what options are best for you – but research the option you select thoroughly. For day-to-day usage or trading, there are some desktop wallets that interface with exchanges, such as Exodus or Electrum. Electrum is not that user-friendly, Exodus is very user-friendly. Jaxx is another option to consider and investigate. While desktop wallets are convenient, it is still not a good idea to keep ALL your crypto in these wallets. The bulk of your wealth should be kept in a hard wallet or a paper wallet, and stored in a safe location.
- Understand the difference between wallets and exchanges. Exchanges are different than wallets. Think of exchange wallets or online web-based wallets like you would PayPal. Just as you would never keep your life savings in a PayPal account, same holds true for keeping Bitcoin in an exchange wallet. That is how cryptocurrency gets stolen or hacked. When you send an exchange BTC or obtain BTC on an exchange, it’s in the exchange’s wallet – not yours. The exchange holds the private key and you only have an IOU from the exchange. You must trust that the exchange will pay up if you cash in that IOU. This is why you never store your Bitcoin on an exchange unless you are actively trading it. Because you don’t have that Bitcoin’s private key.
- Do not keep your crypto on an exchange. This warrants repeating! Bitcoin itself, and most of the other cryptocurrencies have never been hacked or even really had any downtime. Bitcoin becomes insecure when other technology starts to get involved. The fact is that bitcoin is too complicated for most people to use without apps, wallets, and other digital currency services. The biggest need is for third-party exchanges – sites where bitcoin is bought and sold for other currencies. All these third-party exchanges/services are only as safe as their own security. But more importantly, when you deposit your Bitcoin (or altcoins) you no longer hold the private keys – the exchange does. If you do keep crypto on exchanges for trading, then spread it around by using more than one service. This way, if one gets hacked or shuts down – not all your crypto is lost.
- The Bitcoin Golden Rule for newbies: If you hold the private key (the BTC is in a wallet you created), it’s your Bitcoin. If you don’t hold the private key (the BTC is in an account of some company), it’s not your Bitcoin. What is important is that you choose your wallet carefully, check multiple sources for technical reviews and prefer open-source wallets – meaning that the source code is available for anyone to download and review. Of course, non-technical users will not review source code, but it is important to know that anyone can. There will certainly be geeks who do exactly that, and will raise an alarm if there is anything suspicious in there. That is also why the Bitcoin network is trusted. Anyone who cares can look at the source code and know exactly what the software does, and how it does it.
- School yourself on encryption of files, and backups. It is critical to have backups of your data, as many as you can – and in safe places like a bank safety deposit box. If your computer gets hacked or stolen – and your sensitive data is not encrypted, your crypto-assets will be gone forever. If something happens to your home, and all your private keys to your crypto-assets along with your wallet passphrases and passwords – go up in flames, or your computer crashes, then your crypto-coins are gone forever. If you have offsite backups of your wallet passphrases, passwords, private keys, etc. – the hardware and software can be replaced, new wallets installed and restored using that critical information.
- Use very strong passwords and protect your passphrases. No fudging on this one! Your old medium-strength password that is easy to remember just isn’t going to cut it for cryptocurrency wallets! The big advantage when using deterministic wallets, such as Exodus or Jaxx, is that you get a twelve-word passphrase that allows you to recreate your wallet anytime, anywhere. You could literally delete the wallet, get a new computer, then download the software, plug in the passphrase and have all your money back. That’s incredible and could be a life saver under any number of circumstances – particularly if your device is stolen or lost, but everything is encrypted. A thief would not be able to access – or you would be able to recover – your cryptocurrency.
- Accept that this is high-tech and deal with it appropriately. If you use a Windows PC, understand that you have instant risks. Regardless of how many people use it, or how popular it is, a Windows machine is a seething hot mess of infections, vulnerabilities and retro-fitted security that does not work. Understand and accept this so you can act appropriately, or you’ll likely learn the hard way. To use Windows you need to run it on a clean install VM, with tightened security, and not access your computer as an administrator except when you need to install software or other tasks only admins can perform. Don’t rely on “free” anti-virus software! It takes real developers, constant updates, and dedication to keep anti-virus software ahead of malicious code – and that is not free. So prepare to invest in MalwareBytes (premium) at the very least – a measly $39.99 for one computer and you can license many devices and all kinds of devices for a little more.
- Realize Windows is spying on you. Not a good idea to keep your cryptocurrency on a Windows machine that is sending data to Microsoft constantly. You can remove some user permissions from the registry keys that allow programs to start with Windows to prevent that syping – or you can use software that kills this functionality.
- Remove vulnerable, untrusted software. Again, if using Windows and you have installed games, browser extensions, “helpers” for surfing the web – any of that freebie software that appears to be so innocent – delete it!
- Always use Two-Factor Authentication. If you’re buying and selling on the exchanges, then be sure to enable two-factor authentication and AUTHY is highly suggested over Google Authenticator – even if that is what is recommended. Authy will work just the same and should you lose a phone, you can still access Authy accounts from other devices if you activate the multi-device feature – and you can deactivate the feature also. When a device is lost, you can simply use another trusted device to access protected accounts _ and click a button to disable the lost one. Furthermore, when a new device is purchased, a previously authorized device can be used to instantly authorize the new one. Most people have more than one device, so it’s likely you’ll always have an old device on hand to authorize a new one. Get a new phone, you can install Authy, verify your identity, and access all your tokens painlessly compared to Google’s solution. When you add multiple devices using Google Authenticator, all devices share the same keys, requiring a user to have to go to each service provider, have them generate new keys and re-add them manually. Remember, 2FA might be a pain, but if you don’t use it and someone gets your password – your Bitcoin will be gone! That will be a lot more painful.
- Bitcoin.org vs. Bitcoin.com – know the difference. Bitcoin was developed/created by Satoshi Nakamoto and in his paper he wrote the offical website of bitcoin – http://Bitcoin.org – which today is an independent open source project that provides basic information to help explain Bitcoin. Bitcoin.com is owned by Roger Ver – and is a commercial site often used to spread propaganda designed to push the agenda of this individual.
As a web developer for many years, I have found software and services that are useful and reliable. I always research every tool selected – and that means more than reading the descriptions provided by those offering it! I’ve often passed on something that looked great by simply searching to see what the Bitcoin community thinks. There are developers out there that devote their time to providing useful, real world information and they share it readily. All you have to do is make the effort to investigate.
Bitcoin is still largely unregulated, which means your money isn’t insured and there is often no accountability for exchanges. So while Bitcoin tech itself remains unhacked, the methods used to collect, buy, sell or store remain as potential attack vectors. If that makes you squeamish, then perhaps buying crypto isn’t for you. And there’s a great deal of truth to this meme that’s making the rounds – cryptocurrency is risky! The rewards can be astronomical, and so can the drops. Don’t risk what you can’t afford to lose, and try to recoup your initial investment so you’re playing with the house’s money.
The crypto-space offers opportunity like never before for anyone to participate and realize tremendous potential profit. However with the value of crypto, especially Bitcoin, hitting all time highs almost daily now – this is no joke! Educate yourself so that you benefit and avoid pitfalls that could be very costly indeed.
Note: The info in this post is not meant to be taken as investment advice. You should conduct your own research and make decisions based on your findings. This information is provided merely for the purpose of discussion and consideration.