Five Steps to Being a Confident and Smart Bitcoin Investor

Josh Lehman
February 8, 2019

The crypto-economy may seem like a dangerous place with little to no guarantees and many traps one can potentially fall into, but that’s actually not true at all. Everyone can choose what kind of investor they want to be and how much risk they’re willing to accept. In this article, we explain how you can become a confident and smart Bitcoin investor in just a few simple steps to give you an early start on your cryptocurrency journey.

Step 1: Determine Your Investment Strategy

The Bitcoin market is a bloodbath these days, but some Bitcoin investors don’t seem phased at all. Why? Because they have determined an investment strategy that works for them and stuck to it. What investment strategy you should choose? Well, that depends on your investment goals.

Buy & Hold

Commonly referred to as HODL, this investment strategy is very easy to explain: you simply buy Bitcoin and hold it until it reaches a certain value. HODL stands on the belief that the crypto-economy has an enormous potential for growth.

According to HODLers, the value of Bitcoin will be exponentially higher in the future, and everyone who holds just a small fraction of a Bitcoin will be a millionaire. But don’t think that HODLing is easy! You need to have the nerves of steel to stop yourself from constantly checking in on how your investment portfolio is doing.

Day Trading

Day trading is the act of buying and selling Bitcoin within the same trading day, or even multiple times over the course of a day. The cryptocurrency market is known for its exceptional volatility, with prices growing and falling significantly in a very short period of time. Day traders are those who can profit from these largely unpredictable price movements.

Day trading requires at least a basic understanding of technical analysis and the ability to predict human behavior based on external factors, such as cryptocurrency news stories. You need quite a lot of free time to become a successful day trader, but the money you can makes it worth it.

Mining

Bitcoin and many other cryptocurrencies can be obtained as a reward for a process known as mining. The purpose of this record-keeping service is to keep the blockchain consistent, complete, and unalterable by repeatedly grouping newly broadcast transactions into a block by performing computationally expensive calculations.

Long gone are the days when it was possible to mine Bitcoin using desktop CPUs. These days, specialized ASIC chips run the show, and there are entire Bitcoin mining companies with dedicated facilities and high-performance mining hardware.

Even though the competition is tough, it’s still possible to make good money with Bitcoin mining, but we encourage you to calculate your expected BTC and USD return first using a Bitcoin mining profitability calculator.

Altcoins

Altcoins are all cryptocurrencies that launched after Bitcoin. Some are direct descendants of Bitcoin, while others have very little in common with the original vision of Satoshi Nakamoto. Altcoins go hand-in-hand with initial coin offerings (ICOs), which are a type of funding using cryptocurrencies.

ICOs are much less regulated than IPOs (initial public offerings). On the one hand, the lack of regulation makes them perfect for smaller companies working on disruptive products. On the other hand, it introduces a significant risk, and there have, indeed, been many ICO scams in the past.

Master Nodes

Master nodes keep the full copy of the blockchain in real-time and perform several other important functions. Not everyone can run a master node, because running a master node is incentivized, so there needs to be a certain barrier to entry. Typically, a certain minimum amount of cryptocurrency is required.

Unfortunately, Bitcoin nodes are not compensated in any way, so their activity is entirely voluntary. Anyone who has a computer that meets the minimum requirements of Bitcoin Core full nodes can help the Bitcoin network.

Step 2: Stay Safe

Bitcoin crime happens every day. Because of its very nature, Bitcoin has become a popular target of cybercriminals, who are often willing to go to great lengths to steal Bitcoin from unsuspecting victims. As if the threat of cybercrime wasn’t enough, Bitcoin users are sometimes their own worst enemies when it comes to Bitcoin safety. Here are some general guidelines to help you stay safe.

Keep Your Devices Secure

There would be a lot less Bitcoin crime if all Bitcoin users adhered to basic cybersecurity recommendations. You should never do any cryptocurrency transactions on a device that’s not fully updated and protected with a reliable anti-malware solution.

If possible, use a dedicated device for all cryptocurrency transactions. These days, it often takes just one wrong click on the web for a device to become infected, and that sort of risk is unacceptable when it comes to Bitcoin. A device that’s solely dedicated to cryptocurrency activities is a small investment that can pay off big time.

Back Up Your Wallet

Bitcoin wallets come in several different types, but if you decide to use an offline wallet, you should keep multiple backups of it. Hard drives fail, users make errors, and natural disaster happen unannounced. Without a reliable backup, you can literary lose your Bitcoins at any moment.

If you’d like to learn more about different types of Bitcoin wallets, skip to the step 4. Just keep in mind that even the safest Bitcoin wallet in the world is worthless if you don’t adhere to basic cybersecurity recommendations and make it easy for cybercriminals to infiltrate your network.

Verify, Don’t Trust

Cryptocurrencies have attracted many shady individuals because they promise anonymity. Remember that anyone can create a fancy website with fake testimonials and references. Always do your homework and verify who you’re dealing with. Avoid websites with bad online reviews and never take anyone's word at face value, no matter who they claim to be.

Step 3: Acquire Cryptocurrency

Here comes the fun part: acquiring cryptocurrency. In the early days, it wasn’t as easy to acquire Bitcoin as it is today. But the sheer number of cryptocurrency services makes it somewhat confusing to know which one to choose.

Cryptocurrency Exchanges

Cryptocurrency exchanges like Digital Surge are reliable, trustworthy, and convenient. Most cryptocurrency exchanges have cryptocurrency wallet functionality, so you don’t even have to worry about where to store your Bitcoins. Depending on which exchange you choose, you might be able to purchase Bitcoins with a bank transfer, credit or debit card, and sometimes even PayPal. Expect a small transaction fee, but not nearly as much as what traditional financial institutions like to charge for their services.

Pros: Reliable, trustworthy, and convenient. Multiple payment methods.

Cons: Transaction fee.

Over-the-Counter Trading

With services like LocalBitcoins, you can effortlessly find individuals who sell Bitcoin and connect with them directly. Over-the-counter trading is perfect for casual traders seeking more privacy, but it’s not without its risks, especially when you decide to find someone in your area and trade face-to-face. LocalBitcoins traders have even been held at gunpoint, so caution is definitely recommended.

Pros: Extra privacy. No fees and no intermediaries.

Cons: Can be dangerous.

Bitcoin ATMs

Believe it or not, but there are now over 4,000 Bitcoin ATMs in 74 countries around the world, according to Coin ATM Radar. Bitcoin ATMs are often located in large shopping malls, and they are just as convenient as their traditional counterparts. However, you may want to stick to cryptocurrency exchanges when purchasing larger amounts of Bitcoin because Bitcoin ATMs charge transaction fees as high as 7 percent and exchange rates $50 over the rates offered by most exchanges.

Pros: Perhaps the most convenient way how to acquire cryptocurrency.

Cons: High transaction fees and poor exchange rates.

Step 4: Store Cryptocurrency

To store your Bitcoins, you need a Bitcoin wallet, which is a software application that safely keeps a secret piece of data called a private key, or seed. There are several different types of Bitcoin wallets, each with certain pros and cons. For a complete list of all Bitcoin wallets, we encourage you visit the official website of Bitcoin.

Desktop Wallets

Desktop wallets like Bitcoin Core or Electrum give you complete control over your cryptographic assets, but they leave you responsible for your own security. Many people have lost absurd amounts of Bitcoin because of a simple error, and cybercriminals have created a whole host of targeted attacks designed to steal money from desktop wallets. Some desktop wallets can run as full nodes, which means that they download the entire blockchain and keep it up to date. At the moment, the size of Bitcoin’s blockchain is nearing 200 GB, so it’s no surprise that most Bitcoin users prefer lightweight desktop wallets that don’t need the whole blockchain to work.

Pros: You can enjoy complete control over your cryptographic assets. The option to download the complete blockchain and keep it up to date.

Cons: Desktop wallets are often targeted by cybercriminals.

Mobile Wallets

Mobile wallets like BTC.com or Copay are in many ways similar to desktop wallets, except that they run on mobile devices. Hardly anyone has 200 GB of storage space on a mobile device, so the developers of mobile wallets don’t even bother with full nodes. Instead, they focus on usability and simplicity, making mobile wallets a great choice for casual Bitcoin users who don’t intend to store a lot of money in Bitcoin and other cryptocurrencies. The biggest downside of mobile wallets is our tendency to lose or break our mobile devices.

Pros: Convenient and easy to use.

Cons: If something happens with your phone, you can say goodbye to your Bitcoins.

Web Wallets

As their name suggests, web wallets like Digital Surge or BitGo keep your private key on a remote server. As such, you can access your coins from anywhere in the world and don’t have to worry about keeping them safe. Of course, you have to trust the wallet provider to keep your coins safe for you. We recommend that you only keep a small amount of cryptocurrency in a web wallet unless you are actively trading with it.

Pros: You can access your coins from anywhere. No need to take responsibility for security yourself.

Cons: Your security depends on someone else.

Paper Wallets

Your private key is really just a long string of letters and numbers. That means you can store it even on a piece of paper, which is exactly the idea behind paper wallets. Paper wallets can be very inconspicuous, and they don’t require electricity to work, making them perfect for long-term Bitcoin investors. Paper wallets are also great for backup purposes or as a safety measure against thieves, who most likely wouldn’t bother stealing every single piece of paper you have in your house.

Pros: Inconspicuous. Don’t require electricity to work.

Cons: Not very convenient. Not suitable for daily use.

Hardware Wallets

Hardware wallets like Trezor and Ledger store private keys in a secure hardware device and are thus immune to computer viruses that steal from software wallets. Most hardware wallets use sophisticated encryption and 2-factor authentication to protect against physical theft, and it often takes just a single tap to confirm a transaction. While hardware wallets aren’t exactly cheap, they are arguably the best way how to store Bitcoin.

Pros: Secure and tamper-proof. Support for 2-factor authentication.

Cons: Expensive.

Step 5: Monitoring Your Investment & Selling

Depending on your strategy, you might want to monitor your investment multiple times a day, once a week, or not at all. Most cryptocurrency investors use a portfolio tracker app like Blockfolio to always know exactly how much fiat their cryptographic assets are worth.

It’s also useful to have an overview of cryptocurrency market cap rankings, charts, and other information, which is something CoinMarketCap can help you with. To see the current BTC exchange rate on major exchanges, with real-time updates, use a service like Bitcoin Ticker.

All confident and smart Bitcoin investors keep up with the latest cryptocurrency news, so make sure to add Coindesk, Cointelegraph, CCN, and other cryptocurrency-related news sites to your bookmarks or RSS reader and read them as often as possible to know when to sell.

Conclusion

Anyone can become a confident and smart Bitcoin investor by following the steps described in this article. Bitcoin investing is not nearly as difficult as some people make it seem to be, but it’s not trivial either. If you’re committed and enjoy learning new things, there’s a wealth of cryptocurrency investment opportunities out there just waiting to be discovered, and Digital Surge is a great place to start.

Josh Lehman

I’m the co-founder of Digital Surge - Australian Bitcoin Exchange. We provide a fast and easy way for Australians to access cryptocurrency. I’ve spent over 10 years working in the IT industry and know first hand that technology doesn't need to be complicated. It is our mission to simplify access to cryptocurrency and to educate and support our customers throughout their journey.