Bitcoin and its Ilk, a word from a friend

Posted on May 29, 2014

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Following repeated enquires from chums and business colleagues alike for advise on how to ‘get into’ Bitcoin, I cannot repeat enough that despite all the hype BitCoin is still defined as ‘An Experimental new currency that is in active development’.

For you friends who may read this, enjoy the ride, but do so with your eyes wide open and your learning account available for deposits.

I am on my own learning path with Digital Currencies, and one I find a challenge to keep up with at times. It’s a new world full of surprises, but made simpler by my security background and cryptology training. Not something everyone has the benefit off, so a few words of caution. After all you are all big guys and who am I to tell you what not to do!

The adoption of Bitcoin is quiet astounding as is it grips the human psyche by the wallet. It demonstrates the vacuum that exists for a means of transacting value in a compatible way with the increasingly global digital world we conduct our lives in. That does not mean and end to Fiat Currencies, but a new dimension in real time through nothing more than its community based faith re-shaping and challenging the financial establishment status quo.

We need to set the scene so before you go any further please read the excellent article by Forbes, short and succinct, called All Money Is Fiat Money’ 

So you still want in. You have read the headlines, and maybe even the whole article, and fancy a flutter. Flutter = English slang for placing a Bet. For now that is exactly what you are endeavouring to do, gamble, irrespective of anything you read you will be or are GAMBLING.

First rule of Gambling is to never gamble anything you are not prepared to lose 100%. If you cannot afford it, don’t do it.

If you are still reading past the health warning then heads up and eyes open, you are on the road to enlightenment… Sounds all very self righteous doesn’t it. Well you will get a lot of that were you need to go and read and learn BEFORE you place your bet on Bitcoin or any other Cryto / Digital Currency or Alt Coin as they have been ‘coined’, excuse the pun!

So you thought it was simple, pop-out and buy some Bitcoin. Let’s burst that bubble. Apart from the inconvenience of actually acquiring and then managing Digital currencies with the uncertainty around current regulations. There are technicalities you will need to get your head around. The first reality check is to highlight that Bitcoin is just one of hundreds of crypto currencies out there in the digital realm. So ask yourself why are you buying Bitcoin and not Darkcoin, or do you like the sound of Litecoin, Peercoin, Namecoin, Primecoin, Feathercoin, Novacoin, Megacoin and the list goes on, and on. Even one for the Scottish Nationalists ScotCoin, yup its real.

OK Bitcoin is top of the Digital Currency heap; see the top 100 list form earlier this year. Yes top 100! Their only value proposition being the strength of their community support.

So you’re still in and what’s more you want to go for the top dog, in Digital Currency (at least today) Bitcoin it is then. Now the learning begins if you are not to be a passenger. You are going to join what has already proven to be a highly volatile ride. I have no doubt you will experience many stomach churning moments ahead and with little prospect of any stability for the foreseeable future this is not for the light hearted. Do not get distracted by the giddy highs of $1,000/bitcoin, the price is almost halved, and my guess is sanity will prevail and a lower baseline will be established before it settles out. But don’t believe me, time will tell and I have a 50/50 chance of being right, or wrong 😉

Your next step is to at least start to understand what you’re getting yourself in to. No I am not being repetitive, I cannot repeat that enough.

The best understanding is the one you garner yourself from information you source, qualify, read fully, and understand with dictionary in hand the techno speak until you own the subject. Make sure you read widely and do not assume anything, trust your own understanding and qualify your sources (easier said than done with the wealth of misinformation that abounds). There is one thing for certain, the Digital Currency community is full of fanatics, charlatans pumping sentiment to try and drive value perception (and that is all it really is) in the community, just like the gold rush days. Keep your head clear of the hype and trust in your own judgment. At least then you will have the pleasure of losing (or gaining) and not suffer the frustration of having someone else forcing your hand.

No convenient yes or no or here you go this is how you do it tickety-boo and all that old chap.

For starters, you need to get your head around:

  • The Blockchain – it is at the heart of what makes Bitcoin trustworthy. Don’t take my word for it, understand it for yourself.
  • Digital wallets – Understanding the differences and risk implications of online wallets managed by third parties and your own application abased wallets. This is where your money is held, know how to back them up, and make offline copies and non-digital recovery mediums.
  • Bitcoin addresses – How to use them and why you would not want to use the same one all the time.
  • Exchanges – Understand what these are, the market leaders and how they work and users interface with them. This is likely to be where you do most of your buying and selling. How you get money into your Exchange account and buy Bitcoin. Easier said than done.
  • Transactions – How you go about using your Bitcoins.

Once you have your head around this little shopping list you are only just beginning on your journey; a veritable novice where a little knowledge can be dangerous. Walk before you try to run.

I have done the best I can and that is to forewarn, for forewarned is forearmed and if I fall foul of criticism for any negative inflection, I am not going to apologies. Anything that strengthens your resolve to be prepared is a good thing.

You will find included above some links to sites and articles to seed your self-enlightenment. For that is what you must now do if you are to brave the wild west of digital currencies. Do your own analysis, list the prose and con’s clearly so you can take measures to monitor and manage the risk. You have no convenient city broker or account manager who is going to read the tee leaves on your behalf. No warnings of the next market crash, trading exchange bankruptcy or shift in the rules that could see your Digital Currencies evaporate overnight. Once in you need to keep yourself alert. You will be on a steep and vigorous learning curve.

The virtual buck stops at your door.

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