Jumping on the Crypto Crack Train – Getting Started with Crypto Investing

Crypto Crack Train

I remember first hearing about Bitcoin back in 2012. I was working at Amazon at the time. A couple guys from my development team were huddled around one co-worker’s screen. We were pretty fascinated by the concept, yet we didn’t take it too seriously. Bitcoin cost just $7 at the time, it was very interesting, but even us — a group of software engineers in Silicon Valley — thought it was just a cute little fad.

Today, almost everyone has heard about Bitcoin and many have put serious skin in the game — a game that has resulted with both winners and losers. Major media outlets have exploded with positive and negative headlines. Cryptocurrency has had major rallies and a major corrections. Some people see a whole new tech revolution coming, others are sitting back laughing at the stupidity of the believers.

Today, there’s much more than just Bitcoin, Etherium or Litecoin. Much more. Thousands more. While it’s easy to determine the major projects, one challenge for the population is determining which ones aren’t heading for obsolescence. For each crypto project, so many factors come into play — user adoption, the development community, the tech/platform/algorithm itself, the actual problem being solved.

Last year the United States has declared cryptocurrencies as a taxable asset, which means cryptocurrencies are now recognized by the U.S. government as a legitimate asset. Hate on it all you want, but this shit is definitely real now.

My point in writing this article isn’t to convince you of whether or not you should make a bet on cryptocurrency. I’m a tech guy and I’m into this stuff. But I’ve sobered up from the highs and I’d like to share my journey. The point of this article is to inform you of some first steps, practical financial considerations and computer security steps before you decide to put any money into the crypto crack train.

My First (Bad) Experience with Crypto

You should know about this. In 2013, I decided to dump two thousand dollars (USD) into a crypto exchange. Twenty-four hours later, the exchange got hacked. Although I was able to recover the money, it was quite a sour first impression.

When Bitcoin had one of it’s first major rallies, a day when it climbed from $105 to $266 per coin in April 2013, I decided to designate my first purchase on the proceeding downswing. I transferred money directly to an alternative (somewhat well known) crypto exchange at the time. The exchange was called “Bitfloor”. I remember that moment, right before I hit the submit button, asking myself “Am I okay with losing this entire two thousand dollars?” I consciously affirmed to myself “Yes, I’m okay with this,” and I submitted the order.

Twenty four hours later, the exchange shut down. Bitfloor, the fourth most popular Bitcoin exchange at the time, was no longer accessible the day following my deposit. I said to myself, “Welp, you just said you didn’t mind losing the two thousand dollars, and now it’s gone, so there you go.” It was a good lesson, but I didn’t expect to lose everything in less than a day.

The exchange itself was compromised, not Bitcoin. Bitfloor had idiotically backed up a copy of everyone’s private keys without using any encryption. It was the backup copy that was hacked and as a result 24,000 bitcoins were drained from the exchange.

The lesson here is that the exchange systems in this space are themselves a great factor of risk (I later also got burned by BitGrail, a more recent exchange fiasco I can share another time). You want to avoid keeping crypto in the exchanges. Put in only what you exchange and pull out. When you put money into a stock market, you assume the stock exchange isn’t going down. There’s trust in the traditional stock infrastructure, and it’s secured by public tracing and government organizations. Crypto exchange systems don’t exactly have that luxury. The philosophy behind crypto is that it shouldn’t require government control since trust is built into the currency. True, but there’s a lot of work needed to build trust into the exchange systems.

For a while, I didn’t think I would get my money back. I thought it was gone. But Bitfloor was able to return my initial investment after four months because (luckily) the funds were not converted to Bitcoin at the time of the hack. I got off lucky and I kept playing.

Psychological Priming

This is about easing in and designating your initial investment. The crypto market is like some sort of genius, cyborg-psycho child —a kid with lots of potential, but he’s bipolar with manic/depressive outbursts. You need to come up with a number that represents the amount of money you are willing to expose and lose entirely, because this kid is not stable. For people planning on getting in, I recommend to consider starting with just 1% of your net worth.

Add up all of the assets you own; your stock, 401k, cash in the bank, the equity in your home, precious metals, etc… And subtract the amount you owe; credit card debt, car loans, student loans, etc… Whatever is left, this is your net worth, come up with a number that represents 1% of that. If your net worth is a negative number, stop now.

“Investing” in cryptocurrencies (if you want to even call it investing) is crazy. But I believe we should all invest at least a small portion of our portfolio into something crazy. 1% is a starting point. Once you get the hang of things and if you have extra cash on hand (which you don’t mind losing), you can bump it up to 5 or 10% — anything above 5% is really pushing it. Unless you have experience in high volatility trading and are able to deeply understand technical whitepapers, I don’t recommend going past 5%. Whatever number you choose, this is a number to consider as your initial investment.

Before you proceed to get involved in cryptocurrencies, you need to consciously declare your psychological relationship with your initial investment. Ask yourself (out loud) “Am I okay with completely losing this amount of money?” If the answer is yes, then declare (out loud) saying “Yes, I am totally fine with completely losing this amount of money”. Say it out loud, say it word by word.

Why is all this important? Because there are toxic emotions involved when trading in a volatile market and the less psychologically attached you are from whatever amount you expose to the market, the more enjoyable this will be and the better you’ll be at making buy/sell decisions. If you’ve summed up an amount that you are deeply concerned about losing then you should recalculate your initial investment.

You will need to remind yourself of the above declaration from time to time, especially when prices fall, a trade gets stuck or an exchange gets hacked — these are all times when you most need rationality. These are the times when you need to remind yourself of your declaration of your initial investment.

In short, if things go sour, think critically — you’ve decided to be okay with losing the money in the first place. On the flip side, if things are going well, remember that you have not realized any gains until you have actually converted your gains into dollars and have inserted those dollars into your bank account. Be neutral either way, think clearly and avoid both euphoric and catastrophic emotions — they can both be destructive.

Offline and Online Computer Security

The land of the wild. Don’t even begin to open a crypto exchange account or download any wallets until you’ve covered basic preemptive computer security steps. Hackers lurk on novice crypto holders all the time and lots of money has been stolen through exchange hacks and covert means of obtaining your private keys. In the crypto world, you are the administer and the gate keeper of your own assets — not the bank. There is no bank. There is no government. There isn’t anyone accountable other than yourself in the event your funds get stolen.

1. System Updates & Virus Scanners

Now is the time to clean your computer and your smart phone — a digital baptism so to speak. Check for any software updates for your windows or mac operating system, check updates for your web browser and download any major software updates for your system. Delete any programs that you don’t actually use. Remove any browser extensions you don’t use. This all applies to your smart phones as well.

Install a premium Anti-virus scanner — don’t use a cheap/free scanner. Download McAfee Antivirus or Symantec, install it on your computer and your smartphone. Pay for a yearly subscription and run a full virus scan on your system. Once that’s done, configure the scanner to continuously run in the background and set automatic updates. Enable continuous firewall and web protection functions. Enable everything.

2. Make Use of a Password Management Tool

Passwords are one of the weakest links in computer security. Why? Because people reuse their passwords. People use the same password for multiple different websites or use a similar password with minor variations. One website gets hacked and the password is exposed for all other websites. This is a terribly insecure practice, yet very common.

Also, people use weak passwords. Humans tend to use passwords they can remember. In general, if you can remember your password on a public website, variations of it is stored in a password library somewhere for a brute force attacker. You need to use passwords that are so complex that they are virtually impossible to remember.

This is where password management tools come in handy. Using a password manager, you will reset every online account you own with a unique, randomly generated password. Make sure each password is at least 40 characters in length and makes use of capital & lower-case letters, numbers & special characters.

A password management tool like LastPass will help you securely store and manage all of these passwords. There’s also other applications, if you are using another password manager, feel free to comment your review of it below.

3. Tighten Down Your Email Account

Most online services require an email as part of the login. Your email account is also used for verifying the rest of your online accounts. With that said, it’s especially important to secure your email account to avoid fraudulent verification. I’ll recommend Gmail but I’m open to others (feel free to comment). In Gmail, make sure to remove any secret security questions and answers as a backup security option, “what’s the name of your first pet?”, “what street were you born on?”, etc… delete these. Having these questions and answers as backups in the event you lose your password is a weak point of penetration for someone who wishes to take over your account. Instead, enable the backup codes and either store them in a secure note in your password manager or print them out and store in a safe place.

Enable Google’s built in two-factor authentication method for Google Accounts. With this enabled, if someone were to obtain your password, an extra security step of pressing a button on your phone would also be required, making it really hard to access your account. This is such an important security measure that two-factor authentication needs it’s own section…

4. Two-Factor Authentication

Since passwords in general are one of the weakest links in computer security, experts have come up with more secure additions: Two-factor authentication. Basically put, as an extra step to using your password for logging in, prominent online services allow you to require a second authentication step — like entering a set of random numbers generated every 30 seconds by an application on your phone. This way, whoever has your password, still cannot log into your account without also somehow stealing your phone.

There’s several applications for enabling two-factor authentication and for those who already use one, feel free to comment about your experience. I prefer Authy since it allows for backing up in case I were to lose my phone.

An Information Minefield

The land of the wild. I hope you get so high your understanding of the world will shake. I’m not going to say I know everything about this sector, but certainly mainstream media is behind when discussing the crypto subject. You need to pull information from several sources — mainly technical sources and multiple market sources. Mainstream media is behind when communicating the technologies and many are behind when applying their 1980’s understanding of economics to describe it.

But it’s not just the naysayers, lots of supporters of crypto technologies aren’t getting it right either. There are serious activities of price manipulation taking place — an activity considered fraudulent in traditional markets. For many supporters, their eyes are fogged with cash signs. Because they’re so invested, they’ve made a career out of promoting crypto shit assets and saying outlandish things like ‘It’s gonna get to a Million Dollars! Guaranteed Lambos!’ while downplaying the flaws of the technology, ignoring fundamental trends and overlooking the competitive landscape.

Under the surface, this is an age where we are seriously questioning the fundamentals of intrinsic and instrumental value. The old stories we have about money and wealth doesn’t exactly fit with the understanding of crypto as a medium of exchange or a store of value. When people question the value of cryptocurrencies, they’re being reintroduced to questioning the value of fiat currencies. When questioning the value of fiat currencies, they’re being reintroduced to questioning the value of gold. The very nature of currencies have already changed rapidly from tangible materials into electronic bits in a financial services data center. What really gives these elements their value? Perhaps I’ll focus on this topic in another article.

In the meantime, I’m still a part time player in the crypto market. I believe in the technology, yet I’ve sobered up from the previous highs. While I’m still invested in multiple crtypo projects and have my eyes set on the long run, my best portfolio investment thus far in 2018 has nothing to do with blockchain — rather, a traditional Vanguard ETF. Time-honored.

I think right now is a great time to get into crypto, but we’ll see what happens later this year.

About the Editor: Jason Weber is a Director at Wiseflow Ventures. He’s built several profitable companies in SaaS, IT Consulting, and Corporate Housing, and has worked at top tech firms including Amazon, Hewlett-Packard, and Intel. He holds four issued patents and is passionate about practical Zen, the Flow State, high-tech, and the hustle.