Welcome to Crypto New Zealand.
The fact that you have come to read this post indicates that you're keen to learn more about crypto and perhaps even get in on it yourself. You've come to the right place.
I was once in the same position as you. However, back in 2015 most of the information about crypto was contained in chats on forums, and all we really talked about was Bitcoin. At that time Bitcoin was simply a digital currency, used for buying and selling goods online. Flash forward a couple of years and we now have over 1000 different cryptocurrencies worth billions of dollars. We have realised that the foundation Bitcoin was created upon - the blockchain - can be used to digitise and optimise aspects of our lives we never thought possible.
As there is now screeds of information online about cryptocurrency (all of varying quality), getting started in crypto can be incredibly confusing. That's where we come in. The goal of Crypto NZ is to educate fellow Kiwis about cryptocurrency so that we can profit from this digital revolution and build a better life for ourselves and our families. In the process, we'll be able to build an active Kiwi crypto community where we can discuss crypto coins, news, investment strategies and arrange local meet ups.
But for now, let's get you started with some basics. Keep in mind that this guide will focus mainly on buying & holding coins (investing), rather than short term buying and selling (trading).
Bitcoin (BTC) is a payment system introduced in 2009 by a developer under the name of “Satoshi Nakamoto” in the wake of the collapse of the financial giant Lehman Brothers in 2008. It shall forever have the title of the first ever cryptocurrency.
Cryptocurrencies are digital assets which use cryptography to secure the transactions and to control the creation of additional units of the currency.
A key feature of cryptos (most of them anyway) is that they are peer-to-peer, that is, its users dictate and validate transactions when one person pays another for goods or services. There is no central authority controlling the flow of money, such as a bank. Therefore, cryptocurrencies are decentralised. This differs from the traditional monetary system where have a federal reserve or banks who control a large proportion of money (also known as "fiat") and the flow of it.
To proponents of cryptocurrencies, they are seen as the next evolution of monetary and banking systems. Allowing users to perform cheap, rapid transactions without having a central authority in control of funds is seen as hugely beneficial over the current mainstream system.
There are only a defined number of Bitcoin that will ever come into existence (21 million). Three quarters of these are currently in circulation and additional BTC is released into circulation at a fixed, but periodically declining rate. This limited quantity means that inflation is not an issue with BTC (unlike fiat currency). The individuals and companies who are involved with the release of more BTC are called "miners". Miners use their computing power to confirm transactions on the BTC network and are rewarded for their efforts by being granted new BTC. Miners are also involved with governance of the BTC network, including voting on important events such as chain forks (see below for more info).
Another important technological innovation of Bitcoin which you will hear often is "the blockchain." The blockchain is a public record or ledger of all completed transactions which occur on the BTC network. When a transaction occurs, the transaction is verified to be true by other BTC users and publicly recorded into a block. This block then gets added to the BTC blockchain by miners. On average, a new block is added to the blockchain every 10 minutes.
Lastly, it is also worth having an understanding of the term 'satoshi'. Just like a $1 coin can be broken down into 100 cents, Bitcoin can also be broken down into smaller units. A satoshi is the smallest fraction of a Bitcoin that can currently be sent: 0.00000001 BTC, that is, a hundredth of a millionth BTC. Bitcoin’s ability to do this is crucial for encouraging practical usage as an everyday currency alternative. It also allows altcoins to be quoted directly in BTC rather than always having to convert the price of Bitcoin into fiat currency (such as NZ Dollars). For example, Neo is currently trading at US$28 or 0.00451070 satoshis (sats).
Using satoshis also makes it easier when buying or selling Bitcoin - depending on its value at the time, it may be more affordable to buy a fraction of BTC here and there instead of an entire BTC all at once. In fact, a lot of people think they have to buy a whole bitcoin to get started, but you can buy almost any amount you want.
The short videos below will discuss Bitcoin and the blockchain further.
If you have time I would also recommend watching the below video which discusses Bitcoin in more detail.
Finally, this video discusses some more technical concepts behind the blockchain: Proof of Work and Proof of Stake. Don't worry if you don't fully get your head around it this time round, but in future you may want to refer back to it when you come across these terms again.
Learning about Bitcoin and the blockchain can really be as complicated as you make it, but all most people need is simply to know how to work it from the surface. Once you understand the basic concepts of BTC it will be much easier to understand other forms of cryptocurrency, at which point you will be ready to look at ways to gain it, save it, invest it or trade it.
The Rise Of Cryptocurrency & Altcoins
As you are now aware, Bitcoin is not the only cryptocurrency in existence. All other currencies which are not Bitcoin are referred to as 'alternate currencies', hence the term 'altcoin'. The first of these was created in 2011 and since then their number has soared. In fact, at the time of writing there are over 1000 different cryptocurrencies available.
The majority of the cryptocurrencies in existence are clones of other a handful of other coins, with a few differences in code added in. For example, Litecoin was originally a copy of Bitcoin. Because all of the programming code used to create a coin is publicly available, anyone with a bit of programming experience can easily create their own cryptocurrency. However, a huge number of these never achieve any practical use or following and are eventually abandoned by their development team.
Not only are there already heaps of different altcoins available, but new coins are being created and made available to the public for purchase on a weekly basis. In the earlier days of crypto the way to get your hands on coins was to either buy it or mine it. In 2017 we saw the rise of Initial Coin Offerings (ICOs), which are a bit like crowdfunding for crypto. More info on ICOs can be found here. Unfortunately many ICOs ended up being scams so they really fell out of favour with the general public. There are now a variety of different ways projects may raise funds including Security Token Offerings (STOs) and Initial Exchange Offerings (IEOs).
This 20 minute video is a good introduction to the history of altcoins.
When getting started in crypto, I usually recommend focusing your research and investments on the coins with the highest market caps, shown in this list on CoinMarketCap. A coin's market cap (MC) is essentially the number of coins in circulation multiplied by the dollar price per coin. The MC can be used to rank the total value of a cryptocurrency and also as an indicator of public opinion towards a coin (more popular = more market cap). We cannot just use the price of a coin to do this, because one coin could be very expensive but only have a handful coins in circulation, and another could be dirt cheap but have millions of coins in circulation. As an example, at the time of writing Ripple (XRP) is ranked #3 on CoinMarketCap but only costs US$0.2c per coin. Decred (DCR) is #35 but costs US$20 per coin. Although DCR is more expensive per coin than XRP, the difference is the amount of coins in circulation: over 38 billion for XRP and ~11 million for DCR.
Right at the very top of the CoinMarketCap page you'll also be able to see the entire market cap for cryptocurrency, which at the time of writing is ~US245 billion. Interesting to note how dominant Bitcoin is, making up $162 billion of the total crypto market. The other thing I like to do with new investors is a bit of value comparison with well-known companies and assets in other financial areas. Here are the estimated market caps and values of a collection of these (all in USD):
The reason I like to show this to new investors is that I am often asked: "Now that the price of Bitcoin is in the thousands of dollars, is it too late to invest?" Doing this comparison allows us to see that although the price of BTC and total crypto market cap of $171 billion seems high, in reality, cryptocurrency is still in its infancy! There are individual companies which are worth more than the entire crypto market right now. When we compare crypto to a more traditional form of investment suh as gold, we can see that the crypto MC is a mere 2% of the gold MC. As the population ages and the more tech savvy youth get older I think there is a high chance that more and more people will go first to cryptocurrency as an investment before commodities such as gold.
So can Bitcoin go higher? Without a doubt! Bitcoin already hit just under $20,000 at the height of the 2017-2018 bull run. At this time the total market cap was ~$800 billion. Some analysts have proposed that the entire crypto market cap could hit $3 trillion in the next few years. If Bitcoin's dominance stayed the same as it is today, that would put the price of one Bitcoin at over US$100,000.
As there are so many different cryptocurrencies available, knowing which altcoins to invest in can be incredibly overwhelming. I'll discuss how to go about this later when we come to building a portfolio.
Before investing in cryptocurrency, you need to be aware of the risks involved. For starters, the crypto market is not regulated. If you make a transaction error, get hacked or lose the information to access your coins, there are no 24 hour phone lines you can contact to try and fix things. You're not dealing with a bank here. You're on your own.
My second bit of advice would be to have an understanding of risk levels. By risk, I mean the chance that you could lose all of your money. All investments have a level of risk. Some investments are less risky (eg. term deposits with the bank) and others are high risk (eg. options, foreign emerging markets). In general, the higher the risk = the higher the reward. The most important thing to know about investing in cryptocurrency is this:
Cryptocurrency is a HIGH RISK investment.
Although you may have heard about Bitcoin skyrocketing so many thousand % per year, or keyboard warriors making millions from putting their pocket money into bitcoin, don’t get your hopes up. Past performance is never an indicator of future success. Even though Bitcoin has risen lately, it has also dropped plenty in the past (it went from US$1230 in mid-2013 to a low of around US$225 in 2015; and from a high of US$19,890 in December 2017 to a low of US$3250 one year later).
Guys and girls the crypto market is new, it is crazy and it is unpredictable. While your investment could make some tidy gains, it could just as easily crash and burn, leaving you with an empty wallet and even worse, broken dreams. Therefore:
Only invest what you can afford to lose.
Don’t be an idiot and re-mortgage the house to invest in cryptocurrency. Don’t drop your life savings into it. Treat this investment as a high risk, high reward opportunity. Would your life be in dire straits if you had $20k stolen from you right now? If yes, don’t invest that much. Stick with a low enough figure that if it disappears you won’t be too worried, even if it is just a few hundred bucks.
I should also briefly mention the tax implications of investing or trading in crypto. The IRD has given some guidance here. AgBiz Accountants in Cambridge are probably the most forward-thinking accountants in the country when it comes to crypto, they have a helpful blog and are usually happy to answer any questions you may have. Essentially, if you are investing, trading, mining, selling crypto or engaging any business associated with it, it would pay to get advice from a tax specialist.
Many of you will already have ideas about what coins you would like to invest in. If not, I highly suggest you build a draft portfolio (collection of coin holdings) before making any investment. You can choose as many or as few coins as you like for your portfolio. As the saying goes, don't put all your eggs in one basket. Diversify your risk among multiple coins. Because there are so many coins to choose from, my advice would be to focus on the top 100 coins on CoinMarketCap and weight your portfolio so you have the majority of your holdings in coins from the top 10-20.
An example of this:
Of course, feel free to go searching through coins outside the top 100 as these coins generally have a large potential for growth. They are do have a higher risk of failure however. In saying that, if you have done your research, then go for it. You also have the option of buying a pre-constructed index fund token such as Crypto20. This is a single token which allows you a proportion of each of the top 20 coins by market cap. It is rebalanced monthly in case one coin falls out of the top 20 and another rises into it. It's a very useful, hands-off investment option.
If you're interested in creating your own index fund, this can be done via the Genesis Vision platform. The added benefit of this is that if your fund performs well then other users will sometimes invest money into your fund, and you can gain extra returns from their entry/exit fees. If you want to know more about this, give us a message via Facebook.
Thoroughly researching a coin is crucial when it comes to making a decision to invest or not. When doing so, you are aiming to convince yourself that the project underlying that coin has a valid reason for being in existence (a clear real-use case), and that it represents a good buying opportunity (hasn't become overvalued).
Research into the crypto world can be difficult for a number of reasons: concrete info regarding a coin can be hard to find, the technical info can be hard to understand, coins can get hyped to the extreme by people who want the price to rise, and of course, it takes time. In general, here is a basic process I follow when researching a coin:
What problem is the project trying to solve – what is the use case? Always read the whitepaper (full explanation about a coin).
Example: Monero wants to make crypto transactions as private/anonymous as possible
How big is the problem that the solution is trying to address?
Example: OMG wants to disrupt the global remittance fee market which is worth over US$500 billion.
Are there competitors trying to address the same problem?
Example: Metal and TenX.
Have others tried to solve the problem before? If yes, were they successful? If not, why?
How much of the price of the cryptocurrency is based on the value being delivered today and how much is it based on future promises of development?
*Example: Cardano has a market cap of over $1 billion despite no current working product.
Is there a working product? Are there any business partnerships?
What are the technical aspects of the coin? Again, read the white paper.
What is the development team like? Do they have experience in blockchain or crypto projects? Are there profiles made public on LinkedIn? Do they have "skin in the game" (lots to lose if the project fails)?
What is the marketing team like? Do their website, ads and videos look professional?
What is the community like? Check out the coin's bitcointalk page, reddit, facebook, slack, discord, telegram, discord - do they have a large and healthy following? Do these people seem excited or unhappy about their investment?
Is there any scent of a scam? Things that may suggest this include: anonymous developers, no clear use case, a white paper that is vague or unrealistic in its goals or only provides a minimally viable amount of info, referral or multi-level marketing incentives, lots of buzzwords and unfounded hype on social media by unusual or newly created profiles, excessive coin pre-mining, public opinion that they are a scam.
What do other people think about the coin and project? Check social media platforms as above and of course Crypto NZ for other people's opinions, being careful to avoid hype.
What does the coin's price history look like? Has the market reacted positively to good news? Is there any evidence of pump and dumps (coordinated sharp price rise followed by rapid drop as profits are taken)?
Which exchanges accept the altcoin? Are there plans to have it released onto bigger exchanges soon?
Now that you've done your research and built an amazing portfolio, it's time to get buying. When it comes to buying cryptocurrency with NZ dollars, right now the safest, cheapest and absolute easiest way to do so is through EasyCrypto, which you can find here. Once you would like to start buying other altcoins not offered at EasyCrypto you will need to get set up on a larger exchange. We currently recommend Binance, which is one of the largest international exchanges and has a decent reputation. You can get a 5% reduction on all of your trading fees by joining via this link to Binance.
There may come a time when you want to cash out back into NZ Dollars. You can also do this via EasyCrypto.
We have an old separate document which was written in 2016/2017 and discusses how to securely set up your cryptocurrency log ins and will guide you through different wallets (storage facilities for your crypto coins). However please note that as it is a couple of years old, at that time NZ investors mostly used Cryptopia, a now defunct exchange, to buy crypto. Therefore please ignore that section of the document, but it does still have some great advice about how to store your coins. You can access this document by clicking here.
Although that document will discuss some security measures, I also want to add in a few other important ones:
Once you put your coins in a wallet you will be provided with a private key. Guard your private key with your life. Your private key is the location of your money on the blockchain and is your only means of accessing your money. Ensure you have your private keys backed up, either through writing it down or copy/pasting to a USB as a text file. Don't ever give your private key to anyone. This would be the equivalent of giving someone your online banking password - you will likely lose your money forever if you do this. I would highly recommend that you look into a more secure form of private key storage such as CryptoSteel.
Never sign up with any group or company that offers you guaranteed returns. These sorts of companies are more than likely apart of a pyramid scheme. They will often ask you to sign up your friends in return for some sort of bonus (multi-level marketing). Once these groups make enough money they simply shut everything down everyone loses their money.
Never click on Google's sponsored ads when accessing crypto exchanges etc. More often than not they are a phishing scam of some sort. Always check the website address and ensure they haven’t changed a letter to make it appear as the real site to get your login details.
When depositing NZ Dollars onto an exchange or crypto purchase, avoid depositing any more than $9999 in either a single transaction or multiple transactions over a short period of time. The reason for this is that there have been reports that some NZ banks have gotten iffy about their customers putting money into crypto - they view it as a tool to fund criminal activities. Small transactions (<$10,000) generally do not trigger the bank's reportable transactions monitor. I personally have never had a problem with the banks, but it is better to be safe than sorry. You could also cosider using an old unused account and make it a dedicated crypto investment account.
You've made all of your crypto purchases and have a healthy portfolio. Excellent. Now is the time to keep an eye on the prices and wait for crypto to grow. Feel free to make changes here and there to your portfolio, but try not to be impatient - it will take time for crypto to become mainstream, and it will take time (usually) to turn a healthy profit. 'Fear of missing out' can be dangerous in the cryptocurrency world. One day you'll be happy your portfolio and the next you'll hear of some new amazing ICO token which is getting hyped to the moon and you'll consider selling coins which aren't performing well to pay for it. When this occurs just go back to the fundamentals - remember the research you did and why you decided to invest in those coins in the first place. Usually this is enough to remind you that you're backing an awesome technology and it just needs time to develop.
At some point along the way you may even want to diversify further and buy more coins. Personally, I do skim a little of a coin's profit to buy more of other coins. For example, I bought into Neo when it was at $2 and sold it at $42, then used that profit to diversify into other altcoins. Currently I work on a rough guide that if a coin goes over 200% profit I consider selling half of my holding to buy into other coins, and hold the rest.
There are also really interesting ways to turn extra profit from your holdings such as DeFi crypto loans, running a proof of stake node or masternode. I won't go into these in detail, but once you've gotten your head around crypto, they're worth looking in to.
There may come a time when you want to cash out back into NZ Dollars. You can also do this via EasyCrypto.
That’s all from me. Hopefully this guide has given you some practical advice regarding purchasing cryptocurrency. Do post on the Crypto NZ page if you have any queries or suggestions. A lot of time went into creating these guides, so if you make millions off it, feel free to send a beers worth of crypto to one of my addresses, and don't forget to upvote this post on Steem. Cheers!
ETH and ERC20 tokens: 0x08F1bB7231cA95052de2b24f935B77dd958B437F
BTC: 3LiN3w2FykbUERK9LSxWpPM2ufDAx4zsRg
