It is not because things are difficult that we do not dare, it is because we do not dare that they
are difficult.
I FIRST HEARD ABOUT ride-sharing service Uber on a podcast hosted by a friend of mine. He described how people in San Francisco were using an app to call cars to take them somewhere. This sounded like such an obvious idea that I couldn’t believe it had made the news. A similar app for calling cabs in London had been available for some time. It sounded handy, but unremarkable.
What I hadn’t learned yet was how Uber was being made available to anyone with a car that met the criteria of the service. Unlike taxi companies with their own vehicles and drivers, Uber was a marketplace where anyone could drive and find passengers who wanted to get somewhere.
I also hadn’t realised that Uber was a self-policing marketplace. When a trip is completed both passengers and drivers rate each other out of five stars. If you’re a bad driver your rating will fall and you won’t be offered trips. Likewise, passengers who behave badly in the back of an Uber will be rated poorly and be avoided or kicked off the network.
The first time I tried Uber it was like a switch went off in my brain. I immediately saw why this was far superior to taxis and soon realised that for people living in big cities it was also better than owning a car.
Later, when travelling with a colleague in New York I suggested that he should try Uber instead of the yellow taxis that were famous in the city.
‘Why would I use a stupid app when I can just stick my hand up in the street?’ he replied.
I gave up trying to change his mind.
Two weeks later I was home again in Cape Town and the same colleague called me up.
‘Oh my God!’ he said. ‘Uber is amazing!’
It just took one experience of the service to see why it was better. Theoretical descriptions of value are pointless until you experience it for yourself.
Like that first Uber ride, my first Bitcoin transaction was magical and it was immediately clear, at least to me, why this was going to be huge.
Trying Bitcoin for yourself doesn’t have to cost much money at all. There are services that will allow you to buy Bitcoin with the equivalent of loose change in your pocket.
Bitcoin is a currency and, as such, can be acquired in all the ways traditional currencies are. You can buy it using fiat money from your bank account or card, get paid in it for your work, earn it via investments, earn interest by lending it to other people, or borrow it yourself.
You could also earn Bitcoin by running a Lightning node on your computer and enabling transactions for others, or mine it by processing transactions and uncovering new Bitcoin on specialised hardware purchased upfront.
Other cryptocurrency tokens can be acquired in similar ways, depending on their intended purpose, but almost all can be purchased with an exchange of another currency, be it fiat or cryptocurrency in nature.
The easiest way for most people to get hold of tokens for Bitcoin, Ethereum and some other cryptocurrencies is just whipping out a bank card and purchasing from one of the supporting exchanges or other services. Some of the places that support card purchases for Bitcoin from anywhere in the world are:
In the mania of 2017 it was common for people to use debt to buy cryptocurrency. In extreme cases people were even mortgaging their houses in the hopes of finding fortunes in the rising prices of Bitcoin, Ethereum and other new coins. Not that I would presume to tell you what to do, but it should be obvious why this is a bad idea for most.
The best way to stick it to your bank is to settle your debt, not create more of it.
Suffice to say that if you are going to use a bank card to buy Bitcoin it probably shouldn’t be on a line of credit, unless you can settle your debt timeously. Some services also charge high additional fees for card transactions and limit the transaction sizes to certain minimum and maximum amounts to make it worth their while or to limit risk.
As with other forms of currencies and commodities, exchanges are places where people who want to sell something can connect with people who want to buy. Most cryptocurrency is traded on such exchanges and they are an excellent source of the stuff. Many exchanges, such as Binance, also allow you to trade cryptocurrencies with each other – for example, using Bitcoin to buy Ethereum.
While exchanges usually offer the best possible prices on cryptocurrency they are also more complicated than buying with your bank card and it’s possible to lose a lot of money on an exchange if you don’t know what you’re doing.
In order to trade on an exchange you must understand buy and sell orders and other terms, depending on what the exchange offers.
Fortunately some exchanges, such as Coinbase or Luno, also offer instant buy and sell functionality which enables you to buy a cryptocurrency at its current value on that exchange without manually creating an order or otherwise using the more complicated trading interface.
These services aim to be more than exchanges and provide a platform for using cryptocurrencies for transactions with friends and in business.
I joined the team of Luno in its early days when the business was called BitX and designed apps that aimed to bridge the old world of money with the new, making it easier and safer for people to use cryptocurrency.
The Luno app for iOS and Android, as an example, aimed to make the process of buying Bitcoin quite simple after you have transferred funds from your bank account to the service.
Exchanges that store wallet keys for their customers are called custodian exchanges. Like banks, they are trusted third parties and, as such, meet with disapproval from more extreme members of the cryptocurrency community who believe that people should control their own keys.
It’s important to note that the cryptocurrency you store on a custodian exchange legally belongs to that exchange and is owed to you. If the exchange is hacked or something else goes wrong you could lose all of your cryptocurrency on that exchange without any claim to recourse.
As mentioned in a previous chapter, exchanges store a lot of cryptocurrency and are therefore targets for criminals.
It’s up to you to decide whether to store your keys with such a service or take care of their storage yourself. By now I will hopefully have provided you with enough information to start thinking about that choice.
Binance
With one of the longest selections of cryptocurrencies, Binance has become a dominant force in the industry. It is a pure cryptocurrency exchange that does not accept fiat deposits or withdrawals, in line with current restrictions in its home country of China. The Binance team is proactive in regularly adding new cryptocurrency tokens as they arise. Its interface is simpler than most but lacks some of the more advanced trading tools that some traders may want.
Bitstamp
Bitstamp was one of the first regulated exchanges in Europe and has been proactive in speaking to authorities and making sure that its operations are legitimate. The exchange offers trading between Bitcoin, Ethereum, Litecoin and Ripple with US dollars and Euros. As mentioned earlier, Bitstamp also allows the buying and selling of cryptocurrency with a bank card.
Kraken
The team behind Kraken are very highly regarded in the industry and Kraken has one of the simplest interfaces of any exchange, even if it leaves a lot to be desired with regard to design. Kraken accepts fiat deposits from just about anywhere in a range of currencies and its deposits and withdrawals are faster than most.
Luno
Luno is a platform offering various services related to storing and exchanging cryptocurrencies. At the time of writing the platform supports Bitcoin and Ethereum only. At the heart of Luno is an exchange, but it also has a friendly interface and apps for instantly buying and selling Bitcoin and Ethereum, and using wallets to store and pay for things. One of the best features of Luno enables you to send Bitcoin or Ethereum to friends using just their email address or mobile number. You can also purchase cellular airtime and prepaid electricity with Luno in some countries.
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When using a third-party exchange it is critical to enable second-factor authentication for your account and not to use exchanges that don’t support this feature.
Second factor authentication, more often referred to as ‘2FA’, means that you require an additional piece of information beyond just your username and password, before you can access your account. This can come in the form of pin numbers sent via SMS to your phone, as some banks also do, or using software like Authy or Google Authenticator on your smartphone to generate secure one-time pins. The latter is more common in the cryptocurrency world.
Another form of 2FA is offered by devices that plug into the USB port of your computer or smartphone, such as YubiKey products. Services that support hardware 2FA will not allow you to log into your account unless the device linked to your account is plugged into the computer you are using.
Security measures that are linked to your phone number can be risky. An attacker could call up your cellular service provider pretending to be you and request a SIM swap, which means that a new SIM card is issued linked to your number. They can then use this to receive the pin codes sent to your phone and access your account. For this reason many cryptocurrency users prefer software like Google Authenticator or devices like the YubiKey that aren’t linked to a phone number.
This creates an alternative risk in that if you lose access to Google Authenticator or drop your YubiKey down a drain you could lose access to your account, so it’s important to ensure subsequent backup for these devices.
It may sound like this is complicated or a lot of work, but these systems are really easy to employ. It takes a few seconds to scribble down backup keys or replicate an authenticator and keep the backup in a secure place.
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When making a trade on an exchange currencies are transferred between buyers and sellers, with the exchange keeping a fee for providing their services. These fees can be quite high and aren’t always made visible at the time of the trade.
One way to avoid fees for normal users is through market-making. This means betting on a higher or lower price for whatever it is you are buying instead of settling for the current price. When doing so you are filling the order book of the exchange and contributing to prices going up or down, which is what exchanges rely upon. To reward you for doing so some exchanges will reduce your fees to zero. Luno is one exchange that rewards makers or takers.
The alternative to the custodian exchanges discussed is decentralised exchanges where buyers and sellers are connected directly to each other in a peer-to-peer network. These exchanges do not store your cryptocurrency, although most do keep funds in escrow to facilitate trading. Once a trade is made, however, the funds are transferred directly to the new owner.
Escrow means holding on to something on behalf of someone else. For example, I want to sell some Bitcoin and you agree to buy it. I send my Bitcoin to the escrow account of the exchange and you send them the amount of dollars we agreed upon as a price. When the exchange sees that both amounts have been paid it sends you your Bitcoin and me my dollars. This is a way of preventing fraud, like if I were to take your dollars and then run off without sending you your Bitcoin. Of course, I would never do such a thing.
Decentralised exchanges are an industry focus and it’s hoped that they will replace their older counterparts in the future because they are safer, less prone to cyber attacks, and align with the decentralised spirit of cryptocurrency. They also do not charge fees.
Most decentralised exchanges also do not require users to identify themselves using the know your customer – or KYC – principle of financial services designed to prevent money laundering and other crime. This means that decentralised exchanges are more private and tracing transactions that took place via them is more difficult.
Some of the newer decentralised exchanges also make use of a new technology called Atomic Swaps which enable users to directly exchange cryptocurrency on one blockchain for another. This is a cheaper and more efficient way of trading cryptocurrencies and is fairly mind blowing as a concept because it effectively links blockchains together in one giant network of value exchange.
Altcoin.io
https://altcoin.io
One of the first exchanges to use atomic swaps, Altcoin.io supports an extensive list of cryptocurrency and enables exchanging one directly for another. It runs in a web browser so that you do not have to install any fancy software to use it.
Bisq
Originally named Bitsquare, Bisq is the oldest running decentralised exchange for Bitcoin and runs as an app on your computer. The Bisq clients connect to the internet via The Onion Router (Tor) network so that all connections are private and can’t be traced.
Hodl Hodl
Accessed in a browser, Hodl Hodl supports a range of both fiat and cryptocurrencies for exchange directly between users, with an escrow service that prevents fraud on the platform.
Shapeshift
With one of the easiest interfaces of any exchange, Shapeshift can be used to quickly convert one cryptocurrency into another. The service is also available to third parties that can build it into their own apps or services.
Waves
Waves can be downloaded as an app or run in a browser and supports Bitcoin, Ethereum, US dollars, and its own Waves token along with some other cryptocurrencies. The platform can also be used to generate custom tokens. So if you wanted to issue your own cryptocurrency for fun and profit Waves makes it pretty simple.
Open markets of willing buyers and sellers are where things get their value from. Bitcoin is worth as much as people are agreeing to buy and sell it for on exchanges. If you are not planning to actively trade cryptocurrency, however, exchanges can be overwhelming and unnecessarily complicated.
The rate of transactions made in Bitcoin and other cryptocurrencies is steadily rising as more people realise how easy and efficient it is to receive money in this way. A business can be up and running with Bitcoin transactions in seconds, for example, and companies can easily pay employees using cryptocurrency.
Criticisms of Bitcoin as a payment mechanism are that it is slow, expensive and exposes users to the volatility of price movement. The first two claims were true for a period, but are not generally a concern, as evident to anyone who has made a Bitcoin transaction. The third issue of Bitcoin price volatility being a threat to users can easily be mitigated.
Bitcoin transactions are always fast when compared to old world value transfers where it can take days and even weeks to send money from one bank to another, for example. Bitcoin transactions can also be speeded up as required by paying higher transaction fees.
The speed and price of cryptocurrency transactions is determined by how many are taking place on the network and has been improved greatly by technical updates, such as the addition of Segwit to Bitcoin that effectively reduces the size of each transaction and makes it possible to process more in a block. The Lightning Network also makes instant payments possible for smaller transactions that are then settled on the main blockchain at a later time.
During the mania of 2017 and subsequent rush by millions of new users to get hold of Bitcoin the network was flooded with new transactions that pushed up the mining fees of generating new blocks and slowed down transactions.
Now that the dust has settled somewhat, speed and mining fees should not be a concern when considering using Bitcoin in your business – but don’t take my or anyone else’s word for that. You can test it yourself in a few minutes with even a tiny amount of money.
Just set up a Bitcoin wallet for your business – preferably one that supports Lightning transactions such as Zap at
https://zap.jackmallers.com/ – and send some money to it from your own wallet. Even older Bitcoin wallets that don’t support Lightning are able to complete transactions in a few minutes, at most.
Businesses like Coinbase and Luno also offer tools for merchants to easily accept Bitcoin either in physical stores and offices, or on their websites as an alternative to PayPal and other ecommerce services.
Some cryptocurrency payment providers will even immediately convert the Bitcoin into fiat currency for you so that you don’t have to store the Bitcoin yourself. This entirely avoids the issue of price volatility – however, it’s my opinion that volatility has become a non-issue over a long enough time span, as outlined in the chapter Highs and Lows.
The more businesses accept Bitcoin, the more people will choose it as a convenient payment mechanism, leading to yet more businesses accepting it. This virtuous circle would usher in the next phase of evolution as Bitcoin moves from being just a very good store of value to also being closer to Satoshi Nakamoto’s vision of ‘digital cash’.
It’s also plausible to pay employees in Bitcoin if they choose to accept it.
In most countries it is possible to pay salaries in any currency or asset of your choosing, so long as you declare the transaction to tax authorities and pay the relevant dues. It would be perfectly legitimate for a business to pay someone in office chairs if both parties agreed to it, so long as the value of the chair was agreed upon and the resulting tax payment made in fiat to the relevant receiver. Bitcoin is no different from other assets in this regard and in the future will likely be treated like currency.
There are also open skills marketplaces that facilitate the work of people wishing to be paid in Bitcoin, such as Cryptogrind at
http://www.cryptogrind.com. Designers, writers, software developers and other freelancers can make use of such platforms to advertise their skills and connect with potential clients.
Cryptocurrencies have no borders and a Bitcoin transaction would be as fast and cost as much whether I was paying someone next door or on the other side of the world, making it the perfect payment mechanism for freelancers.
Another advantage for receiving compensation in Bitcoin is that it allows you to work with global clients without concerns over foreign exchange control oddities that exist in countries like South Africa and South Korea.
Using Bitcoin in your business can be as simple as printing out a QR code from your Bitcoin wallet and pasting it on your till for customers to scan with their smartphone cameras, or as sophisticated as using an integrated point of sales solution like Vend that accepts cryptocurrency alongside other payment methods and automatically brings it into your accounting system.
In the old world of lending and borrowing debt could be created against value that isn’t directly held by the lender, in the case of home loans from banks that only retain fractional reserves. In the world of cryptocurrency a more honest and secure lending environment is possible and loans can be aggregated from multiple sources.
For example, you could borrow money to purchase a car and have that loan funded by any number of people pooling their resources via a platform like Bitbond at https://www.bitbond.com.
You would then repay a single Bitcoin address every month and the repayment would automatically be split to all the people who you owe money to. Interest rates are adjusted automatically given your rate of repayment. So you’ll pay less if you make on-time repayments every month, or more if you miss payments and become a higher risk borrower.
Or perhaps you have some spare Bitcoin that you would like to earn interest from and could put into such a lending system where it would earn interest.
As with freelance payments, the rise of cryptocurrency loans is creating a global network of lending and borrowing. A student in one country can borrow tuition fees from lenders in other countries without ever having to fill out an application or meet with someone in person.
Bitbond supports loans up to $250 000 at time of writing but these limits are set to rise as more and more people lend and borrow with cryptocurrency.
On one hand this threatens the prime business of conventional banks, while on the other it creates new opportunities for platforms that connect lenders and borrowers.
The use cases of Bitcoin cover everything we do with fiat currency in the old world and will soon offer new opportunities that weren’t possible before.
In the early days of the internet when the primary use case was email it may have been hard to imagine us one day watching movies on Netflix or having video discussions with relatives on the other side of the world using Skype.
Exponentially better technology brings with it new opportunities for things not imagined before, and we’re only starting to explore what is possible with cryptocurrency.