**Originally posted by Ben Heidorn, Graduate Student in Computer Science at Penn State
If you’re hearing a lot about Bitcoin, Ethereum, or Litecoin, and you’re itching to throw money at it, I have some comments. Here are some points based on my experience with building apps, solving puzzles, and doing a little trading in crypto for about two years now, though I would not consider myself an expert.
1. The price is extremely volatile: 25% daily price swings are normal. Litecoin used to be an island of stability, but the recent surge in popularity has changed that.
2. The end goal of Bitcoin and Litecoin is to allow people to be their own bank and use their money however they want, to send it wherever, to anyone, in seconds. It is very new technology. Therefore, buying in should be viewed as a high risk investment with significant chance of failure. The tech is working and ready for the small scale, but crypto is still very much in the R&D phase.
3. Do not gamble in this space, it is very easy to lose a large sum of money, even if you make out lucky once or twice.
4. If you buy crypto and you feel uneasy, can’t sleep, or become irritable, then you just gambled. Pull money back out, and only keep in the amount that lets you forget you invested for a few days. It’s not a fine line, but it’s really easy to jump way over the line when you get excited. And there are no sure things in crypto, ever.
5. Every time you sell, even if you trade one crypto for another, it’s a taxable event. You will pay taxes on the difference in USD prices if you made a profit. If you held on to your crypto for under a year, you’ve triggered short-term capital gains, and over a year, it’s long-term. I am not a accountant, but you will need to report your gains to the IRS.
6. I personally believe that the technology is game-changing, and here to stay. However, I sincerely doubt that even 95% of today’s cryptocurrencies will even be worth anything in 10 years. We are definitely entering a bubble, and crypto just hit mainstream.
7. Cryptocurrency trading and new coins are almost entirely unregulated in the US. It’s a total free-for-all, and a lot of people are running exit scams, promising a brilliant new cryptocurrency with a fancy website, and then they disappear completely after they raise money. The SEC is only just starting to go after these cases.
8. Hacks, security exploits, and software bugs happen all the time in crypto. You’ve heard of the phrase “run fast and break things”, which is fine for a startup with no capital and a few hundred users, but in crypto these startups are also worth tens to hundreds of millions of dollars. It’s a digital wild west.
9. After you’ve gotten over the hype, if you still hold a little bit of crypto, learn about the technology in small pieces. Start to explore what it is that makes cryptocurrency radically different. And most importantly, learn how to protect your private keys, and even consider getting a hardware wallet (like a Ledger or Trezor), which make it extremely hard for people to steal your cryptocurrency. Likewise, if you hold your coins on Coinbase, they do a very good job of secure storage. (And they are FDIC insured in the event of a loss.)
To recap, if you are new and want to join in on the action, buy only as much as you can forget about (this is smaller than you think), and treat your crypto as a new asset that will see a lot of growth and dips. I personally believe that cryptocurrency will eventually be accepted as actual international currency, which is the end goal of all of this. So, if you want to have a substantial part of a future economy, and you can stomach the risk, buy part of it now and try to forget about it for a while.
Ben Heidorn is a graduate student of computer science at Penn State University and the creator of 10k.pizza, a cryptocurrency portfolio tracker, as well as dcr.observer, a blockchain explorer for Decred, a mid-sized cryptocurrency.