While many tutorials exist showing the mechanics of how to purchase and secure blockchain tokens, we feel our own generalized guide is worth writing to help newcomers in the space.
Building a blockchain token portfolio requires four main steps:
- Convert your native currency (USD, Euros, etc.) into a blockchain token. Currently only the largest token projects, (eg Bitcoin, Litecoin, and Ethereum) have easily accessible currency pairs with fiat currencies. In the US we recommend Coinbase to convert your US dollars into blockchain tokens. (If you sign up for Coinbase using the link above we both receive 10 USD equivalent in Bitcoin)
- Send your newly acquired Bitcoin or Litecoin to an exchange. We recommend using Litecoin for its low fees and lower volatility*. We recommend making trades on the Bittrex exchange for its stability and access to smaller capitalization projects.
- Buy a diversified basket of tokens on the exchange. You will need Bitcoin to purchase most smaller capitalization token projects.
- Send your tokens from the Bittrex exchange to a wallet you control. This requires downloading the software specific to each investment.
The first step in creating a portfolio of blockchain tokens is to get into the ecosystem. The most straightforward way to do this in the US is to connect your bank account to Coinbase. Coinbase is a reputable company that just closed 100 million USD in funding. Note: Coinbase charges transaction fees and has lengthy waiting periods before depositing your tokens when using bank transfers.
The mechanics of every blockchain token transaction is the same.
1. Find the public key address for Litecoin or Bitcoin on your Bittrex exchange account.
ALWAYS copy paste the public key of the receiving wallet, your money could potentially be lost forever if sent to the wrong address.
2. Open your Coinbase and paste in the public key address where you want to send your tokens to.
Paste in your Bittrex deposit address. Be extremely careful not to send Bitcoin to a Litecoin address or vice versa.
Compare the Litecoin fees to Bitcoin fees. With smaller amounts using Litecoin becomes more important to reduce fees.
3. Once the Litecoin has arrived in your Bittrex wallet, you'll need to sell Litecoin for Bitcoin. Alternatively if you purchased Bitcoin directly you can skip this skip.
Now that your funds are on Bittrex and converted to Bitcoin, you can diversify into potentially hundreds of different token projects.
Every project has a list of buyers (bids) and sellers (asks). If you want to buy the token immediately pay the asking price. If you think the price will fall below the current price place a bid below the asking price and wait for the sellers to (hopefully) reach your price.
Below is a sample Token (Nexus) and the options available to buy and sell within Bittrex.
Two important notes on Security:
- Exchange security. It is crucial to setup the Google Authenicator app on your phone. This creates what is called "2FA" or "2 Factor Authentication". This requires a 6 digit code from your phone in addition to your password to login to your account. Without 2FA any attacker that gains access to your Coinbase/Bittrex or other exchange can immediately remove all of your funds.
- Token security. This is the heart of blockchain token investing. You are an investor buying a small percent ownership of a risky startup venture. The product the startup is selling IS the software wallet. Any project worth serious investment is worth learning how the wallet works. Not only will this help inform your investing decisions by "eating your own dogfood", it will also keep your tokens safe...
Every project has nuances in how the wallet works, though all wallets fundamentally work in the same way. We will use the Ark wallet as an example as it is one of the easiest wallets to setup.
All wallets require the same steps:
- Find the wallet. Usually there is a link on the homepage of the project website that directs to their Github code repository.
- Install the wallet and create a new wallet address. This will create both a public key to send your tokens to, as well as a private key that ONLY YOU KNOW. Ark (and many other projects) make this easy by converting the private key into a word phrase. Write this phrase down in several places to ensure redundancy. With this private key you will be able to claim ownership of the tokens even if all of your computers fail.
- Send from your Bittrex wallet to the wallet you own by copy pasting the public key.
One final recommendation: Send very small amounts to new addresses the first time to ensure everything works BEFORE sending larger amounts. As you become more familiar with how the process works, you can beginning branching out into new projects by download and configuring their specific wallets.
Investing in Blockchain tokens requires technical skills beyond anything found in traditional investing. To succeed in Blockchain investing you must master a fluency in how public key/private key protocols work. This process takes both practice and repetition. The first time you send hundreds or thousands of dollars to a string of letters and numbers can be a harrowing experience. Just know all blockchain investments fundamentally work the same way. Once you attain mastery sending one token from exchange to wallet and back again, you can easily transfer that skill to the next investment.
Know in this space YOU have the ultimate responsibility as the investor to secure your investments. The decentralized nature of the blockchain space nature creates incredible opportunities as much as it creates incredible risks.
We'll end this article with an analogy to having gold coin in your pocket.
Gold is a rare element other people think has value, just as blockchain tokens are rare numbers others think has value. You have full control over your private key just like you have full control over your gold coin. However, nothing stops an adversary from stealing your coin by gaining access to your private key, or you from losing the coin by misplacing the private key.