Quick Take: Different ways of acquiring cryptocurrency

With this past month’s stock and crypto activity (various stocks heading for lunar orbit, Bitcoin breaking US$40,000, etc), a lot of people have started looking for ways to buy cryptocurrency (and stocks).

In a lot of forums, they’re being hit with misleading or outright false information. I’m here today to give you some pointers and context, and help you understand the cryptocurrency options available to you.

Nothing in this post is provided as investment advice or recommendations to conduct any financial transactions. There is risk in any of these processes, and you are on your own for that.

If you choose to use one of my referral links to sign up for one of the services mentioned, I’ll either get a share or two of a cheap stock, a few bucks worth of a stock, or sometimes a cash bonus. And I’ll appreciate your support. (Note that promos can change, and I may not come back and update these promos later; see the respective websites for active promotion terms)

  • SoFi Invest (fund an active account including crypto with $1000, and we’ll both get $50 worth of stock) (crypto available)
  • SoFi Money (fund an account with $500, and we both get $50 cash) (Virtual money management account, linkable to Invest and other services)
  • Robinhood (sign up and link a bank account, and we both get a free share of stock) (crypto available)
  • Webull (fun an account with $100 and get at least one stock share, maybe two) (crypto under tags like BTCUSD, ETHUSD, no DOGE)
  • Public (app-only, complete application and get a free amount of stock up to $16, must hold the value of the free stock in the account for 90 days) (no crypto, just stocks)

What is cryptocurrency? Do I get an actual physical bitcoin?

Cryptocurrency is a virtual currency that is created through a process called mining, and can be transferred and converted to other currencies (including “fiat” or what some would call “real” money). You don’t get a physical bitcoin (or ethereum or anything like that), and if you’ve seen one of those metal “Real Bitcoin Coin” items at a store, you’ve just seen a souvenir with little to no value and no association with any bitcoins.

Many cryptocurrencies have developed value, primarily through people giving them value and accepting them in transactions. This isn’t entirely unlike paper money – a piece of green and white paper alone doesn’t have any value, but when a nation accepts that that piece of paper is worth a certain amount and uses it in trade, it suddenly has value. 

The cryptocurrencies you’ve probably heard most about are Bitcoin, Ethereum, Litecoin, and (lately) Dogecoin. Bitcoin is the grandfather of crypto, and has been around since 2009. The others have come along since, to address perceived shortcomings or scaling issues with Bitcoin. 

Ways to acquire cryptocurrency

The common ways to acquire cryptocurrency are mining, direct purchase from an exchange, or indirect purchase through an investment firm.

Mining cryptocurrency

Mining is a process where you use computing power and special software to work mathematical problems out. This can be done with CPU power, GPU (video card) power, or custom built ASIC power, and some methods are better for certain coins. For example, mining Bitcoin today requires the custom ASIC rigs to be anywhere near profitable. Ethereum is GPU-mineable, although there are some ASIC miners. If you’re going to mine, check out my miner article from a couple years ago, and browse some of the mining sites like bitcointalk for more information and guides. 

Direct purchase from an exchange

What I’m calling “direct purchase” is going to an exchange site and buying currency there, to be placed into your wallet (the virtual repository for your cryptocurrency). Bittrex and Coinbase are among the most popular in the US and elsewhere. You can use these sites to convert currencies (i.e. turn 1 ETH into ~0.04 BTC or vice versa), or you can purchase cryptocurrency with your own currency (i.e. turn US$34,205 into ~1 BTC).

Some sites take bank transfers, instant debit card transactions, or even credit card transactions, but note that buying cryptocurrency with a credit card may result in a cash advance transaction to your card (with fees, interest charges beginning immediately, and limits for transactions)

It may also be possible to purchase cryptocurrency in a person-to-person transaction. For example, if you want to buy 1 ETH and I have 1 ETH available, I might sell it to you directly and send it to your ETH wallet address. Not everyone knows someone with cryptocurrency though, but it’s an option if you do. 

Indirect purchase through an investment firm or bank-like firm

Many of the smaller consumer level investment platforms (including Webull, Robinhood, and SoFi Invest) offer a way to buy cryptocurrencies through their systems. Paypal offers this option as well, and you will probably find some of the larger investment firms offering crypto services too.

With these options, you don’t need a crypto wallet or an exchange account, just a regular investment account with that company and some money in your account. 

If you visit forums for some of these companies, though, you’ll find people saying “it isn’t real crypto if you don’t have the keys to the wallet.” This is partly true, in that you can’t transfer cryptocurrency to/from your crypto wallet, or make crypto payments from SoFi Invest, Webull, or Robinhood directly. But it is still cryptocurrency, and you can still profit (or lose) from the movement of the currency in these accounts. 

Which should I do?

That’s up to you. Really. 

If you plan to transact business using crypto directly (i.e. you want to buy pepper sauce from Pex Peppers with ETH or DOGE), you’ll want to mine or use an exchange.

Mining is great if you have a lot of GPUs handy and free or cheap power. At the current price of Ethereum, you can probably break even on a current model GPU (if you can find one in stock) in about 4 months of mining. If you built a rig three years ago, you can probably dust it off and bring it back up and do even better. But the price of Ethereum (and other currencies) can go way up or way down. So consider the risk, as well as your tolerance for heat, noise, and power bills. 

Buying through an exchange is a good way to convert “cash” to crypto, if you don’t want to mine, or if you’re taking your mining rig down for maintenance or a move or the like. You can also use an exchange to sell cryptocurrency and convert it to your own currency and even move the funds to your bank. 

If you just want to treat it as an investment vehicle, and hope to profit off the movement of the currency, a bank or finance company is a fine option. You don’t have to worry about the security of your crypto wallet, and transactions are usually faster and less complicated with a SoFi or the like. You can’t transact with businesses or individuals in crypto this way, but for a lot of people in the crypto market, that’s not a problem. 

There’s nothing keeping you from doing two or even three of these methods. I mine with GPUs in a spare room, buy crypto in order to rent hashing power from a marketplace, and hold a bit of bitcoin in an investment account. It all depends on your priorities and your patience. 

Should I buy DOGE or BTC or ETH or WhopperCoin?

I can’t tell you that. For most of my readers, you probably shouldn’t, but I wanted to level the information playing field so you’d understand the options if you choose to do so. 

There’s nothing keeping you from enjoying the DOGE memes and continuing with your investments as they already are, of course. 

Where do we go from here?

I’m going to go check my DOGE wallet. Let me know in the comments what you’re doing with crypto these days, and if you have any questions that are not related to investment advice, which I cannot and will not provide. 

And again, if you choose to use any or all of the referral links above, I thank you. 

Looking ahead into 2019 with rsts11

This is becoming somewhat of a tradition… I’ll point you toward a Tom Hollingsworth post and then figure out what I want to look back on a year from now. As long as Tom’s okay with that, I am too.

This year, Tom’s New Year’s post is about content. He seems to think 2019 is the King of Content. I’m not really sure what that means, but seeing as my blogs seem to be alternately seasonal (with most rsts11 content in the winter/spring and rsts11travel in the summer/fall), I’m hoping to get a more balanced content load out there for you this year on both blogs.

You can see the new year’s post for rsts11travel, my travel-themed blog, over on rsts11travel of course.

Looking back on 2018

Looking back on rsts11 for 2018, our top-viewed posts were a bit surprising to me.

Continue reading

Getting Started with Cryptocurrency Mining – Building Your First Rig

This is a post I’ve started three or four times, with different aims and detail, but since I haven’t gotten it posted and people keep asking, I thought I’d start with a simple build plan and some caveats and considerations.

Where I refer to a ‘rig’ here, it’s simply a system dedicated to, or purposed for, mining cryptocurrency of some sort. It might be a single board computer, or a dedicated device, or a PC with one video card (or just a good cpu), or an open frame build with lots of GPUs and a beefy power supply.

Big Hairy Audacious Caveats

The numbers in this article, from prices to currency rates, are based on the time of writing (which may have been a while before the time of posting). They are not guaranteed to last even as long as it takes for this article to post. I am not advising on the value or prospects of any mining or cryptocurrency. You may gain money, lose money, or break even, or your entire city may sink into the ground like a big ole glowing gopher, if you engage in cryptocurrency mining on any level. Do so at your own risk. 

Other Reading

See the sidebar: A note about mining pools

See the other sidebar: Setting up your cryptocurrency wallet

Givens and Druthers

Two ODROID HC1 single board computers, next to a Transporter NAS device.

There are a lot of options out there, from multi-thousand-dollar ASIC miners for Bitcoin to sub-$50 single board computers that can mine Verium or the like. Your budget will determine a lot of the details of your rig, and your power cost may influence it as well. It’s also worth keeping family approval requirements in mind, since an Antminer may be noisy and generate a lot of heat, whereas a Raspberry Pi or ODROID might fit better behind something in your living room.

You can build a starter rig with one GPU, and depending on the GPU, you might be able to bring in $10-20 a week or more from that. Considering that you can do this with an existing PC and operating system, it may be an economical way to get your feet wet, and it won’t require messing with special power supplies, excessive cooling, or riser cards.

If you’re looking to impress people or make a lot of money, well, good luck. But you’ll be looking at open frame systems with riser cables or even multiplexers for PCIe. That’s beyond the scope of this post. Continue reading

Sidebar: Setting up your cryptocurrency wallet

Aside

This is a sidebar post; you may wish to read the main mining rig post first.

Depending on the currency you choose to mine, you may need to create a wallet and/or address to receive the proceeds. The way this works will vary across currencies, but they’re very similar.

Wallets are usually a copy of the blockchain for your currency, along with the keys and address for your own “account” in the currency. It’s sort of an odd configuration if you compare to modern banking, but it serves the dual purpose of tracking your own balance and strengthening the security and scalability of the network. Continue reading

Sidebar: A note about mining pools

Aside

This is a sidebar post; you may wish to read the main mining rig post here first.

One thing I didn’t cram into my earlier post on getting started on cryptocurrency mining was how you actually make money (or fail to). To figure this out, we will look at the two ways you can mine cryptocurrency.

Drawing the Pool Picture

The “classic” method is what we’ll call solo mining. This means you’re looking for blocks on your own. If you find a block, you get the whole reward for yourself. For Bitcoin, this could be over $100k in one fell swoop. However, unless you have $100k or more in custom mining hardware (ASIC miners like the Antminer S9), your odds of finding a block on your own are miniscule at best.

The more confusing method is called pool mining. This means you contribute the work your miner does to a collective, who share out the rewards when the collective pool finds a block. If you’re the lucky block-finder, you get a LOT less reward than if you solo-mined that block, but the other 99.999999985% of the time (scientifically chosen random nearly 100% number) you’re getting a lot MORE than if you solo-mined and didn’t find anything.

You could think of mining in this situation as similar to taking a metal detector out to the Atlantic or Pacific beach looking for gold or other treasure. There’s a lot of shoreline and beach, and if you go out with one metal detector (or even two, one in each hand), you can only cover so much space. Take 10, 100, or 150,000 friends with their metal detectors and you have a better chance of finding something and sharing the reward. Continue reading