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Acquiring Bitcoin: How to Avoid Centralized Exchanges

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If you search Google for how to buy Bitcoin, or for a Bitcoin exchange, far too many roads will lead you to centralized exchanges. Bitcoin is not a centralized currency, as you know, but instead is secured and generated via a global peer-to-peer network and ledger called the Blockchain.

This article intends to be an overview on how to keep your sound money sound, how to truly be your own bank and not rely on the whims of an exchange like Coinbase or any of its major competitors. First, perhaps, we should discuss why one would want to avoid a “top shelf” exchange like Coinbase.

The first thing you should know about Coinbase is that they have frequently been guilty of canceling trades during the escrow period for bank and credit card purchases. They typically use “security” as an excuse for these cancellations. Here is an example of a group of Coinbase users complaining about this process. These cancellations rarely occur when the price of Bitcoin drops between the date of purchase and finalization of the transaction, rather they occur when the price of Bitcoin swells.

Secondly, Coinbase is overly friendly with regulators. Despite fighting a blanket order by the IRS for customer records, the company will freeze accounts on a whim. The centralized nature of the exchange allows them to hold user funds, be they in fiat currency or cryptocurrency, for long periods of time. For someone intending to profit through Bitcoin trading, or even simply to secure wealth, this can be a lot of unnecessary headache.

An alternative way to trade bitcoins

How is this headache unnecessary? There are alternative ways to trade. A decentralized, peer-to-peer currency does not rely on agents such as federal reserves or banks like Coinbase. Instead, it relies on other users of the currency, which is one of the reasons regulators are weary of it. Just like cash, the criminal element can of course use Bitcoin and other cryptocurrencies to mask their financial activities from government authorities. This can be said about any article of value, however, from precious metals to vehicles.

For the purpose of this article, the writer can personally recommend LocalBitcoins.com. LocalBitcoins is a worldwide platform of peer-to-peer traders. In the same way that eBay early on relied entirely on user reputation, trading on LocalBitcoins can be risky if you go in blind. It is important to always read the user profile for positive feedback, and any user with more than a few negative feedback comments is probably not worth taking a risk on.

However, LocalBitcoins does use an escrow system, which is the exchange itself’s primary function. In-person trades for cash or other items can be escrowed within LocalBitcoins, and once the funds have been received by the seller, the coins can be released. This writer, however, has personally never done an in-person trade. Primarily this writer has used Paypal and Western Union to do trades, on the selling bitcoin side. From a buyer’s (your) perspective, without this writer’s 100% positive feedback, it would be overtly risky to send funds first via Paypal or Western Union. From the seller’s perspective, it is also risky to accept Paypal, because Paypal transactions can be reversed whimsically. This is why feedback and trust are important on the platform.

But there are several advantages you cannot get with centralized Bitcoin exchanges like Coinbase. First, LocalBitcoins can be used as a standard currency exchange once you have Bitcoin. You can then purchase funds in most of the world’s currencies using your Bitcoin. If you manage to buy Bitcoin low, this can be a force multiplier in FOREX trading, since many FOREX exchanges give no heed to Bitcoin at all.

Second, there is a wider and more competitive price market. Depending on the payment method, sellers will sell Bitcoin at different rates to compete with other sellers. Sometimes the mark-up on smaller buy orders can be as high as a few hundred dollars.

Third, signing up for LocalBitcoins is less involved in terms of privacy. One does not need to have a bank account, or any account at all, linked with LocalBitcoins in order to trade. A Paypal account or cash, or a variety of other methods the world over (or even a payment method not listed on the site) that one can take to a money transfer service will be sufficient. One can even exchange gift cards for Bitcoins on LocalBitcoins. The exchange will ask for your photo identification card once you have begun trading. Again, this is much less involved than the process presented by Coinbase.

One thing should be said before we bid adieu: never, ever leave coins on the exchange overnight. Doing so involves the same hazard as using a centralized exchange entails: risk of total loss. Negligible amounts, maybe, but it is unadvisable to leave bitcoins in any wallet to which you do not have physical access.

In the next Acquiring Bitcoin article, we will discuss, in concrete terms, how to make your first peer-to-peer Bitcoin purchase via LocalBitcoins.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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5 stars on average, based on 2 rated postsP. H. Madore has covered the cryptocurrency beat over the course of hundreds of articles for Hacked's sister site, CryptoCoinsNews, as well as some of her competitors. He is a major contributing developer to the Woodcoin project, and has made technical contributions on a number of other cryptocurrency projects. In spare time, he recently began a more personalized, weekly newsletter at http://ico.phm.link




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9 Comments

9 Comments

  1. Angel1236

    March 9, 2017 at 1:22 pm

    Hi
    my name is Andrew
    I have no bitcoins but was in the process of buying .
    First would like to say im very pleased i joined Hacked.com
    Looking forward to peer to peer purchase via localbitcoins
    Andrew

    • Edward Talliot

      March 9, 2017 at 4:08 pm

      That is great to hear Andrew. We are here to help and enlight!

  2. tadej

    March 9, 2017 at 4:49 pm

    Hi,

    I’m also a new user of hacked.com. I do posses significant amount (at least for my financial capabilities) of BTC and I do leave them on the exchange (BITSTAMP). I know hotwallets are the most insecure method of storing BTC. The only reason I’m doing this is to avoid loosing my hard earn money meaning I can be prepared and sell when the market is going down and minimizing my loss. Especially now in the time of big volatility approaching SEC decision. Once we get over this period I plan to transfer BTC to hard wallet or paper wallet. In your opinion what is the best solution to keep the BTC safe and still have flexibility to react to the market changes?

    Thanks

    Tadej

    • P. H. Madore

      March 9, 2017 at 7:42 pm

      Hi Tadej,

      Previously I would have recommended the Armory Bitcoin wallet, but they have since discontinued development. Currently, I personally use the Bitcoin Core wallet, and I have transactions on it password secured. The only issue I face is I must pay increasingly significant fees when transacting. It’s good that you are aware that it is a very bad idea, especially with Bitstamp and others, who have previously been hacked, to store your bitcoins in a hot wallet which you don’t control. It would be more ideal if they allowed you to import private keys, and then you could simply store coins across multiple cold wallets. But, for your purposes, I believe the best available wallet at this time is Bitcoin Core. You may be willing to use Electrum, as few people have ever had serious issues with that program, in order to avoid storing and downloading the blockchain. However, given that you are financially secure, it would be even better for you to acquire a Linux laptop with extreme security settings and use it only for storing your coins, while keeping it segregated from all networking the majority of the time. I hope this helps.

      PHM

  3. LuckySeven

    March 12, 2017 at 2:42 am

    Why not use a Trezor hardware wallet?

    • P. H. Madore

      March 12, 2017 at 6:01 pm

      I’m personally unable to recommend one of those as I’ve never had one.

    • gspoosi

      March 19, 2017 at 4:37 pm

      I have a ledger nano s, which I can gladly recommend.
      It’s multicoin with support for many other coins besides Ethereum and Bitcoin.

      And its cheaper than tremor.

  4. corporate_citizen

    March 25, 2017 at 12:11 am

    KeepKey seems to be a well designed hard wallet. I haven’t owned a Trezor or Nano, but these hard wallets are great for containing the critically sensitive part of transactions on their own screens. Hard wallets secure against potential screen capture or keystroke logging software.

    One unique feature of the KeepKey is the ability to convert between accounts on the wallet. This is done through ShapeShift. The KeepKey makes conversions idiot proof (as compared to doing it on from the ShapeShift webpage and potentially mixing up addresses, god forbid).

    John McAfee has admitted to losing quite a bit of cryptocoin when several of the wallets he had on his computer were hijacked. Crazy as he is, he admitted being on some porn sites and clicking “close” on pop-ups which executed script. His Mycelium wallet was the last to get robbed (since it requires a password to move coins) immediately after he entered the password to send a transaction. Keeping large sums at an exchange or on one’s computer is foolish, in my opinion.

  5. cryptofund17

    June 20, 2017 at 10:44 pm

    Another recommendation: MyCelium (App)
    Has a local marketplace, and a variety of Vendors.

    Located in Germany, so YMMV

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Analysis

Bitcoin Cash Continues To Drop Ahead Of The Hard Fork

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The past few months have been really quiet in the crypto world.  Traders are used to dealing with big stories and big drama.  And while there hasn’t been much drama over the past few months, that’s all about to change.  Bitcoin Cash (BCH) has had a crazy 30 days of trading ahead of its scheduled hard fork on November 15.

For a while, it appeared that BCH would be trading near a high as the fork commenced.  BCH had a strong rally for about a week starting on November 1.  The price soared by more than 50% as it reached its high of approximately $637.  But over the past week, the price has been tanking and doesn’t show any signs of recovering.  Since November 7, BCH has dropped in value by more than 20%.

Why Is Bitcoin Cash Falling Ahead of the Fork?

There are two possible explanations for why Bitcoin Cash is dropping ahead of the scheduled hard fork.  One reason is profit taking.  Although a 50% return wouldn’t have meant much in 2017, it certainly is a lot in 2018.  However, a second and potentially more troubling reason is the conflict between Bitcoin Cash SV and Bitcoin Cash ABC.

Craig Wright, an Australian computer scientist and the biggest proponent of Bitcoin Cash SV (BCHSV), appears to be at war with Roger Ver, the most famous name behind Bitcoin Cash ABC (BCHABC).  Wright was in the news recently after proclaiming to be Satoshi Nakamoto, the founding father of Bitcoin (BTC).

As of this writing, BCHABC is trading at $420 while BCHSV is trading at $118.  According to Coin Dance, data shows that a majority of hash power favors SV.  On the other hand, there are significantly more BCHABC nodes running on the Bitcoin Cash network than there are BCHSV nodes.  Although it’s interesting to look at this data, it’s quite simply impossible to determine what this means as far as which network will come out victorious.  Creating a BTC node is relatively inexpensive so a user could start several of them for under $1,000.  And while the hash rate is important for demonstrating PoW (proof-of-work), it’s meaningless if exchanges don’t accept the coin.

Bitfinex Support

On November 12, Bitfinex announced support for the Bitcoin Cash hard fork.  On the exchange’s twitter handle, they tweeted, “We are happy to provide full support for the upcoming Bitcoin Cash hard fork.”  While the support is certainly helpful for traders, Bitfinex wouldn’t commit to choosing a side.  Instead, the exchange said, “At the time of writing, we do not believe that there is sufficient consensus to identify a clear winner in the Bitcoin Cash hard fork.”  Bitfinex expects to release an additional statement on November 16.  Traders should certainly pay attention to that as it could be material.

Final Thoughts

There is an incredible amount of information to digest regarding the hard fork.  As of this writing, it’s unclear which side will prevail as both certainly have their positives and negatives.  Given the recent slide of Bitcoin Cash, BCH holders should certainly be paying very close attention as the hard fork nears.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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“The Core of Any Blockchain Project is Decentralization” – Jack Zhang, Lightning Bitcoin

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Lightning Bitcoin is a fork of the ‘first-crypto-currency’ Bitcoin about which we decided to take the opportunity recently to speak to advisor Jack Zhang (AKA DianfuDatou / 点付大头 – known best as a Founder of Chainfunder and DAF).

Discussion topics include: what makes this project unique, as well as how you shouldn’t get it confused is not to be confused with the Lightning Network upgrade which is being applied to the original ‘Bitcoin’.

Who is Jack Zhang

Jack Zhang (AKA DianfuDatou / 点付大头) is a Chinese investor, business leader, and entrepreneur whose “portfolio includes XRP, XEM, IOTA, NEO, EOS, TEZOS, VEN”.

Zhang proudly describes himself as “one of the leading advocators of Ripple in China” having “translated Ripple into Chinese as ‘ruibobi’” – as well as the co-founder of NEO. Please note that most sources ascribe this latter achievement regarding NEO to an ‘Erik Zhang’ and so this claim requires further confirmation – however this writer sees no reason for him to lie in this respect.

He claims that his first experience with cryptocurrency was in 2011, when he entered the industry himself having previously worked as an investment banker at companies such as Zhejiang investment bank.

“I bought more than 10 thousand bitcoins at the price of 5 dollars and sold all of them out at the price of 7 dollars. At that time, I remember how I was reading posts on Bitcointalk about blockchain for several months and got fascinated by the genius design of the technology.”

Zhang says that the Lightning Bitcoin team members “come from a diverse cultural background, including China, the United States, Canada, the UK, Russia, Germany, and India.” And that:

“Currently Lightning Bitcoin has four core developers (listed on the website) with a team of 6 specialists. Eason Zhao is a CTO and H.H.Wang is a leading developer.

“Lightning Bitcoin also has an operational team of 8 outstanding and hardworking people managed by Wasley together with a community manager James Vuitton… We have independent leaders for each directions of the business;”

What is Lightning Bitcoin?

According to Zhang, Lightning Bitcoin is “a coin that takes the best from existing blockchain titans and adds advanced consensus mechanism.”

“Lightning Bitcoin forked from Bitcoin blockchain at block height 499,999… Lightning Bitcoin (LBTC) is a fully decentralized Internet-of-value protocol for global payments.

“The specific applications include peer-to-peer transactions and exchange platforms. Any users that operate on the LBTC protocol can enjoy instant, secure and nearly free global financial transactions of any size.”

Lightning Bitcoin is far from the first (nor will it be the last) fork from Bitcoin. A number of observers have claimed that the correlation between new forks and over inflation of Bitcoin. Jack Zhang however sees it as follows…

“Back in 2017, Bitcoin blockchain started to face network congestions, and a lot of other problems, that is one of the reasons why there were so many hard forks popping up. However, all of them changed either size or difficulty adjustment, what in my opinion did not improve the situation. That is a consensus that makes the difference. Pow and PoS are easily centralized, while DPoS represents true decentralization. Moreover, DPoS has the benefit of high efficiency, with little resource consumption.”

This mechanism utilises the relatively young Distributed Proof of Stake (DPoS) protocol which this writer has written about in a recent article, despite its basis upon the Proof of Work (PoW)-based ‘Bitcoin’.

Zhang states that Distributed Proof of Stake “allows separation of the voting power and block production, with no risks of a hard fork.” In fact, the aftermath of the announcement of DPoS adoption coincided with the company taking on another of its advisors “Stan Larimer a founding partner of Bitshares… we found mutual interests, as a result Stan joined Lightning Bitcoin advisory board.”

“Lightning Bitcoin uses DPoS, with the forging interval of 3 seconds, and the block size of 2M. We have achieved the TPS of thousands of transactions.

“Anyone can use LBTC, without censorship. The transaction fees are charged only for preventing network security issues, like DDoS attacks. It is not an off-chain solution on top of the Bitcoin blockchain as Lightning Network. I personally believe that Lightning Network will face the problem of centralization eventually.”

Furthermore,

“Lightning Bitcoin’s on-chain governance system enables LBTC holders to vote for the blockchain improvement proposals and the delegates who maintain the network as Lightning Nodes. It solves the problems of centralization of bitcoin by incorporating all participants in the Lightning Bitcoin ecosystem into the decision-making process.”

Lightning Bitcoin vs Lightning Network

Due to the similarities in naming, it seems natural that there may be a little confusion on behalf of the public and crypto-investment community with regards to the differences between ‘Lightning Bitcoin’ and ‘Lightning Network’.

“There is some confusion, you are correct.

When Lightning Bitcoin forked in December 2017, for Lightning Network it was still unclear when it is going to be launched, since it was still at the internal testing stage; only after four months later, in March 2018 when Lightning Network released its beta, both projects started to be confused by users in some countries.”

This, according to Zhang, is actually a problem more specific / limited to region,

“In other countries, like China, lightning network is not that well-known, as well as it has different Chinese name, that gives us more room for the development in Asia.”

Present and Future of LBTC

“Currently, Lightning Bitcoin network is stable, we constantly improving its functions and adding more products.

“The next big step for LBTC that we are working on right now is the development of on-chain governance, that will allow the network to self-improve and self-upgrade.

“In the future, stable upgrades of Lightning Bitcoin network in combination with chain governance, and decentralized transactions will allow cross-chain flashovers and smart contracts… the exploration of the on-chain governance model will become one of the most important tasks in the current stage of LBTC.”

Zhang continues to discuss the future for the coin in-detail as well, including that:

“In short, after complete integration of on-chain governance, next milestone is the development of new decentralized exchange. It will be an important component of the LBTC payment function.

“This exchange will have both basic functionality such as flashovers function of the gateway, as well as a system to guarantee the ease of cross-chain operations. Additionally, it will have the function of early crowdfunding of project under the necessary supervision.”

Finally,

“After implementing and perfecting the decentralized exchange, the development of intelligent contracts based on the UTXO model will be carried out, and a high-concurrence-based public chain ecosystem will be established to guide the flow of DAPP traffic.”

Featured image courtesy of Shutterstock. 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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Encrypgen Offers A Low Risk, High Reward Opportunity

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Since the start of the year, crypto valuations have been collapsing faster than Kevin Spacey’s career.  For investors who entered the market a few years ago, it’s been painful but not deadly.  For those who entered the market at or near the highs, this bear market may have turned them off of crypto for a very long time.  However, one bright side of the current market is that some incredible values exist.  And one day these compelling values are going to make today’s investors boatloads of money.  While I’m keeping my eyes on several tokens, perhaps the most exciting crypto company is Encrypgen (DNA).

Investors love to claim that projects they are following or investing in are the most likely to succeed.  But despite the bear market, many coin price collapses have been the fault of the companies themselves.  Many companies have missed their own deadlines and/or adjusted the roadmaps to something less ambitious.  Encrypgen has done just the opposite.  They are meeting their deadlines and are on the verge of releasing a revolutionary platform in the field of blockchain genomics.

It’s well known that small cap healthcare/biotech stocks have the potential of generating the highest returns in the equity markets.  Of course, those high returns come with astronomical risk.  So what if I told you that Encrypgen could generate those kind of returns with only a fraction of the risk that typically comes with start-up science companies?  Well, I fully expect Encrypgen to do just that.

I mentioned the risk is only a fraction typically associated with these types of companies because at some point in the 4th quarter (probably much sooner rather than later), Encrypgen will release the full working version of the Gene-Chain.  The beta version is already live.  The Gene-Chain will allow researchers and scientists to purchase data directly from consumers using Encrypgen’s token, DNA.

In addition, a buy-now feature will be implemented in the platform.  This is expected imminently.  This game-changing functionality will allow researchers to convert FIAT to DNA tokens directly on the Gene-Chain.  Researchers will receive DNA tokens and Encrypgen will receive funds that will be converted to BTC so that the company can continue to operate, expand, and enhance their product offerings.

Anther reason why I consider the risk to be much lower than usual is that the company has already done a tremendous job of navigating the complicated regulatory hurdles.  Because of the sensitive nature of the information being uploaded to the Gene-Chain (consumer genetic data), it certainly is necessary for regulation to exist.  Nevertheless, Encrypgen has already dealt with that while other competitors, such as Nebula Genomics, Shivom and LunaDNA, are significantly behind.  I always prefer to invest my hard earned money in market leaders rather than followers.  And there is no question that Encrypgen is the current leader in this space.

Investors should also take note that Encrypgen currently has an ICO cap of approximately $3.1 million.  Based on some of the other valuations I’ve seen in the crypto space, that is a significant undervaluation.  A $3.1 million valuation for a market leader in one of the fastest growing spaces that is about to release game changing technology doesn’t make much sense to me.  I am expecting a sharp and rapid increase once the Gene-Chain is being used by researchers.  The opportunity to accumulate at these prices won’t exist for much longer.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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