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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

Crypto Capitulation Is Upon Us

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Capitulation: kuh-pich-uh-LEY-shuhn (noun) the action of surrendering or ceasing to resist.

From their December peak, cryptocurrency assets have given back over $400 billion. This amounts to more than the GDP of many countries.  If this were values lost in the stock market whose worth is in the trillions, it would be called a minor correction. In crypto terms there is only one word to describe the carnage: capitulation.

As painful as it is, the point to be made here is the capitulation is a good thing.  Read on and I will share some thoughts for you to consider.

Mass Media Mania

First let’s take a look at some of the news that is causing such despair. Most recently the selling mania has been in response first to Facebook and more recently to Google.  Both of these mass social media giants have ban cryptocurrency advertising. Read closely and you won’t be shocked to realize that the target of their ire are the many ICOs.

The problem is not that Facebook and Google are the only advertising platforms.  The problem is that they are considered mainstream media and without these two, the trend of cryptocurrencies gaining legitimacy is delayed.  That is right, I said delayed not blocked or prevented.

The World Has Changed

Five years ago, when bitcoin was unknown to most people, this might have been a fatal move. Today is a different story. I recently traveled to a remote mountain town in the interior of Mexico.  Everyone I met had heard about Bitcoin and eyes lit up with excitement when I ask if I could pay for lunch with bitcoin.  

Today are dozens of websites dedicated to cryptocurrencies, either holding them, exchanging them or just writing about them.  Probably the most effective advertising remains on Google, it is called Google Search and it is free.

If someone wants to learn about owning bitcoin or any other currency, there is a ton of educational information.

Of course it would be far better all around if Mark Zuckerberg and Eric Schmidt had taken a different approach such as banning only advertisements for ICOs, but that didn’t happen so supporters of crypto aren’t comforted in their beliefs that bitcoin is going mainstream in 2018.

The Flipside Is Being Ignored

Every argument has a flip side.  If the removal of ads contributes to cleaning up ICO scams, that is a good thing.  We can all agree on that point. And let’s be honest there is more than one problem the crypto community needs to clean up.

This adds to the ongoing regulatory news including March 7th ruling in US Federal District Court that cryptocurrencies are commodities.  As such they can be regulated by the Commodity Futures Trading Commission (CTFC).

On the same day the Securities & Exchange Commission issued the following order:

“If a platform offers trading of digital assets that are securities and operates as an ‘exchange,’ as defined by the federal securities laws, then the platform must register with the SEC as a national securities exchange or be exempt from registration,” the commission said in its “Statement on Potentially Unlawful Online Platforms for Trading Digital Assets.”

Not All Regulation Is Inherently Bad

The mere hint of added government regulation typically sends stock market investors heading for the exits and the same holds for investors in crypto.  But this raises the question, is some regulation of crypto a good thing?

If we examine the full spectrum of regulation to this point on a global scale there is one common target most everywhere.  That is the practice of exchanges. So far there has been little or not regulation, threatened or enacted, to protect investors from loss of funds due to security breaches.  

The question that needs to be ask is this.  Will SEC regulation result in better pricing and lower trading costs; if So, then this would provide a desirable outcome.  It is understandable if you laugh at the prospect of any government regulation having a beneficial outcome, but if you look at past SEC practices, you would come away with different conclusion.

So when the next regulation catches the headlines will it be to ban the existence of bitcoin, Ethereum, Ripple, Litecoin and others or to protect the investor from scams and excess costs?

Capitulation Is A Good Sign

Over the course of a pretty long investment experience, I have witnessed true misery on more than one occasion.  The pain is unbelievable, there is no perspective on the future and all you want is to take action to end the misery.  That is when you know the worst is happening and nothing is ever going to make it better. That is when major stock market bottoms are formed. It surely is painful these days for crypto investors. This is a good sign.

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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4.4 stars on average, based on 82 rated postsJames Waggoner is a veteran Wall Street analyst and hedge fund manager who has spent the past few years researching the fintech possibilities of cryptocurrencies. He has a special passion for writing about the future of crypto.




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Altcoins

What’s Behind Cardano’s Rising Popularity in South Korea?

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Cardano, better known as ADA in South Korea, pronounced as “aeda” in the local market, is growing at an exponential rate due to UpBit.

UpBit, South Korea’s second largest cryptocurrency exchange behind Bithumb, is operated by Dunamu, a subsidiary company of Kakao, the operating company of KakaoTalk and KakaoPay. The two mobile applications, KakaoTalk and KakaoPay, have a market penetration rate of over 90 percent in their respective markets–financial technology (fintech) and messaging.

Although UpBit remains as the only cryptocurrency exchange that has integrated Cardano within the local South Korean cryptocurrency exchange market as of date, the popularity of Cardano on UpBit is increasing rapidly. According to CoinMarketCap, 75 percent of Cardano’s daily trading volume is processed in South Korea, by UpBit.

Within its debut month, more than 3 million South Korean users signed up to use KakaoPay, the country’s most widely utilized fintech app. KakaoPay operates as a mobile bank, allowing users to send and receive money, obtain loans, and conduct financial activities. KakaoPay supports UpBit because a subsidiary company of Kakao in Dunamu operates UpBit.

Given that Cardano is one of the most popular cryptocurrencies on UpBit in terms of daily trading volume, naturally, as general consumers in the traditional finance market using KakaoTalk and KakaoPay move to the cryptocurrency market, the first few cryptocurrencies they are introduced to are bitcoin, Ethereum, and Cardano.

Cardano is also receiving significantly more mainstream and local media coverage than other alternative cryptocurrencies, specifically because the South Korean media has portrayed Cardano as a direct competition to Ethereum. Because Cardano is a smart contracts protocol, it is structurally similar to Ethereum.

The two key differences between Cardano and Ethereum are that Cardano uses a proof-of-stake (PoS) consensus algorithm and it also has two layers that are used for smart contracts processing and payment settlement.

In South Korea, cryptocurrency mania has swept across most major industries. 5 out of 10 people on the streets, in subways, buses, and cafes talk about bitcoin, cryptocurrency, and blockchain technology on a regular basis. As such, the majority of investors are more technical than other regions.

Most investors of Ethereum in South Korea understand that the Ethereum Foundation and its open-source development team has been planning a PoS update via Casper. When Cardano debuted with a PoS protocol, it led South Korean investors to believe Cardano is a more innovative platform and has a technical edge over Ethereum.

January 31

For cryptocurrencies with strong followers in the South Korean market, January 31 is an important date to keep track. On January 31, local cryptocurrency exchanges are expected to open account registrations to new users and six major local banks are set to provide banking services to cryptocurrency exchanges.

Consequently, on January 31, it is likely that a massive amount of Korean won will flow into the local cryptocurrency exchange market. The recent cryptocurrency exchange ban fiasco, which turned out to be false, further increased the presence and popularity of cryptocurrencies in South Korea.

Cryptocurrencies like Cardano, EOS, Qtum, and Ethereum that have strong bases in South Korea will likely increase in value throughout late January and early February.

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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3.4 stars on average, based on 3 rated postsJoseph Young is a finance and tech journalist based in Hong Kong. He has worked with leading media and news agencies in the technology and finance industries, offering exclusive content, interviews, insights and analysis of cryptocurrencies, innovative and futuristic technologies.




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Fidelity Investments is Mining Cryptocurrency

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Fidelity Investments is a multi-billion dollar brokerage  that just so happens to be mining cryptocurrency. In fact, it has been at it for three years, using its own computers to harvest bitcoin and Ethereum.

Profitable Experiment

CEO Abby Johnson recently told Fortune that its U.S.-based mining operation is “making a lot of money.” This comes despite running a relatively modest operation.

Hadley Stern, Senior VP of Fidelity Labs, described his company’s venture as an “experiment.”

The real reason we began mining, and still do, is to learn how the network works, how consensus works, how difficulty levels work,” he said in reference to the mining process.

The key to profitability has been the dramatic rise in cryptocurrency over the past year. Bitcoin and Ethereum are the world’s No. 1 and 2 cryptocurrencies by market capitalization, and no-one else comes close.

Well Ahead of the Pack

The fact that Fidelity has been at this for three years speaks volumes about the company. Other, much bigger players are still dipping their toes in the market, but are unsure about how to proceed. Goldman Sachs is reportedly on the fence about starting a cryptocurrency trading operation, while J.P. Morgan has already begun handling customer orders for bitcoin-based instruments.

Fidelity is doing a lot more than just mining tokens. Earlier this year, it reached an agreement with Coinbase to let customers view cryptocurrency prices alongside other assets on their Fidelity homepage.

Coinbase is the world’s most funded cryptocurrency exchange with more than 7.4 million users.

Cryptocurrency Prices

The cryptocurrency market ended the week on a firm note, with bitcoin (BTC/USD) reaching a session high of $4,425.00. At press time, the index was up 1.6% at $4,368.

Ether is also trading higher against the dollar, with the ETH/USD rallying more than 3% to $305.

Ripple (XRP) lost momentum on Friday, but still managed a weekly gain of 21%.

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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4.6 stars on average, based on 462 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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