An Introduction to Cryptocurrency

I've previously written about the importance of diversifying your portfolio across alternative asset classes. In that post, I mentioned cryptocurrency as an exciting (but high-risk) new asset class for the tech-savvy investor. As a technologist myself, I'm excited about the impact of blockchain and cryptocurrency on our economy and society, and am perhaps overly bullish on its prospects. Nevertheless, from an investment standpoint, there is growing evidence that assets like Bitcoin can be valuable components of a diversified portfolio, given its past risk-reward profile and low correlation with other asset classes.

When considering cryptocurrency as a potential investment, I'd therefore recommend three preliminary steps:

Understand the vision

At it's heart, cryptocurrency is based on the idea that a decentralized network powered by market forces can create a trusted currency, for use as a store of value and means of exchange. This contrasts starkly with existing currencies, which rely on trusted third parties (for example, the US government) for backing. Below is a list of great posts on the theory behind cryptocurrency

Beginner:

New York Times Article

Advanced:

Nick Szabos on "Social Scalability"

Understand the technology (at a basic level)

Next, I'd recommend understanding how technology like Blockchain, Bitcoin, and Ethereum work under the hood.

Beginner:

Bitcoin Explained (with Emoji)

Intermediate:

Bitcoin on Khan Academy

Advanced:

Bitcoin Whitepaper

Ethereum Whitepaper

Get Your Feet Wet

The best way to truly get a feel for something is to try it out. Coinbase is a useful tool to make your first cryptocurrency purchase, and currently supports Bitcoin, Ethereum, and Litecoin. If you're new to these asset classes, you'll likely want to start with a very small investment.

3 Comments
  1. Reply
    Miguel (The Rich Miser) August 31, 2017 at 4:44 am

    I’m excited about Ethereum, since the smart contracts seem to have a lot of promise. I’ve also heard that the blockchain is updated far faster than Bitcoin’s. Thanks for providing these learning resources.

  2. […] Introduction […]

  3. Reply
    [email protected] October 3, 2017 at 4:38 pm

    The blockchain technology is spreading fast as the nationalized banks are even utilizing it. However, investing in cryptocurrencies yields more returns than the traditional forms of investments. This post certainly provides great insight into bitcoin trading.

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