Get your friends and family on Bitcoin

2017 was the year of the ICO Fear of Missing Out.  So many Ethereums changed hands to get into the diverse token offerings that the amounts collected for some valueless startups can shock the rational mind into a gibbering twit.  On the positive side, most of this FOMO was experienced by investors already in cryptos who possibly only wanted to diversify what can sometimes feel like easy winnings.

2018 will probably be different; ICOs will die out for the most part, to be replaced by a multitude of Bitcoin forks, not all of them nefarious.  With proper replay protection and actual use-cases some of these forks might even succeed in gaining traction and could make it worthwhile to hold some Bitcoin in your wallet for the longer term.  Instead of ICO FOMO, 2018 will be the year of the Bitcoin Branches FOMO, and the people most desperate to invest will be the ones who don’t currently own any Bitcoins.  And these people, your friends and family, will look to you to find them some cheap Bitcoins to invest in.

Here’s my approach to getting Canadians some magical Internet money as quickly and cheaply as possible without using localbitcoins (because I’m lazy and don’t own a car).  There’s really only two steps that matter; buying the coin and storing it, and knowing what to expect from the wallet in case of a fork.  But first be sure they understand that they don’t have to buy round units of Bitcoin, but that buying 0.5 or 0.01 is fine too.  It’s nice to be asked how to buy “I don’t know, a couple of hundred bitcoins?” but people tend to back away when you start talking about anything less than 1 and down to 8 decimals, as if it’s not “worth” a dollar anymore…

The quick plan:

Perfect for getting others to obtain coins on their own and not being responsible for their investment becoming worthless, their accounts being hacked or filling their taxes.

If you set up automatic payments on your credit card so you don’t pay monthly charges; the easiest thing to do is to use Coinbase‘s  instant credit card purchases (thank you for using my referral link!).  The 4% fees might seem very high at first, but because the Bitcoin spot price on Coinbase is generally fairly low compared to other exchanges, it’s often close to being the cheapest option. Most other “instant purchase” sites seem to have vanished, in any case. Purchases are instant with your credit card once it is validated – your first purchase is likely to be cancelled by your credit card’s fraud department.  Just give them a call and you can start buying 100$ of Bitcoin weekly.  You can increase that limit with additional paperwork. One important caveat however; the “instant purchase” price seems to be 1% above the “going rate” displayed on the dashboard, with the result that you’re actually buying at 5% fees instead of 4%.  I find that pretty deceptive on Coinbase’s part; make sure you check the average elsewhere before you buy!  (Bittybot is one site that displays bitcoin’s average price)

Coinbase is one of the oldest services in Bitcoin’s history and is considered a fairly safe place to store your small amount of Bitcoin for the short or medium term. It would be reasonable for most people to go do something else and come back to learning more about Bitcoin in a week or a month at this point, the hard work of buying in is done. You will probably want to use this money at a gas station or restaurant, I recommend you install an Android Bitcoin wallet.  I recommend that one simply because I know the code fairly well, but there are other excellent options. Make sure you back up the wallet file in case you lose the phone!

When Bitcoin forks, it’s uncertain what Coinbase will do with the new coins; basically exchanges own the private keys to the wallet your bitcoins are stored on, therefore they have no real obligation to issue coins spawned from any number of branches.  Don’t expect to get any bonus from anyone; the only foolproof way for you to obtain and sell your altbitcoins is to own the private key.  A backup of your android wallet will let you do it, but not without a lot of work or knowledge of the tools necessary to split the coins.  So this is definitely a plan for people who want to get into Bitcoins quickly and will get into long-term investing later.

The Long-term plan:

Some people will see Bitcoin as an investment vehicle for the longer term.  It is not difficult to believe that it can easily double in value every few years, never mind doing x20 in 6 months!  Of course it could also be replaced by some new technology or currency in the future (I would expect magical love potions to be more valuable than gold if they actually worked!) and become worthless, so make sure your friend is aware of the possibility.

This approach is of interest for people who want to be more hands-off with the investment, don’t really want to get involved with the technology and simply want to maximize their return.

The first step is obtaining Bitcoin at the best rate possible; this generally means calling on some exchange’s Over-The-Counter services.  Once again buying directly from people using localbitcoin or other peer to peer platform would be cheaper, but I don’t like the idea of walking around with thousands of dollars in cash.  You can access OTC services by calling the exchange directly and negociating rates.  But most people will probably prefer to simply transfer cash to an exchange using Interac or EFT and pay the higher fee for the convenience.

Currently the cheapest exchange I’ve dealt with is because of their low trading (1%) and transfer fees. And if you’re not in too much of a hurry, Coinbase’s daily recurring buy tool isn’t that much more expensive (as long as you pay your credit card bill asap!).  There are other good exchanges, but the coins seem to trade at a significant premium; resulting in fees almost twice as Coinbase if you’re not careful!  If banks worked at the speed of Bitcoin this would result in interesting arbitrage opportunities but they don’t and an unexpected two-week delay can wipe out your profits easily!

The biggest hurdle here is that to use this convenience, you have to have your identity verified to conform with anti-money laundering laws.  For a once-in-a-lifetime or once-a-year purchase, this seems a bit onerous and I certainly expect that it will lead to identity theft in some cases.  Until our regulations join us in the Blockchain century, this is the part where it makes sense for you, the bitcoin trader, to act as a proxy for someone else that trusts you.  This can be a bit touchy legally and you have to thread carefully; are you sure they aren’t trying to launder dirty money with you as the patsy? If they are rewarding you for this service with a share of coins, will you declare them as revenue?  Does that make you a professional trader? If so, it’s probably not worth doing the trade in the first place because of the tax implications.

To avoid problems, what I plan on doing is to have people fund my account directly, perform the trade and then transfer the bitcoin into a wallet or account where they remain in control and therefore retain ownership. It’s unclear to me at this point if an exchange would refuse funds from a third party into a verified account without a few days of holding; after all the KYC hurdle is there for a reason, but it’s worth investigating. You can the transfer the Bitcoin to a cold wallet, give it to your buyer on a USB key, printed on paper in a coffer and just wait for a few years with no additional risk. (apart from Bitcoin itself dying of course)

HODLing for years on a cold wallet is fine, but you’re also leaving money on the table.  If you have the collateral to prove you can cover your buyer’s investment, why not put it someplace where it might earn interest and earn some reward for managing this fund?  If you can prove you have the collateral (with a wallet address on the blockchain for example) and have an understanding (or contract) with the buyer that you retain all (or most) of earnings from interests and forks, you can earn a little bit of extra coin. Another reason to put the money in a hot wallet or an exchange is if there’s a crash or a bug is found, you will want to liquidate the coin as fast as possible; this possibiliy should also be mentioned in the contract.

Regarding forks, if someone is off-hands enough to let someone else manage their coin, they will certainly not want to deal with forks themselves.  You should specify how you plan to hodl or dump forked coins and how you will decide which branch the buyer’s bitcoin will follow or remain on.



These are just a few of my thoughts on onboarding your friends and family; I’m still experimenting and learning new things daily and hopefully not making too many mistakes. I (clearly!) am not an investment banker, lawyer or financial expert, so I hope I don’t get anyone in trouble.  But as far as I can tell them real barrier to entry right now are almost entirely caused by the old banking system and not at all by the technology – even if most wallets are extremely confusing at first.  If you can show your friends how easy and quick it is to buy a small amount of Bitcoin and transfer it to their smart phone, you’ll have done everyone a huge favour!

Selecting good ICOs

ICOs are awesome in their potential for profit and loss, but their main product is FOMO.  It’s easy to get carried away and invest in a little bit of everything when you’re afraid of missing out on a great deal.  Unfortunately without research it’s almost impossible to expect a return on a random ICO out of the thousands available.  We could really use a sieve to filter out the ones not worth spending any time on.

First the obligatory warnings; I don’t know anything about finances or investments. But one thing should be obvious from the start; no ICO is safe.  By definition this is an unregulated market that offers no guarantees, so you are implicitly accepting all the risks and have no clear recourse in case of problems.  Even if there were government regulations controlling ICO issuance, you should still take on all the risks, because why should others have to pay for your stupidity?

That’s why the first step is to figure out what legal framework the ICO will be operating under.

  1. The legal status of the enterprise you invest in can protect you against lawsuits (Limited Liability Companies, etc.).   Not so with ICOs, their legal status is so vague, until there is an actual lawsuit against an ICO the only thing protecting you is anonymity.  But then if you invest in something anonymously, how can you claim your shares?
  2. One exception is “Legal ICOs” in Québec, where they are experimenting with letting people invest in an “ICO”, as long as all the local rules for angel investing are applied; they seem to assume that if one is savvy enough to use cryptos, that person is qualified to invest in ICOs. Unfortunately so far none of the “legal ICOs” are actual ICOs at all because to respect the rules, they have to retain total centralized control of the blockchain.  No decentralized blockchain, no crypto-coin, so no ICO.  Just put your money somewhere else with better marketing bullshit.
  3. Where is the ICO team based; is it somewhere where you could have legal recourse if people simply vanish with your money?  Do you even understand the language they would use in their local court of law?

If it seems like you’re throwing your money into a legal black hole, then you probably are. Most scammers hope it’s not worth the terrible hassle of you trying to get your money back.  So it is worth taking the risk?

  1. Unless an ICO or ITO has a unique value or property – something that can’t be done without a blockchain or that no one else has done before – then you’re giving your money to a latecomer who doesn’t understand the competition and will give up as soon as the ICO is over.
  2. There have been several generations of “ICOs” or investments in blockchain startups now; with different names and attributes. The first was share purchases starting around 21012 on centralized exchanges like Crypto-stocks, Havelock, BTCTC, LTCstocks, etc.  Of the several hundreds of those, I personally only know of only three of them still running and trying to pay dividends on those original shares, which is quite a let-down. There are still people using that model today but because the size of investments doesn’t even compare (severeal tens of thousands of dollars back then compared to tens of millions in ICOs), it’s not very popular anymore.  Then came “colored coins” ICOs like BitShares offering.  I haven’t heard of anyone still getting dividends on any of those; they might exist but they don’t make the news anymore.  Then finally came Ethereum ICOs with their gigantic amounts of money but the only profit so far in any of them has been with quick pumps and dumps. The biggest difference with Eth ICOs is how easy it is to automate the scam; install the WordPress ICO theme, the Solidity ICO scripts, buy a white paper and you’re in business.  How many will sitll be around in a year; 1/100?  1/1000?  One? The upside is huge, and the odds seem better than playing the lottery, but just like gambling the only way to make sure you have money in the end is to avoid playing.
  3. Who wrote the white paper?  A member of an actual organization with provable credentials, or a professional white paper writer who came up with some superficial but very marketable technical plan in exchange for bitcoins?  Have you read it and understood it?  Reading, understanding and laughing out loud at white papers is a time-consuming business so I always keep this step for last.  Usually I find something so ridiculous in there that I waste a lot of time commenting and joking about it on troll boxes, so even if I don’t invest in a scam ICO it still ends up being a terrible waste of money and time.
  4. Run the numbers on the funding versus the plan and the deadlines.  I don’t know any software dev who can really deliver good code when he’s busy picking the leather design in his 2nd private jet.

So a quick checklist to decide to go skip or study an ICO:

  1. Where is the team?  Other side of the world? Skip it.
  2. Who are they, are they incorporated, do they seem to know anything about running a company?  No lawyer, no power. Skip it. (Note that so many crypto scams have been run by lawyers that they’re almost a guarantee of loss.  But totally ignoring legal responsibility is just as bad.)
  3. Is an ICO necessary for this business or is it just a marketing buzzword?  Cash grab, skip it.
  4. Is the technology or business model unique at first glance?  If not, skip it.
  5. Is the white paper legible?  Does the business model really make sense?  Does the technology really make sense, how far along is it?
  6. Is the money raised proportional to the business requirements?  Ridiculous numbers? Skip it.

That’s just a few of the reasons to reject an ICO; if you think that means rejecting 99% offhand, you’re right. Real investment funds spend most of their time analyzing investment opportunities and rejecting most of them; ICOs don’t make this process easier, they make it riskier; the average shmuck isn’t going to win at this any more than professionals just because they think they’re brilliant early investors!

In the end, holding the “mother” token on which the ITO is run is a lot like being at the top of a pyramid scheme.  If you own Bitcoins or Ethereum then you can profit from the demand for these coins from ICOs while taking on almost none of the risks; at least you shouldn’t lose your coins from a bug even if a smart contract scheme goes awry.  Want to invest in all ICOs?  Buy and hold real cryptocoins.  That’s how I know I haven’t lost any money to ICOs since The Dao!


When is “OUR ICO is LEGAL!” a scam? When it’s not REALLY an ICO!

China might be “banning” Initial Coin Offerings (ICOs) but what they’re really doing is reminding people that there are rules to issuing securities.  Things are no different in North America; as long as you respect the rules, you can sell shares are get investments in your company and call it anything you like. For example in Québec the “Authorité des Marchés Financiers” (AMF) lets you create and sell shares of your company to anyone that understands what it is they’re buying and investing in.  These people are known as “qualified investors”; people who have proven that they have the experience and financial knowledge to understand the risks of investing in a startup.  One of the ways people usually demonstrate that they are qualified is, for example, by having a  personal fortune of a million dollars or more. You can have reasonable expectations that someone who built a fortune has the know-how to protect it.

That’s one of the main issues governments have with ICOs as they stand right now: anyone can invest without any real idea of the risks involved. There is no check on the competence of the investors AND those investors have no idea what responsibilities they are taking on.  Did you know that if you invest in something that isn’t a “limited liability company” (LLC) that does say, wearable computing and the products end up burning people alive, as a shareholder YOU could be sued for the damages?  But through an ICO how are you going to find the people responsible? There are far more risks involved in ICOs than just seeing the guy who stole all your Bitcoins or Ethereums run away and die in a hurricane sipping on Mai Tais on a tropical island.  It’s not hard to understand that the SEC or AMF are not fans of ICOs, but they don’t necessarily want to prevent legit jobs from being created.

Is there a compromise that would satisfy both the desire of the startup to issue shares through an ICO and the AMF’s requirement to have qualified investors?  Not really – not yet!  The AMF is currently running an experiment (a bad one, imho) where they are relaxing what it means to be a “qualified investors”.  Basically what they are letting the startup do is sell shares through an pseudo “ICO” AS LONG AS the company KEEPS CONTROL of the secondary market (as they must).  You won’t be able to trade your shares without going through them; without an IPO this is a legal requirement, there is no change here. This means ALL of the ICO token’s trading will be centralized.  And they control the market price/token issuance.

The end result?  This ICO is NOT AN ICO; there is NO NEED for a blockchain or token, they are basically replacing their shareholders database for a database stored on someone else’s blockchain.  THERE IS NO POINT OR VALUE to this.  And unfortunately, when that company starts going down, you won’t be able to sell your shares and save one bit of your money. AND ALL FUTURE local ICOs/Cryptocoins will SUFFER from this failure.  I appreciate that the government is trying to keep an open mind about new Fintech, but I believe this is the wrong approach; they shouldn’t relax the conditions for creating ICOs, they should enable and facilitate more “qualified trading” through Blockchain technology!

I would tell you “Caveat Emptor” – Buyer beware – but if you’re a “qualified investor” you already know this.  And if you invested in things like the “First legal ICO in country X” without understanding the white paper, qualified, you are not. It’s not, in itself, a scam – the approach IS legal apparently – but it is a MARKETING scam.  This is not an ICO. You should buy and hodl Bitcoin and encourage others to do the same and you would profit more than investing in this. The saying “A rising tide raises all boats” describes real Cryptocurrencies like Bitcoin perfectly.

As always, I’m not qualified in any of this, not a lawyer, not a financial adviser, so don’t take this as legal or investment advice.  All I did was read the white paper. It made my soul bleed a little.

Step 1: Planning to Fail

The first step in making money with cryptocoins is to have your fiat finances in order.  You aren’t planning to invest money you can’t afford to lose, right? Even though it’s fairly easy at the moment to make some profits in cryptos, it’s even easier to lose it. So don’t take unnecessary risks, make sure you’ll still have a home, a bit of electricity and can afford food if you lose your cryptos. In other words, prepare to fail.

Our goal is to apply long-term do-it-yourself economical money strategies to earn a simple, down-to-earth, solid income from cryptos so let’s review some of the practical tricks we should set up with fiat before getting into cryptos. First, you probably want some form of income or revenue. I can’t help you with that; I haven’t held a full-time job in decades. But earning some money in a job you don’t mind doing for several hours a day is a good thing. Put that money in a low-cost bank or credit union account, if possible one that earns a bit of interest. Consolidate all your accounts and debts. Pay off your credit cards and set up automatic payment as soon as possible. Keep the minimum of credit cards possible (keep one with the best refund or rebates possible). Pay off your other debts like your car and house (depending on the terms) – get rid of insane expenses like extra cars if possible. When you’re making extra dollars every week or month instead of throwing them away in fees, set up automatic investments in low-fees robo-advisors or long-term self-managed accounts. Depending on on your age and income, start with your RRSP or TSAF.  Diversify and invest in a range of different investment types according to your risk comfort levels. Save and wait for a few years.  Reap the benefits.

Investing in cryptos in some ways is even easier than with fiat, and in some ways much more costly and confusing. The biggest difference in a way is the time factor; cryptos are so volatile you can make or lose in one day what it would otherwise take a year to do in fiat. Because of that time compression, any trading in crypto is akin to day-trading and you have to watch it like a hawk. You really have to hope for big wins but prepare to cut losses fast. In other words you want to set up a investment or trading system where you your gain/loss potential is imbalanced towards gains. You can only do that by expecting and preparing for losses, setting a line for how much loss you’ll accept and having the emotional detachment to actually cross out that bad investment off your balance before it starts rotting and eating into all your budget.

If you don’t know how investing works in the “real world” of fiat money, you will probably get very confused at first with Cryptocoins. On the other hand, the first thing to know is that you don’t have to “play” with whole Bitcoins at a time, Bitcoin (and most other cryptocurrencies) can be broken down to 8 decimals, so you can LEARN how to trade both cryptos and fiat and invest very cheaply.  Some things you can only learn by getting it wrong once or twice; you don’t want to do that by losing 120,000$ like I did. I could have learned the same lesson with 120$ lost only. And those were Ethereums, it’s probably worth much more than that today.

This is what I mean when I say the first step in investing in cryptocoins is planning to fail.  You don’t aim to lose your money, but you can’t go in with your eyes closed either.  Spend some time summing up and accounting your money, decide how much you can afford to put in cryptos, and convince yourself there’s a very good chance you will lose all of it to change, bad investments, scams or bugs in the software.  Once you’re happy with how much you’re willing to put into this experiment and how risks and news affect you and your decisions, you can move ahead to the next step, buying cheap bitcoins and “getting into the game.”.  We’ll get to that in the next post.