Module #4 - Should you buy other cryptocurrencies
Congratulations for making it this far, you are now a Bitcoin Hodl. Almost certainly you might at some point want to start considering buying other cryptocurrencies.
Originally this module was called ‘Creating a Crypto Portfolio’, and I talked about why and how to buy other cryptocurrencies. Over the past year my view on this has changed, for a number of reasons. If you are doing this course and don’t know, I have a podcast called What Bitcoin Did. Since starting the podcast I have interview many people in the world of cryptocurrencies and have become close to what is known as a Bitcoin Maximalist.
While it is possible to invest in and make a profit from buying other cryptocurrencies, I do not believe any cryptocurrency outside of Bitcoin is a good long-term investment. In this section I am going to attempt to explain why.
Why is Bitcoin a Good Long-Term Investment
Why Other Cryptocurrencies are a Risky Investment
Bitcoin Cash - A Fork of Bitcoin
Crypto assets are almost entirely open source projects, thus there is no IP or copyright and anyone can either copy the original code or fork a blockchain to create an entirely new Crypto asset.
As I mentioned above, Bitcoin Cash is a fork of Bitcoin, so what does this mean? Remember when I explained how the blockchain works. Well, it is possible to fork a blockchain and create an entirely new coin, which may be hard to understand but will make sense as you become more comfortable with Cryptocurrencies.
There are two types of fork, a soft fork and a hard fork, we don't need to go into the differences now, but Bitcoin Cash was a hard fork of Bitcoin. Bitcoin has something called a protocol, which is the set of rules by which it operates. For some time there was a disagreement in the community about how to scale Bitcoin, as in, how to allow more transactions, make them faster and cheaper, the two camps were as follows:
Off-chain: use new technologies which would enable transactions outside of the main blockchain
On-chain: increase the amount of data that can be stored in a block to keep the transactions within the main blockchain
As no agreement was reached, the team in favour of on-chain scaling, forked Bitcoin and implemented a new protocol. This happens by deciding a specific block to work from, changing the rules, so the chain splits, and then ensure a number of miners then start mining that chain instead. As long as miners are mining both chains, they can both continue.
Don't worry if you don't fully understand this for now. All you need to be aware of is that it is possible to fork a blockchain to create a new coin. While this sounds easy to do, and you may question why doesn't this happen more, it is not entirely simple as you do need to have enough miner support to maintain a fork of a chain and community support for why it should exist.
Module #4 Summary
A portfolio allows you to hedge the market: but you should take your time before buying other coins
Some people will ONLY invest in Bitcoin: this is a perfectly sound strategy
When you choose to sell depends on your strategy: this will come down to your goals and strategy
You can create a portfolio on Coinbase: but you are limited to the four coins they have available
Bitcoin Cash is a fork of Bitcoin: and the two coins approach scaling in a different way
An index portfolio is a sound strategy: and they can be weighted evenly or to market cap
Now you understand about portfolios, you can move onto Module #5 and learn how to manage your portfolio.