What is investing? You know the word, but do you really know what it means? Are you investing or are you speculating? Knowing what investing really means and what constitutes investing (as opposed to speculation) might help you better wade through the many options you have for deploying your capital. Don't make foolish bets with your money - invest it properly. Read the full article below to find out what investing really is.
What is Investing?
Here's my definition for what investing is:
Investing, in the financial sense of the word, is the deployment of capital (usually money) into the purchase of shares, purchase of assets, development of commercial ventures, or other financial schemes in order to obtain a return on that deployed capital with a reasonable expectation (grounded in some sort of reasonable analysis) that the risk-adjusted or expected return is positive.
That's a long and somewhat fluffy definition, but any definition that would cover the broad range of activities that could properly be classified as investing will be somewhat fluffy. Let's break down the main elements of that definition and discuss them briefly.
... the deployment of capital ... : This means you use some sort of capital (usually money) to invest. Without using or committing capital, you're not really investing. You can invest your time and energy into things, but that wouldn't qualify as financial investing. You must deploy capital in some way for your activity to properly be called investing in the financial sense of the word.
... or other financial schemes ... : Investing requires the deployment of capital in a specific way. It requires that the capital be used to either purchase shares of a firm (the firm can be publicly traded or privately held), purchase assets (purchasing gold, Bitcoin, fine rugs, or fine art might qualify as asset purchases), develop commercial ventures (start a business or develop a new office building), or to pursue some other type of financial scheme. It's not easy to make an exhaustive list of the other possible financial schemes because there are many possibilities. For example, a properly documented and agreed upon private loan to an acquaintance can qualify as an investment. The purchase of various derivatives products might qualify as an investment as well. Even the purchase of rare grapes for the purpose of creating a unique wine could qualify as an investment. It's impossible to describe every possibility here, of course, but this should give you a general understanding of what I mean by a financial scheme.
... in order to obtain a return ... : Investing requires that the deployment of the funds is done to obtain some financial return. If no return is expected or desired, then the deployment of capital is more like a donation or a purchase depending on the circumstances. Financial investing requires that it is done for the purposes of growing your capital base by receiving a return on the invested funds.
... reasonable expectation ... : Investing requires that we are reasonable in our expectations of the financial return from our endeavor. If we are unreasonable or foolish, it's not investing in my opinion. A reasonable person using reasonable analysis techniques (they don't have to be complicated, just sound and reasonable) should be able to agree that a positive return is possible. This means that if unfounded, biased, or inappropriate techniques of analysis are used in order to determine what the potential return is (either expected return), it is not investing in the proper sense of the word. For example, using deeply incorrect assumptions that you know don't make sense to calculate your expected return wouldn't hold up to this standard. You wouldn't be investing here, but would instead be fooling yourself and possibly speculating. Additionally, not dong any analysis whatsoever before deploying capital would preclude the activity from being called investing. The analysis doesn't have to be complicated (although deeper analysis is likely better), but some sort of thought must be given to what is occurring if we are to call the activity investing.
... that the risk-adjusted or expected return is positive. : This point speaks to how we calculate the return. We state that the return has to be positive, but we need to know how to calculate the return. In calculating the possible return, a more sophisticated investor should adjust for risk, calculating what is called the risk-adjusted return or the expected return (these two names can generally be used interchangeably in a non-academic or unsophisticated setting). There are complicated mathematical formulae for calculating risk-adjusted numbers, but what is meant here is something more basic: the return you expect to get should from your investment should be the adjusted for risk, with less probable outcomes discounted more intensely. In other words, the return can be thought of as a weighted average of the possible returns, each return weighted by its probability of occurrence. Going further, this means that investing requires that the expected return is positive. That expected return might never occur, but at the outset (when we deploy the capital) the expected return should be positive. No rational individual would deploy capital into a financial scheme that has a negative expected return.
What Investing Is Not
Investing, in the financial sense of the word, can be distinguished from other uses of capital or energy. Investing is not:
Work: If you expend energy but never deploy capital, it's more like a job. You are getting paid for your labor and for your skills.
Saving: Putting away money is not the same as investing. Investing requires the deployment of capital. Saving money (whether it be in a bank account or under your mattress) is the accumulation of capital, but the capital is never at risk in any sort of financial scheme and the only return on the capital that could be obtained is compensation for the time value of money (eg. interest you get at the bank).
Speculation: This is a broad category, but it can cover many things that require the deployment of capital that don't provide a reasonably expected positive risk-adjusted or expected return. Gambling at the roulette or blackjack table is speculation because the risk-adjusted or expected return is actually negative. Buying things that are not assets in hopes to resell them later can be called speculation in some cases. Even purchasing real estate can be called speculation in certain cases (eg. foolish and naive purchasing prior the Great Recession in hopes of reselling at a later date). Speculation occurs when a would-be investor is deploying capital in a way that is not reasonably prudent. This doesn't mean that if the venture is very risky it should be classified as speculation. A financial venture or scheme could be extremely risky and could still be classified as an investment so long as the risk-adjusted or expected return is positive. For example, a venture with a 99.99% chance of a total loss of the principal and a 0.01% of success could be classified as an investment if the reward for the 0.01% chance is great enough to offset the very likely total loss. It would be an extremely risky investment, but it could be an investment nonetheless. Speculation occurs when there shouldn't be a reasonable expectation of success based on some sort of reasonable analysis.
Keep the Definition of Investing in Mind to Avoid Foolish Bets
In conclusion, we see that investing is a specific type of deployment of capital and is distinguished from work, saving, and speculation. Keeping the definition of investing in mind could help us differentiate between investing and speculation by applying the definition in a disciplined way before we deploy our capital. Investing is a fundamental part of individual wealth-building and it allows for a society to grow and prosper, but it should be done wisely and carefully so as to make sure that foolish bets are not being taken.
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The common financial rule of thumb says that you should have 3 to 6 months of living expenses in your emergency fund. But what does "living expenses" actually mean? To calculate your monthly living expenses, you need to combine the amount needed to maintain your household's physical and mental-well being along with your other monthly required payments. Surprisingly, it is possible for your monthly living expenses to be quite a bit less than your normal monthly spending. Read the full article below to find out your monthly living expenses and be surprised at how reasonable they can be relative to your income.
The common financial rule of thumb is to have 3 to 6 months of living expenses. Although this might not be right for everyone, it is generally a good rule of thumb because it balances the costs of having a significant portion of your wealth in cash (and possibly earning so little that inflation is eating away at it) with the benefits of having a cushion of liquid funds available should a financial storm strike. Inquisitive minds will follow with the following question: What do you mean by "living expenses?" This is an excellent question because the rule of thumb states that we need to look at living expenses as opposed to income.
Living Expenses ≠ Income
Living expenses are not income, but instead mean the total amount of money needed to provide for the needs (as opposed to wants) of you and your household, maintain financial security, and keep you out of financial default. In a financially healthy situation, living expenses should be substantially less than your pre-tax income and less than your post-tax income by a significant amount.
Note: If you find yourself in the unsustainable situation where your monthly living expenses exceed your monthly income, you are headed for a financial catastrophe (unless you're expecting some sort of windfall) and you should immediately attempt to remedy the situation.
How to Calculate Your Monthly Living Expenses
First, Cover Basic Necessities
To get at your monthly living expenses number, we will first focus on the expenses required to maintain immediate life, health, physical, and mental well-being of your household:
Food: This is the amount you will need to spend in a month to feed your household with nutritious, but inexpensive meals. This does not include gourmet items, going out to dinner, or alcohol. Focus on cutting down on the luxurious or superfluous items and purchase nutritious staples and necessities. If you are a typical US household, for example, it might be possible to get by relatively easily for a few months on as little as half of your normal (non-emergency) monthly food budget.
Drinking Water: This should include the amount spent on quality but generic water for your household. If you have a water filter at home, your drinking water expense could be minimal. If you purchase bottled water, it is wise to transition to generic brands instead of name brands during your financial emergency (or during the time you're replenishing your emergency fund after a financial emergency). Buy in relative bulk and bottle your own water in order to cut down on costs. As with food expenses, it is possible for a US household that buys premium bottled drinking water to cut their drinking water expense by as much fifty percent.
Shelter: This is a less-flexible expense because you can't get out of your apartment or house quickly (and most likely wouldn't want to for a short-term financial emergency). If your emergency is of an unusual nature or if you don't have a permanent place to live, you will want to provide shelter for yourself in other ways (eg. crash on a friend's couch for a short period of time, stay with parents or other family members, rent a hotel room, etc.). You want to make sure you have enough money to maintain your shelter during the financial emergency, although this likely won't be a big problem because maintenance is usually a relatively infrequent expense.
Heating and Cooling: You'll want to make sure you maintain your home at a livable temperature, but it might be wise to buckle down in a financial emergency and put up with a bit more physical discomfort than you would in normal times. Too hot? Open a window and drink a cool glass of water. Too cold? Put on a sweater.
Medical Care and Medication: Don't skimp on required medicines and medical care but see if it is possible to transition to generic brands if you are in a financial emergency. This includes required medications, regular checkups, and emergency and urgent care visits. This also includes pressing mental health needs. If you need to see a therapist or mental health professional to maintain your mental and emotional well-being, make sure to account for this. A financial emergency isn't a great time to forsake necessary or beneficial mental health care or counseling.
Other Necessities: Other necessities will include toiletries, paper towels, required clothing replacement, gas for your car to get to work and school, car maintenance, etc. These expenses should be looked at with a disciplined and prudent eye so as not to purchase superfluous items. During a short-term financial emergency, a significantly smaller amount of money can be allocated to these items with relatively little discomfort.
Next, Stay Current on Your Payments
After we have taken care of the basic necessities, we will need to tabulate your required monthly payments in order to properly calculate your monthly living expenses. You want to stay out of financial default and maintain any sort of insurance you have in place even in a financial emergency, so it is important to account for the following:
Credit Card Payments: You can include your minimum estimated monthly payments here, but the more you include the better given the relatively high interest rates on most credit cards
Student Loan Payments: Include your required student loan payments
Insurance: Include the amounts needed to maintain your health, car, homeowners, life, umbrella, long-term care, and long-term disability insurance policies as well as any other insurance policies you may have in place
Car Payments: Include your car and lease payments
Other Payments: Other payments might include a child's tuition to school or college, child support payments, spousal support payments, or payments from a court case that you lost.
Remember That Each Situation Is Unique
Remember that this is a very general guide meant to be used by a variety of people. Your situation is unique and it is possible that your monthly expenses may be different by a little or a lot from what we discuss here. Things such as the number of dependents, unique family situations, unique jobs and businesses, unique medical or mental health needs, or unique lifestyles might cause your situation to be different from the typical scenarios discussed here.
What Did We Learn?
If you're a true financial nerd you can put numbers to each of the above items and calculate the current projected monthly living expenses for your household (it's only going to be a projection because things are random in this world and things can change at any moment). If you're not yet a hardcore financial nerd, it might be enough to just glance over the items and roughly estimate the amount needed in your mind (provided you understand that this will be a less accurate estimation of your monthly living expenses). Either way, you will likely come to the conclusion that your true monthly living expenses as needed to calculate the size of your emergency fund are less than what you currently spend on a monthly basis. This is generally true fro the following two reasons:
Although your monthly living expenses don't have to be the size of your actual monthly expenses, it is wise to remember that a conservative approach will lead to a more robust emergency fund and a more resilient financial situation for you. Err on the side of caution and don't be overly aggressive in estimating how much you can cut down during a financial emergency.
I know it's not fun reading the above - no one wants to cut out their premium bottled waters, their dinners out, movies, app and music purchases, premiums soaps and shampoos, or anything else they enjoy doing. If you're in a financial emergency, however, it is wise to buckle down for a bit until you get back on your feet. Discipline and short-term self-denial can be excellent tools for quickly recovering form a financial emergency minimally scathed. The knowledge that you can buckle down and survive with a diminished lifestyle for a short period of time is useful in figuring out how much money you'll need in your emergency fund.
In conclusion, you don't need to use your monthly income when calculating your emergency fund - your monthly living expenses are likely to be significantly less than your income. Additionally, you can cut out extras and luxurious and only focus on the necessities described above when calculating your monthly living expenses. This will allow you to get a better and more accurate picture of how much you need have in your emergency fund and you'll see that you can fill up your emergency fund much more quickly because of this. However, remember to not be overly optimistic about how much you can really live on - be realistic with a conservative outlook and you should be fine.
Any required expenses you think that were missed? Please let us know in the comments below and we’ll update the article with your valuable feedback.
Further Reading: How big should your emergency fund be?
This is a topic that’s been covered by every financial blog, podcast, book, or show, but we’ve got to cover it here as part of the basics because a proper emergency fund is a basic necessity to financial well-being and financial health and I refuse to give it short shrift just because it’s a readily-covered topic.
The traditional advice has been to have a 3-month to 6-month emergency/rainy day fund. That 3-months to 6-months doesn’t mean you have to have enough in your emergency fund to replace your income, it only means you need to have enough to cover only your expenses for 3 to 6 months. For example, if you make a household income $80,000 a year, 6 months of income would be $40,000. However, if you’re smart with your money and live below your means, your monthly expenses are likely less than your monthly income. It might be the case that $20,000 would be sufficient to cover 6 months of living expenses.
Why 3 to 6 months, however? Where did that number come from? If more is better, why not go for a full year of expenses? Why not two years? That’s tough to answer and there might be possible reasons for going beyond 6 months. For some conservative people or for those who believe there are rainy days ahead, a full year of living expenses might be reasonable. However, the larger your emergency fun, the more money that is sitting outside of the markets and earning very little interest. There is an inherent trade-off between the security that comes with an emergency fund and the growth that can potentially occur from having funds invested in the markets (be they equities markets, bond markets, real estate, or other investments) over the long-term. Be mindful of that trade-off when you are choosing the size of your emergency fund.
An important principle in creating your emergency or rainy day fund is conservatism. We want to make sure that we err on the side of caution: it’s better to have too much than too little. Additionally, having a conservative approach will make us keep our emergency or rainy day fund in a very safe place, namely a simple saving or money market account. An emergency fund isn’t an investment, it’s insurance for all of your other investments, protecting them from potential liquidation should an emergency occur during some sort of economic downturn.
I wrote about Bitcoin previously. You can see my original article here. I have learned more about Bitcoin, more about investing, and I have been able to look at Bitcoin through a different lens since writing that article.
The main part of my increased knowledge about Bitcoin has come from one of my favorite, if not my absolute favorite, podcasts called EconTalk. On an episode of EconTalk, host Russ Roberts interviewed Bitcoin evangelist and Xapo CEO Wences Casares. The interview was both interesting and informative. You can access the interview as well as a good amount of extra learning material here. I highly recommend that you listen to the interview and read some of the material on the website if you are interested in Bitcoin or are planning to make a purchase.
In the interview, Casares discusses many things but what I want to focus on here is Casares's postulation that purchasing Bitcoin is a very low-risk/high-reward endeavor. Casares believes that there is a non-trivial chance that Bitcoin will grow in popularaity and become a global currency. Even if 1% of global trnsactions are done in Bitcoin, Casares argues rightly that Bitcoin's value will grow immensely in value. This is easy to understand. If 1% of global transactions will be done in Bitcoin at some point in the future, the total value of all Bitcoin in existence wold equal (0.01)(x), x being equal to the total value of all of the transactions done in that future year. If we include black market transactions, the value of Bitcoin will be even higher. It is important to remember that an inherent property of Bitcoin that separates is from every other national currency in existence is that Bitcoin are generated at a predictable pace and after a certain year, no more Bitcoins will ever come into existence. Therefore, Bitcoin cannot be deflated like the US Dollar, the Euro, the Yen, or any other national currency can. We can see that as the value of global transactions rises, the total value of all Bitcion in existence should rise (assuming Bitcoins comprise a stable percentage of all global transactions). So, if Casares is correct in saying there's an non-trivial chance of Bitcoin taking off and becoming a means of exchange for a significant (even 1% is significant) portion of global transactions, the value of each individual Bitcoin will rise tremendously. Casares believes that in the next few decades a single Bitcoin could be worth $1 million USD. That definitely sounds crazy in 2015, but it isn't at all crazy if Bitcoin takes off.
Of course Bitcoin has a very high probability of not taking off. Casares acknowledges this, but this acknowledgement doesn't stop him from recommending that individuals should purchase a few Bitcoin. He argues that purchasing a few Bitcoin will cost less than $1000 as of the writing of this post (this will obviously change as Bitcoin fluctuates on a daily basis). A person who takes Casares's advice now has two possibilities for his or her future as depicted by the tree below.
The above options are different than investing in stocks, real estate, or commodities. Investing in those things requires a large up-front investment and historical growth rates for those investments are nothing spectacular. With Bitcoin, a very small investment is more than sufficient to position you to take advantage of a potential meteoric rise in the value of Bitcoin. If Bitcoin takes off, it will be much more valuable than it is today. It could potentially make you a millionaire off a $1000 investment in a decade or two. Thinking about it this way reminded me of great investor and author Monesh Pabrai and his book The Dhando Investor. In it Pabrai describes the concept of Dhando, a concept that echos Warren Buffet's investing style. The concept of Dhando mean taking calculated risks that have extremely limited downside potential while having extremely amazing upside potential. By using the concept of Dhando with skill an investor can take risks that are of a very particular variety, the kind where making a mistake doesn't mean disaster. To be Dhando is to be like Pabrai or Warren Buffet. To be Dhando is to take those risks that have very little downside but very big upside potential.
Casares's recommendation had Dhando qualities. It is a recommendation that is geared toward a Bitcoin investor entering into a position where his or her downside is limited but where the upside is great. Although the chances of winning here are slim, it is Dhando because it preserves your wealth and positions you into a place to profit should things go well.
This is now how I view investing or purchasing Bitcoin. I don't know much about Bitcoin mining and I almost have no use for Bitcoin for use in making transactions at this stage. I view Bitcoin as a Dhando endeavor where I can place my bet and think of it no more. In a decade or two I'll either be rich or I'll be indifferent about it. It takes a small amount of time and about $1000 for me (for you it might be a different amount - BUT it should always be an amount that allows you to remain Dhando - meaning an amount that you will be pretty much indifferent about losing should Bitcoin fail totally).
P.S. Check out my first foray into purchasing Bitcoin using Coinbase here.
The most basic question that one can probably ask regarding all things finance, economics, and money is “What is money?” We all know that a US Dollar Bill or a Euro is considered money, but most people have never really given thought to what the properties of money are and what makes something actually money.
We can begin by going back in history before there was anything that could be considered money as we know it today. Let’s go back 10,000 and look around at what we see. In that distant and difficult world, most individuals provided everything for themselves with almost no specialization as we know it today. However, there was some trade occurring – maybe one farmer or a group of farmers would trade some cattle with another group of farmers. They would give cattle and receive some sort of fruit in return. This could have occurred for a number of reasons (eg. maybe that fruit didn’t exist readily where the farmers with the cattle lived), but that’s beyond the scope of this discussion.
Now, we just witnessed an exchange (cattle for fruit), but would we call either cattle or fruit money? No, we wouldn’t. We may not be sure why, but we intuitively understand that neither cattle nor fruit nor any animal can properly be considered money as we know it today. To be properly classified as money, an item (or set of items) must possess the following properties:
Unit of Account: We should be able to keep count with money. This is possible with things such as grain or salt because we can weigh them. It is surely possible with US Dollars or other paper or metal currency because they are inherently designed to be a unit of account. US Dollars exist in three forms, either in paper, in metal coins (fraction of US Dollars), or in digital form, all of which lend to easy counting. Counting might be possible with animals, but it’s much more difficult to do it accurately and in a sophisticated fashion (eg. large cow vs. small cow – are they the same?).
Durability: Money must be sufficiently durable to act as (1) a store of value and (2) a means of exchange, two crucial sub-properties of money. Money must not perish quickly and must maintain its shape, structure, and form for sufficiently long periods of time. US Dollar Bills are pretty durable while a coin is obviously even more durable. A fruit, such as a head of cabbage or a banana is exceedingly fragile because each will perish quickly and cease to be recognizable or useful. People are willing to accept an item for payment because they are confident that they will be able to use that item at a later time for a purchase of their own. If an item is fragile, then it will be useless as a store of value or a means of exchange.
Divisibility: Money must be able to be divided. US Dollars, both in paper, coin, and digital form can be divided into increments as small as pennies. Salt piles and grain piles can be divided by weight. Gold, silver, and other precious metals can also be divided by weight as well. An animal is very hard if not impossible to divide. If you only have one cattle but want to purchase something that is only worth a quarter of a cattle, you’re in a bit of a dilemma.
Fungibility: To be fungible is to possess the property of mutual interchangeability. In simple terms, an item is fungible if you don’t care about the quality of the item. For example, whether you have a very used US Dollar Bill or a brand new one, you still have a US Dollar Bill and should be indifferent among the two (accept for aesthetic purposes). As long as the purity is the same, all gold or silver in the world is exactly the same. Things such as diamonds, however, are not fungible because diamonds come in different clarities. One diamond cannot perfectly replace another like one Silver Eagle can perfectly replace another Silver Eagle. Animals are also not fungible because each is unique in terms of gender, size, health, or even disposition.
Non-counterfeitability: Good money should possess properties so that you can easily tell whether it’s real or whether you have been presented with a fake or counterfeit. US Dollars are very difficult to counterfeit although it’s obviously possible to make fake dollars of sufficient quality to fool an unsuspecting individual. Gold and silver are difficult or impossible to counterfeit as long as proper tests are done by the recipient to make sure that the chemical makeup of the item is actually that of gold or silver. Art might be counterfeited moer easily and it is much costlier to check it to make sure it is original. Currency that is poorly designed or that doesn’t contain any anticounterfeit measures within it will be poor money because it will be very difficult to tell if it is real or fake.
These are the main properties of money, although some texts and economists might label them differently or add or remove a property. What we can take away here is a fundamental understanding of what money is and what it isn’t. This very basic understanding might not prove useful right away, but such an underlying knowledge will help to inform you as you learn more about money, finance, investing, wealth building, and other topics for your personal and financial development. The development of money is a crucial part of why humanity has progressed so far (without money modern trade would be nearly impossible) and this post has barely scratched the surface of what money is, its history, and it’s central role in humanity rise from darkness into prosperity.
Online savings accounts have been around for about a decade and provide a solid alternative to traditional savings accounts. You should have a 3 to 6 month emergency fund at minimum and you need to keep that emergency fund liquid and readily accessible. Traditionally, such an emergency fund would be placed in a bank savings account. Today, however, excellent alternatives exist: an online savings accounts. There are 2 primary benefits to having and using an online savings account for your emergency fund or for whatever else you're saving up for.
1. Higher Interest Rate: As of this writing, interest rates are at historic lows. The Fed might raise rates soon, but it will likely be years before rates reach historically normal levels. Big banks today offer rates that are almost insulting. Some banks offer rates as low as 0.01% in the United States and in Europe negative interest rates exist in places. Although the purpose of your emergency fund or your liquid savings (eg. down payment savings or imminent college payments) isn't to make a large return, you would likely prefer something better if it was possible with the same amount of risk. Online savings accounts don't have the expenses traditional bank accounts have because no branch network is needed. This can be seen in the graphic above and should make complete sense. This savings is passed on to the saver in most cases as a way of attracting people to use an online savings account instead of a traditional brick and mortar bank. If rates were the same regardless, most would prefer a brick and mortar bank due to the added ability to walk in if needed. Even if you do most of your banking online, this would add some sort of convenience and given equal interest rates, you would likely choose the brick and mortar option. The rates aren't equal, however, because online banks offer much higher rates than traditional brick and mortar banks.
2. Delayed Accessibility: We've stated that an emergency fund should be easily accessible and that liquid savings that will be used soon should also be very easily accessible and not invested in the various markets (eg. equities, bond, real estate, etc.). Keeping this in mind, online savings accounts create a slight but beneficial barrier between you and your money by requiring (usually) a transfer into your traditional checking account at a brick and mortar branch before a large purchase or withdrawal can be made. This is a very slight barrier that doesn’t stand in the way of allowing quick accessibility to your liquid funds. If there is an emergency, a two-day delay will likely cause any problems because you will likely have some money in your checking account to withdraw, you will have credit cards to use if needed, or two days will be enough time to get your hands on your funds. Most financial emergencies are not of the nature that require absolute immediate obtainment of funds (although some are – so you should probably keep some cash in your checking account and some cash in your wallet and at home for those time sensitive emergencies).
Although I wouldn’t keep all of my liquid cash in an online savings account, I would keep a majority of it there. Always be wise and prudent with your money and make sure the online savings account is with a reputable firm and that it is FDIC insured. Additionally, shop around for rates and online experience. It’s the 21st century and your online bank should have a high quality website and mobile app experience.
Drawn in Paris and dated November 20, 1869, Charles Joseph Minard’s Figurative Map of the Successive Losses in Men of the French Army in the Russian Campaign of 1812 is known by information scientists and data scientists as one of the greatest (if not the greatest) statistical graphic ever created. Edward Tufte calls the graphic "The best statistical graphic ever drawn" in his classic The Visual Display of Quantitative Information. Infographics have become popular ways of representing data, but Minard had the idea a century and a half ago. Mindard’s infographic depicts six data types in an easy-to-understand and elegant fashion.
The data types depicted are as follows:
It's astonishing that such a quality infographic was created over a century ago. The elegance of the graphic is in it's ability to depict so much information in a very intuitive way for the human eye. That is what good data visualization is all about: distilling information so that the important parts are easily accessible to the human mind upon examination without much effort or analysis.
One stunning thing the graph represents is the utter devastation the invasion caused the French army. Looking at the starting and ending points in the lower left, we can see that the French army was annihilated by the extremely cold and difficult journey. That human aspect is left out of the data visualization as it almost always is. It takes the human mind to put that extra human element to the graphic and to the numbers.
Image Source: "Minard map of napoleon" by Iñigo Lopez - Own work. Licensed under CC BY-SA 4.0 via Commons - https://commons.wikimedia.org/wiki/File:Minard_map_of_napoleon.png#/media/File:Minard_map_of_napoleon.png
eFor my first foray into purchasing Bitcoin I decided to go with Coinbase. Coinbase is a Bitcoin wallet that also provides Bitcoin trading services and APIs for developers related to Bitcoin.
I chose Coinbase for primarily one reason - because it seems to be the most reliable based on the firms that back it. The two firms that caught my eye were the venture capital firm Andreessen Horowitz and the seed accelerator Y Combinator. These two firms are well-known and well-respected in Silicon Valley, having had top Silicon Valley tech firms pass through their doors (Facebook, Box, Airbnb, etc). I’ve heard about these firms before I heard about Bitcoin and when I knew that they were involved with Coinbase, I automatically put Coinbase above the many other Bitcoin and cryptocurrency wallets that exist. There are competitors which I find very interesting of course (notably Xapo - I will very likely try it out later), but Coinbase seems to be the most secure. I obviously am using a heuristic in deciding what Bitcoin wallet is most secure – unable to see what is happening behind the scenes and unable to fully understand all of the complex technology behind cryptocurrency, I must use some proxy or some heuristic in order to make my decision, and here I use perceived reputation or perceived reliability based on affiliation with other strong organizations.
Coinbase is not the cheapest Bitcoin wallet. Coinbase charges 1% to purchase Bitcoin but it is free to receive Bitcoin as long as you don’t convert into USD. I am aware that 1% isn’t cheap compared to other ways to purchase the cryptocurrency, but when it comes to such a new technology, security and reliability is primary for me. For that 1%, however, you get a trusted firm through which you can purchase your Bitcoin. The more tech-savvy individuals among you might choose a more do-it-yourself option, but I don’t have either the time nor the inclination ( (nor risk-tolerance) to choose that route. Those who do might be more well-served by doing it themselves, where they can save money on the fee, but more importantly have a chance at learning some interesting things about Bitcoin that one cannot learn by simply using a very user-friendly Bitcoin wallet such as Coinbase.
I have been impressed with the front-end security of Coinbase. To sign up you are required to upload a photo ID. This is antithetical to many of the reasons why people have been drawn to cryptocurrency and Bitcoin (privacy in making purchases online), but I am not so much concerned with privacy as I am with security and reliability. I primarily purchase Bitcoin as a form of speculations, not as a means of transacting. Therefore, the photo ID requirement didn’t deter me at all. Additionally, logging in to Coinbase requires two-factor authentication and it requires a third factor (email verification) when logging in from a new device or a new computer. This is impressive. I have only use the iOS app and it has a passcode and is compatible with Touch ID. I didn’t like that the passcode can only be 4 digits. Most banks have eliminated 4-digit passcodes for their lack of security (10 x 10 x 10 x 10 – 10 thousand possible combinations make it relatively easy to hack into). Since the app is always logged into your account (meaning your entire Coinbase account lies behind that 4-digit pin) and given the prevalence of Touch ID, I think a more secure passcode option might be a better idea (6-digits +).
Overall, I think Coinbase is an elegant, secure, and easy-to-use way to purchase Bitcoin for the average user. It might not please those that are very tech-savy and willing to take on a more hands-on approach with purchasing and securely storing Bitcoin.
Note: I have not yet used the Coinbase Vault. I have only use the Coinbase Wallet. When I do use the Vault, a more secure and long-term Bitcoin storage method, I'll update this article.
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