The puzzle of how to make money from cryptocurrencies just got a lot easier to solve, thanks to a soon-to-arrive platform called Prism.
Anyone who has tried to invest in cryptocurrencies knows how challenging it can be to buy and secure multiple cryptos at once.
After people buy their cryptocurrencies on an exchange, many avoid the hassles of setting up a wallet by storing their holdings on the exchange – and leaving their digital assets vulnerable to theft by hackers.
Those who download the digital wallets to their PCs find that owning more than a few quickly becomes unwieldy, as most cryptocurrencies each require their own wallet.
That's where Prism, a project of the ShapeShift digital asset exchange, comes in.
"We wanted to do something better than either of those options, but do it in a non-custodial way," ShapeShift founder and CEO Erik Voorhees told Money Morning.
Prism uses the smart contract feature of Ethereum to allow customers to create their own handpicked cryptocurrency fund. This allows investors to profit from their selected cryptocurrencies without the hassle of buying and storing the underlying digital assets, similar to how investors use exchange-traded funds in the stock-trading world.
Voorhees is a well-known innovator in the Bitcoin community. He's also served as head of marketing for early Bitcoin exchange BitInstant and was a co-founder of Bitcoin payment-processor and wallet company Coinapult.
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Voorhees created ShapeShift as a place for people to exchange cryptocurrencies on a website without setting up an account (thus avoiding the cumbersome customer verification process other exchanges require).
And now he's created Prism to make investing in cryptocurrencies easier too. Right now the project is in the testing stage, so access to Prism is by invitation only. But Prism is expected to go live sometime in early 2018.
Here's how it works…
How to Invest in Cryptocurrencies the Prism Way
While the Prism experience simplifies investing in cryptocurrencies, it does require customers to own some Ethereum, since the system is based on Ethereum.
To get started, an investor needs to set up a Prism account and fund it with the Ethereum equivalent of the amount they wish to invest. During the "beta" stage, the limit is 10 ETH, worth about $3,000.
ShapeShift doesn't hold your funds; the smart contract part of Ethereum controls the funds, which you can withdraw at any time.
You can choose up to 20 cryptocurrencies to include in your Prism and assign by percentage how much value will be allocated to each asset. The process is similar to setting up a 401k retirement account. (See image.)
The current test version of Prism has 45 cryptocurrencies available, but Voorhees said, "ultimately we will have hundreds."
But you're not actually buying the cryptocurrencies.
Instead, each Prism smart contract is essentially a derivative contract. Its value is only based on the current prices of the underlying assets. ShapeShift doesn't buy the cryptocurrencies, either. The prices are sourced from an "oracle," an online agent that determines current cryptocurrency prices and is updated on the site every few minutes.
You can log in to the Prism site to monitor the progress of your crypto-portfolio. Should you want to make any changes, such as adding or deleting a cryptocurrency or rebalancing your holdings, there's an option for that. The screen is essentially the same as the setup screen. ShapeShift charges a 0.5% fee for each rebalance.
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To close your Prism, you send a transaction of 0 ETH to your Prism address, which signals the smart contract that you're ready to close out. You must withdraw the entire value of the Prism. The closing fee is 0.05 ETH plus 2.4% of your portfolio.
The resulting ETH – your gains or losses – are then sent to your Ethereum wallet.
Prism is an innovative approach to investing in digital assets, but some in the cryptocurrency community have raised concerns…
Erik Voorhees Responds to Prism's Critics
About the Author
Dave has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.