Interest Insider

Cryptocurrency for Beginners

First of all, let’s get one thing straight. Nothing in this article in financial advice. And although the article title is ‘Cryptocurrency Insider’, I don’t actually have insider information on Ethereum or which memecoin is going to the moon. What I can give you is a nice overview to cryptocurrency as a whole. From Dogecoin to the mother of all cryptocurrencies, Bitcoin, we’ll talk about it all.

At their collective heart, cryptocurrencies are digital currencies. Basically, it’s another way people can exchange and store value. And to be honest with you, most of us are already used to this idea of digital currencies. Think about it, do you carry around a ton of cash to do your grocery shopping? Most likely, you use a credit or debit card. When you swipe and those numbers change in your account, that’s all digital. The difference with cryptocurrency is where the information is stored, how the transaction is verified and processed, and the ease of sending money to your friend in another country.

There are a lot of cryptocurrencies out there, but the one most people have heard of is Bitcoin. Bitcoin was created back in 2009, by someone (or someones) under the pseudonym Satoshi Nakamoto. While Satoshi’s identity has still not been verified, a number of candidates have been pointed out as the potential real-deal. I won’t go over them all here, but whoever they are, they still own a lot of Bitcoin. It’s hard to know exactly how much, as much of the Bitcoin is spread around many different wallets, but it’s estimated Satoshi owns approximately one million Bitcoin. At the time of writing, that would make Satoshi worth over 30 billion dollars. However, the wallets Satoshi is suspected to own haven’t been touched since 2010. The wallets have been sitting dormant for over a decade.

Fun fact: The first transaction to use Bitcoin as payment was by Laszlo Hanyecz, who had two pizzas delivered to him from Papa Johns. He paid $25 dollars for them in Bitcoin, which at the time was about 10,000 Bitcoin. Today that same amount of Bitcoin would be worth $305 million, enough to have about 24.4 million pizzas delivered. That’s a lot of pie!

Questions to Ask A Crypto Bro

So what should we ask someone who is into cryptocurrency? It’s best to stay away from questions like ‘How much Bitcoin do you have?’, after all you wouldn’t go up to someone and ask how much money they have in their bank account. Here are some good questions to get a crypto enthusiast talking.

What cryptocurrencies do you hold?

Like I mentioned earlier, there are lots of different cryptocurrencies out there. While Bitcoin is the biggest, many people are interested in others for speculation or utility purposes.

How do you think crypto and blockchain will affect traditional financial systems in the coming years?

For reasons I will talk about more below, blockchain and crypto are in some ways a threat to the centralized banking systems of today. Your crypto enthusiast likely knows this and can give their own perspective on it.

What do you think about the environmental impacts of crypto mining?

To mine cryptocurrencies, computers have to solve complex problems, and to do that they need power. A lot of power. That means each cryptocurrency out there is using tons of electricity in order to exist. Some crypto projects attempt to address this issue, but it’s an ever present topic in crypto.

Do you participate in decentralized finance (DeFi)?

I will talk about this more below, but this entails things like peer-to-peer lending. You’re essentially asking if they use DeFi to lend, borrow, trade or earn interest with their cryptocurrency.

Are there any new coins or projects in crypto or blockchain you find interesting?

There are always new coins coming out, but also other projects related to blockchain and cryptocurrency technologies. One would be the use of smart contracts. Chances are if they are into crypto, they have an interest in these adjacent projects as well.

Now that you are armed with some questions to get someone talking, here is some of their lingo so you can speak their language:

Crypto Lingo:

Altcoin: Any cryptocurrency other than Bitcoin.

Blockchain: A decentralized, digital ledger that records transactions made with crypto.

Cold Storage: Storing cryptocurrency offline, on hardware like a USB driver or a dedicated hardware wallet.

Crypto: Cryptocurreny; also refers broadly to the crypto space and market as a whole.

DeFi: Decentralized Finance.

Exchange: A platform where one can buy, sell and trade digital assets or cryptocurrencies.

Fork: A split in a blockchain, resulting in separate versions due to a community driven change in rules or protocols. For example, Ethereum and Bitcoin are on the same chain, but Ethereum is a fork off of the original Bitcoin chain.

HODL: A misspelling of ‘hold’, popularized in the crypto community. Refers to holding an asset for a long time, as apposed to selling during market fluctuations.

ICO: Initial Coin Offering; like an IPO for a company.

Miner: Someone using their computer to ‘mine’ a coin. Essentially, their computer solves complex problems to help verify transactions and add new blocks to the blockchain.

Node: A computer that is part of the blockchain network, used to verify transactions and participate in the network. Note: not all nodes are miners, but all miners are nodes.

Pump and Dump: A scheme in which there is an attempt to ‘pump’ a crypto currencies value up, only for those who are on the inside or bought in early to sell and bring the price crashing back down, AKA dumping their coins.

Private Key: A unique code that allows access to a wallet and authorizes the transfer of funds.

Smart Contract: A self-executing contract with coded rules and conditions agreed upon beforehand which will enforce themselves when conditions are met. Basically, a regular contract, but the contract does all the thinking and execution.

Wallet: Kind of like your regular wallet, this is used to store, send and receive cryptocurrency.

Blockchain: The Backbone of Crypto

Blockchain is the main reason cryptocurrency is so exciting. The idea was originally created by Satoshi Nakamoto when he created Bitcoin, but all cryptocurrencies today use this technology. The way it works is like a big, digital ledger or record book that keeps track of every single transaction people make with crypto. Like a public account that everyone can see and everyone can add to. However, no one can edit a transaction that’s already written to the blockchain. What that means is everyone always agrees on what happened. Who sent to whom, and how much. This makes it extremely difficult, if not impossible, for anyone to cheat or steal. The blockchain is also decentralized, meaning no one institution or bank has control. Instead, individual nodes regulate the blockchain, meaning you can create a wallet and have complete autonomy over your digital assets. If you have Bitcoin in your wallet created on the blockchain, no one can take that away from you. But be wary, if you buy cryptocurrency on an exchange like Coinbase or Robinhood, you don’t own it yet. You just have a receipt that says you own it. Make sure to create a wallet on the blockchain and transfer that crypto off the exchange and into your proverbial pocket if you want maximum security.

Altcoins: Exploring the Crypto Galaxy

While Bitcoin is the original cryptocurrency, there have since been many others created. In fact, according to CoinMarketCap.com, there are over 22,000 different cryptocurrencies out there. And each one looks a little different. As you might have guessed, we won’t have time to talk about all of them here. But if you are curious, the top three altcoins are Ethereum (ETH), Tether (USDT) and Binance Coin (BNB). Ethereum is decentralized and allows for the use of smart contracts, which are self-executing contracts written in code. Tether is a centralized coin (meaning controlled privately and not verified by decentralized nodes) and is owned by a Hong Kong based company. Tether is also pegged to the US Dollar. And Binance Coin is another technically decentralized coin, but acts more like a centralized coin. It is owned by the for-profit company Binance, which runs one of the largest crypto exchanges. There are more nuances to the differences between these three and many other. When looking at an altcoin, it’s probably a good idea to ask yourself: Is this a new project or is it forked off of an existing blockchain? What was it created for? (i.e. for faster transactions, to handle more data, etc) Is it decentralized or not? These should give you a pretty good start when looking at an altcoin and understanding the motives or reason for it’s creation.

A Quick Note on Memecoins

The first ‘official’ memecoin was none other than the infamous Dogecoin. This coin was create as a joke and used the Shibu Inu dog from the famous ‘Doge’ meme as it’s mascot. It became wildly popular and even Elon Musk tweeted about many times. In the end, the coin shot up and then came crashing back down. Nowadays, there are tons of these memecoins running around, hoping to be the next coin to catch media attention. Your best bet is to do your own research before purchasing or investing in any kind of cryptocurrency. There are many out there that have good intentions, but just as many pump and dump schemes wanting to take your money.

Decentralized Finance (DeFi): Revolutionizing Banking

DeFi is a rapidly evolving and exciting technology based on the same blockchain technology that cryptocurrencies are. The same ledger and verifying system are in play here. With this technology, people can use those smart contracts I’ve been talking about to lend out money to others. The nice thing is, there is no bank middleman. That means you are lending directly to someone else and they are borrowing directly from you, and the smart contract is what holds you both accountable. Essentially, this is another way to invest your money, instead of keeping your money at the bank and the bank investing your money for their profit. However, it should be said that this is still a relatively new market and since it is decentralized, it lacks regulation. Much of this is countered with these smart contracts, but there are still many unknowns. We are still just scratching the surface and I think this will be a big part of our future.

3 Steps To Get Started

1. Education
   1. I know, kind of a cope out, but I need to put it here. Since this is real money you can put into and lose my only advice to you is to educate yourself as much as possible. Start with blockchain, learn about the different currencies and what they do and go from there. There are tons of free YouTube videos out there that can teach you most, if not all, of what you need to know.
2. Check out a exchange.
   1. There are lots of exchanges where you can easily buy and trade crypto currencies. Apps and sites you already use like Robinhood allow you to buy cryptocurrencies. Check out what is available and what is easiest for you to use.
3. Create a blockchain wallet.
   1. Again, there are plenty of wallet apps you can use to create your own wallet. Once you have some crypto, it’s a good idea to put it in here if you plan to hold it long term.

3 Gift Ideas for Your Crypto Enthusiast

1. Cold storage wallet.
   1. There are some pretty cool hardware wallets out there specifically for storing cryptocurrencies. If the crypto enthusiast in your life doesn’t have one yet, this would be a great gift.
2. Send them some crypto!
   1. I think of this like getting them a gift card. Yeah, it’s technically just money, but you put the extra thought of sending it to them via the blockchain since that’s what their into. Just ask them for their wallet address so you can send it to them!
3. Education materials.
   1. It’s always good to learn more and there is plenty out there to learn. If there is a course or book they have been interested in around crypto, this would be something they would love to get from you.

Final Thoughts

Cryptocurrency is very exciting, and we still have yet to see it’s mass adoption. While cryptocurrency is still in it’s teen years, it’s already made a massive impact and it’s only going to get bigger. Whether you are interested in technology or not, it might be a good idea to take a look at crypto. Someday we might all be using something like it to pay our bills and buy our food. Thanks again for reading and talk again soon!