The Layman’s Guide to Cryptocurrency

Intro

Do you remember how difficult it once was to enter your credit card information online back in the 90’s and 00’s? Simply trying to understand the internet, or worse applications on a basic level was a difficult task at the time. So many phrases and words that didn’t make sense. That’s currently where Cryptocurrencies like Bitcoin, the blockchain, and all the other technical mumbo jumbo currently are. In this guide I will break down all of those foreign phrases into something more digestible.

“The Blockchain”

Simply put, the Blockchain is a digital ledger. This technology is the key piece to what makes Cryptocurrencies so revolutionary. In Bitcoin’s case, the ledger cannot be altered or cheated. It is permanent and records ALL transactions ever conducted on the Bitcoin blockchain since the genesis “block”. The ledger, or blockchain, is secured by computers all around the world that partake in securing the Bitcoin blockchain. (If you’re interested in helping secure Bitcoin, follow this website: https://bitcoin.org/en/full-node)

Each cryptocurrency has their own unique blockchain, some are more lax than others, Bitcoin being the first of its kind and definitely the most secured & immutable. This video does a wonderful job of explaining what blocks & the blockchain are: “How does a blockchain work – Simply Explained” – I highly recommend you watch it.

Blocks & Blocksize

Blocks are what actually contain the raw data. Simply put, the data holds the from, the to, and amount of Bitcoin within said block.

Blocksize is the actual size of each block. You know how your picture you just uploaded is say, 3 Megabytes? The current blocksize averages about 1 Megabyte or so. Blocks are typically mined (or processed) every 10 minutes or so. Blockchain historical data can be viewed here: https://www.blockchain.com/charts/

Software Wallets vs Hardware wallets

Software wallets (less secure) – are applications you can download. Think Microsoft Word, Venmo, etc. They can be downloaded via the Google Play store, or the Apple app store, your Windows, Linux, and Mac computers. Software wallets can be good for carrying around smaller amounts of money to pay for day to day goods and services. Software wallets should not be used to hold large sums of money.

Hardware wallets (most secure) – can purchased from these respective companies websites. Trezor (my personal preference): https://shop.trezor.io or the company called Nano https://shop.ledger.com.

Hardware wallets are protected by many forms of security. One for example is the fact that you physically have to have the device in hand to actually send crypto. The goal of hardware wallets is to be entirely secure. Even if someone stole your hardware wallet, they would have to know the PIN and the password to access your funds, without them, or your seed phrase, nobody can access the funds.

Seeds / Seed Phrase / Recovery Phrases / Mnemonic Phrase / Keys

There are many terms for your “seed” as seen in this title of this section. For short, seed is probably the easiest and most commonly used. “Keys” is another popular term people like to use. A seed is a set of unique random words, typically in a 12 or 24 word list.

Think of your seed as your password. This “password” is incredibly more important than your standard password and should be treat with utmost secrecy.

If someone manages to obtain your seed, they can quite literally steal all of your cryptocurrency. A terrifying thought I know, but we will go into detail on how to make that essentially impossible.

“Not your keys, not your Bitcoin”

This is quite the popular saying within the Crypto community and for good reason. In the above section we discussed the importance of your seed a.k.a. “keys”. The ultimate meaning to the phrase “Not your keys, not your Bitcoin” is essentially – if you don’t have your Bitcoin in a wallet YOU know the seed to, they’re not your Bitcoins. You do not hold the Bitcoin, someone else does.

Storing your cryptocurrencies on centralized exchanges is quite the oxymoron. Remember, crypto allows you to be your own bank. By storing your Bitcoin, or other crypto on a centralized exchange, you are giving that power & control back to the centralized authority. Bitcoin is peer to peer decentralized money. Sure, use centralized exchanges to get your semi-worthless fiat currency into crypto, but past that you need to get your crypto off centralized exchanges like Coinbase and into a hardware wallet ASAP.

Securing your seed

Firstly, NEVER SHARE YOUR SEED. Never take a picture of it, never write the seed into a Word document, never send it via email, never record it in digital form. The idea here is to actually keep it in physical form. With your newly purchased hardware wallet, you should be presented with your seed and a nice piece of paper to write it down on.

Personally, I take this one step further and come up with some form of puzzle that only you know the answer to. You could write a song, story, a list of a bunch of words on paper, or something along those lines and have a key. For example, say you write a a page full of random words, the key would be your birth year. Say, 1950 – the first seed word in your puzzle would be 1, then 9, and so on. Another example, you could write down and give to your parents the odd number words of your seed phrase and the even seed words to your best friend. You see where I’m going with this – you could make this as complex as you like.

Secure your seed (Puzzle, Safe Deposit Boxes, Never digital).

Do not share your seed & Do not forget your seed.

Addresses in your wallet

Software and hardware wallets hold your unique digitally generated addresses. You can generate as many addresses as you’d like within your hardware or software wallet. These addresses are a long string of numbers and letters like this single address example: 3GF6Jy81BDf7ghNrMaZJyUWQDEaRFGMkMK

The address above is particular to Bitcoin, if you send Ethereum to it, it will not work.

Once these addresses are generated through your wallet of choice, they are forever yours.

Mining & Miners

Mining is what powers the network. An analogy that probably came to mind was a gold miner having to mine gold out of the ground. For Bitcoin, in theory, it’s actually quite similar, hence the term “mining”.

Essentially, there are computers all around the world trying to guess a VERY large number. Whoever guesses the large number wins the “block reward”. The blocks that are processed by the miners and full nodes around the world are what contain your pending transaction. See above; block.

Proof of Work (Advanced)

Continuing the analogy of mining gold – proof of work is computers working to guess that large number. It is costly, and time consuming – similar to gold mining. This consumption of cost and time through mining is a purposeful checks and balance by the brilliant design of Satoshi Nakamoto. Without proof of work, the Bitcoin network would crumble to the ground quite quickly.

Transferring

Transferring cryptocurrencies upon first glance seems like quite the difficult task. It’s actually as simple as copy and pasting. I’m sure you know how to do that by now – of course! As I mentioned above in the “addresses in your wallet” section you should be provided a long string of random numbers and characters either from your software wallet or preferably a hardware wallet. In the case of a software wallet, you would open the application and it would ask for the receipt address, here’s where you would paste in that long string of characters. You should ALWAYS double, triple, quadruple check the address you just pasted in. Once you send that crypto, if you put in the wrong address, it is gone forever.

On a more scary note, there are viruses that will infect your computer and they parasitically replace your copy and paste data. For example, you crack open your new Trezor wallet and set it up – you get your unique Bitcoin address and go to transfer your funds from Coinbase, or what have you, and this virus will detect you are pasting a crypto address and replace it with the hackers address, stealing your funds.

If you don’t feel like checking every single character of your address, become familiarized with the first 2 or 3 characters, and the last 2 or 3 characters, that way, if you ever have said virus you would recognize the fact that the address is incorrect. Cryptocurrencies, like Bitcoin, are still very young, and with that youth – unforgiving. As time passes new methods and technologies will make this process much easier for the layman, eg; .eth domain names, QR codes more widely used, etc.

Bitcoin vs Ethereum

Bitcoin is the original, the first, the most secured and the most popular. The highest market capital and definitely the most believers. If there is one coin that will succeed, surely it is Bitcoin. As speculative as Cryptocurrencies are in their current state, if you want to play the “safe” bet – bet on Bitcoin. Bitcoin is viewed as the “digital gold” – and while it is a lot easier to move than physical gold, I believe it’s true value is in its monetary policy as well as programmed scarcity. As a result, Bitcoins scarcity creates the “hodl” mindset.

Oh Ethereum… such promise, such hope, such potential. Personally, I prefer Ethereum (a.k.a. ETH) for day to day transactions. There’s simply more functionality with it. Smart contracts (what powers ETH), allow you to do so much more. You can quickly and decentralized-ly swap it for other tokens in the ecosystem, you can take out loans via smart contract, you can purchase the Ethereum equivalent of a domain name (.com, .net, .eth). Ethereum typically will process your transaction a lot faster than Bitcoin, too. Think of Bitcoin as digital gold and Ethereum as “internet 3.0”, or “AOL”, or “Email” and what those protocols and applications allowed the average user to do.

If I had to give a new comer a recommendation on a Bitcoin to Ethereum investment ratio, I would suggest 65% Bitcoin 35% Ethereum.

Ethereum Smart Contracts (Advanced)

Coming soon.

Bitcoin Denomination

This is probably one of the biggest misconceptions in the Bitcoin world. You do not have to buy “one whole Bitcoin”. In fact, one Bitcoin can be broken down to 0.00000001 from 1 full Bitcoin. You can buy half a Bitcoin 0.50, you can buy 0.01 Bitcoin, you can buy 0.0005 Bitcoin. A common phrase you might here is “Sats” or “Satoshis” which is the measure of Bitcoin to the 8th decimal. Eg; 0.00000001.

Where to purchase?

The hardest part to initially purchasing Crypto is the initial conversion. Getting unlimited-ly printed fiat currencies into limited cryptocurrencies can be tricky. Once your fiat currency is moved into Crypto you have much more flexibility and freedom with your money. You can easily move it between exchanges, websites, or wallets with out having to worry about banks being closed on the weekends, or holidays, or peering eyes.

I’m sure at this point you’ve heard of websites such as Coinbase.com (hereby referred to as Conbase) or the Square app, which both allow you to easily and quickly purchase Bitcoin and other cryptocurrencies. If you are looking for a simple solution and don’t mind paying additional fees or losing some aspects of privacy, stop here and go open a Conbase account or download the Square app (preferred).

If you’re looking for the next (and better) step, I suggest you consider a website like Gemini.com or perhaps Bitstamp.com – Both have been reliable & safe Crypto onboarding platforms since almost the dawn of Bitcoin itself. The fees are shockingly lower and the platforms provide a higher level of stability during peak trade times. Another aspect to consider on “where” you should purchase your Crypto is how your privacy is treat, and the stability of said platforms.

Conbase was recently discovered to be providing information to the IRS and DEA on a whim. This completely and entirely goes against what Cryptocurrencies stand for. Encryption, a critical piece to all cryptos was designed for security and privacy. While Bitcoin transactions are recorded permanently, and can be tracked by connecting transactions, the actual wallet holder itself is kept anonymous. This is by design of Satoshi Nakamoto and using a website like Conbase actively betrays what we are fighting for – financial sovereignty.

Further, Conbase has been the laughing stock of the Crypto community as the platform seemingly “crashes” every time there is a 5% price change in Bitcoin. Remind you, Coinbase is one of the most publicly valued companies that currently exist and they can’t handle a 5% price change without crashing and it seems to happen ALL the time.

What to purchase?

For the layman, I would keep it simple and suggest 65% Bitcoin 35% Ethereum. Everything past that becomes increasingly risky & speculative as well as much more involved. I will not shill other projects or coins past this point as I believe it would be counter productive and manipulative. I would not suggest you decide to go down that rabbit hole until you’ve been in the cryptocurrency space for quite some time.

Crypto News Source

For the layman, I would simply suggest you visit a site like Coindesk.com, however, to compile your opinion based on one website would be considered complacent if you ask me.

Some of the most popular places to discuss and learn about Cryprocurrencies are places like Reddit.com/r/Bitcoin or Reddit.com/r/cryptocurrency. Twitter is another great place to keep up with Crypto news and what have you. Follow hashtags like #Bitcoin, #Cryptocurrency, $BTC, $ETH, and here are some long time Crypto figure heads: @ErikVoorhees, @tylerwinklevoss, @TimDraper, @woonomic, @adam3us, @aantonop, @VitalikButerin, @gavinandresen, @SatoshiLite – should get you started.

Scams

The cryptocurrency ecosystem is said to be like the wild wild west. There are a plethora of scams, cheats and hackers waiting to steal your crypto. Remember,, if it’s too good to be true, it probably is. Never send your cryptocurrencies to random people on the internet, they’re not going to “double your Bitcoin”.

Scams have been a huge problem on pretty much every mainstream website like YouTube, Twitter, Facebook, Instagram, etc. “Free giveaways”, and the “send me 0.50 BTC and I’ll send you 2 BTC back” are complete and utter trash and lies. People messaging you directly on Reddit, Twitter, Telegram, etc, are not there to “help you”, they’re most likely trying to scam you.

However it doesn’t stop there… There are many seemingly legitimate cryptocurrencies like HEX, Bitcoin Cash, Bitconnect, KICK, and many others that are simply scams. A lot of them act like ponzi schemes and leave the last person caught on the hook, devastating their cryprocurrency Bitcoin value.

Vaporware is another term thrown around in the Crypto ecosystem. Basically, it means it’s a project, or team, that promises the moon with their “new & revolutionary” cryptocurrency coin, but never actually delivery anything tangible or meaningful. There are multimillion & perhaps billion dollar projects that could, and by some, are considered vaporware. If you want to keep it simple and place a safe bet, purchase Bitcoin and Ethereum as I mentioned above in the “Bitcoin vs Ethereum” section.

“A fool and his money are soon parted” – Do not be the fool. Do not send cryptocurency to random people on the internet, it will NOT turn out well.

Glossary:

To be added.

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