Crypto

New to crypto? Here’s a complete guide

New to crypto? Here's a complete guide

The cryptocurrency markets have become an incredibly hot topic. Crypto related searches on Google spiked since 2021 and the topic remains highly popular. More and more people are getting involved in cryptocurrency. Many analysts estimate that there will over 1 billion crypto users by 2027.

The current cryptocurrency market is valued at around 2.2 trillion dollars, and will probably continue growing. We have all heard the incredible stories of people becoming millionaires through Shiba Inu, or how Ethereum ($ETH) went from being worth $1 in 2015 to over $3000 today. Although cryptocurrency is unregulated and definitely risky, it has provided many opportunities in the past. 

So, if you’re excited about the world of crypto, how do we get started? This article is a great crypto complete guide for beginners, explaining what a cryptocurrency is, what blockchain technology means, what types of cryptocurrencies there are, the different options for buying and storing cryptocurrency, and finally how safe it truly is to invest/play with cryptocurrencies.

We will break everything down so that anyone can read this article and learn how to navigate the exciting world of cryptocurrency!

What is a cryptocurrency?

crypto complete guide

A cryptocurrency is a digital currency that uses cryptography and is therefore difficult to counterfeit. Like Ethereum.

This is a surprisingly easy concept. First of all, let’s define what a currency is: a simple Google search will show that a currency is a generally accepted medium of exchange for goods or services. People could use this currency to buy goods and services. In general, every government’s currency is compared to the US dollar, because USD is the world’s reserve currency. 

Basically everyone likes dollars, and USD is incredibly easy to exchange or trade for in any part of the world. Some countries that are not the United States (like Panama and Ecuador) even use USD as their own currency, due to the relative stability that it provides! 

The issue with any currency is that it can be counterfeit or misrepresented. The best example of this is actually the USD: we find that approximately $70 million a year of the US bills in circulation are counterfeit bills. So, now that we understand what a currency is, what is a cryptocurrency?

A cryptocurrency is a digital currency that uses cryptography and is therefore difficult to counterfeit. In BTC’s 13 years of existence, it hasn’t been possible to forge a $BTC. The advantage of a cryptocurrency over a simple currency is exactly that: it provides trust to both parties that the asset is real and has not been forged or tampered with in any way. 

Read more about the endless battle: Ethereum vs Bitcoin: Proof of Work vs Proof of Stake. 

What is blockchain technology?

Blockchain technology is the technology that allows cryptocurrency to exist. In a nutshell, a blockchain is a  ledger that records all transactions and fees in real-time, with little error range.

With any normal ledger, the accountant could always come in and “cook the books”: putting in money that nobody spent, adding expenses that nobody paid for. Thanks to blockchain, it is impossible to “Cook the Books”: each block has a specific timestamp proving that indeed these transactions have happened, and it is cross-checked by other computers (validators) simultaneously to ensure that there is no doubt that these transactions truly happened.

Of course, blockchain technology is purely coded, and although it has never been hacked yet some people speculate that blockchain technology may be hackable in the future. According to specialists, most blockchains could be hacked, but time will tell. 

Three different types of crypto

Ethereum vs Bitcoin

L1 Cryptocurrencies

There are many different types of crypto that exist and that could be purchased. We will explore the top 3 types:

L1’s: These are the Layer 1 blockchains. This means that they have their own network of validators to approve every transaction that is sent to them. They do not rely on an external source or another blockchain to have their transactions validated.

Don’t miss the new Kids on the Crypto Block: Cardano, Solana, Polygon.

Tokens (usually ERC-20): These are the cryptocurrencies that are built on top of an existing L1 network. Building a network of validators may be costly, so many people had the ingenious idea to deploy their own cryptocurrency using an L1 network as their blockchain provider.

This will ensure that every transaction of the token will have the same amount of security and transparency that the L1 network offers, while at the same time having its own cryptocurrency rules and purpose.

A large portion of tokens are built using the ERC-20 standard, which is a standard established by the Ethereum community to say what type of token can actually be used as a cryptocurrency, and what type of token cannot.

Oracles: This type of cryptocurrency is important for certain blockchain applications. The mean idea of a blockchain oracle is to transfer off-chain data on-chain. Some blockchain applications need external data in order for them to function normally. 

For example, some farmers may have purchased insurance for a smart contract in case their field does not get enough rain for the year. Using an oracle, we can get that rain data on-chain, and if there are not enough rainy days, then the smart contract would be triggered without any middleman. The issue of oracles is that they rely on external data, and this external data may not always be trusted.

There are many other types of crypto that exist, such as DAOs, L2’s NFTs and more, but these three types of crypto are the most well-known and are definitely a good place to start.

How to buy crypto? Mining vs. buying

Crypto staking wallets: A review for staking crypto wallets in 2022

Mining Crypto

It is important to note that not all cryptocurrencies can be mined. For the most part, only L1 blockchains offer mining opportunities where anyone can simply connect their computer (or a few GPU’s) and start mining cryptocurrency. 

The principle of mining cryptocurrency is simple: by offering processing power, you are helping secure the network and therefore are entitled to some cryptocurrency rewards. Some companies, like Riot Blockchain, focus solely on the Bitcoin mining business and are actually quite profitable! 

The issue of such a business is that their profits rely solely on the price of $BTC, so they have a lot of risks and potential losses if the price of BTC were to drop suddenly (like it has done in the past). 

Mining cryptocurrency does have an energy cost and sometimes (especially now) quite a lot of upfront investment. You may earn cryptocurrency passively, which is nice, but the demand of GPU’s is so high that any decent mining rig will cost upwards of $10k. 

The main advantage of mining cryptocurrency is that once it starts running, you could be passively earning with no strings attached.

The downside is that sometimes the ROI could take a while, and fundamentally depends on the price of the asset that you are mining in the first place. If that asset suddenly dumps, then your ROI takes much longer all of a sudden.

Buying Crypto

There are many places to purchase cryptocurrency. The easiest (and most direct) place to purchase crypto is on a centralized exchange (CEX). A centralized exchange is basically a marketplace, like Coinbase, Crypto.com and Binance, or a broker; it is a place usually full of market-makers that buys and sells cryptocurrencies.

People could purchase cryptocurrency on these centralized platforms in exchange for a small fee. Some offer discounts when you hold their in-house crypto on their exchange; for example, people who use Binance could get discounts when using the BNB token for fees, and Kucoin users get fee discounts when using KCS for fees. 

Another place to buy cryptocurrency is to buy on a decentralized exchange (DEX). This requires a Defi wallet, and a way to fund the defi wallet with cryptocurrency.  Then, a user may go on the DEX and swap their tokens or cryptocurrencies completely anonymously. 

Crypto staking wallets: A review for staking crypto wallets in 2022.

The big difference between a DEX and a CEX is that the CEX usually asks for identity verification or some other means of proving who you are. A DEX is purely decentralized, and completely anonymous. Some very talented analysts are able to still try and guess which defi wallet belongs to which celebrity, Youtuber or person, but these are just guesses and cannot be confirmed 100% who the owner of a Defi wallet truly is. 

Finally, the last place to purchase cryptocurrency is through OTC markets. These markets are generally reserved for big buyers and sellers. For example, if someone were to buy 100 BTC right away on a centralized exchange (CEX), that would make the price pump significantly.

We are talking about buying around $4M worth of cryptocurrency, after all. This causes slippage and means that the 100BTC does not sell at the exact market price. 

A way to avoid slippage is to use OTC markets. This way, buyers and sellers agree on a pre-set price for a large amount of cryptocurrency. This price is usually 5% below market value, but the sheer volume of cryptocurrency being sold means that OTC markets tend to give better deals for people looking to exchange extremely large sums of cryptocurrency.

How to store your crypto

People often worry about this part, when in reality it is somehow simple. Yes, some crypto exchanges have been hacked in the past, so there is no denying that leaving your crypto on an exchange is definitely riskier than storing it on a cold wallet.

But then again, overall cold wallets are misunderstood and many exchanges could be trustworthy. So, we shall examine the difference between a hot wallet and a cold wallet, and the safest option to store your crypto.

Hot wallets

This is a crypto wallet that is attached to a centralized exchange. In easier terms, this basically means that the centralized exchange holds your private key, and can technically do what it wants with that key. So, if the centralized exchange gets hacked, the hacker can retrieve your funds. However, hot wallets allow you to trade your crypto quickly and easily for other cryptocurrencies or even fiat! This is something that a cold wallet cannot do.

Cold wallets

This is a crypto wallet where you personally own the private keys. As long as you share these private keys with nobody, your crypto is safe and unhackable.

Some people think that you need to buy one of those cold wallets made by certain companies, but the reality is that you could have a trustworthy cold wallet stored right on a USB key.

What matters is the private key. You can even write it down on a piece of paper! Cold wallets are considered safer than hot wallets, but to transfer your crypto into fiat you would need to transfer the crypto from your cold wallet to a hot wallet. This involves more steps, so if you are holding crypto just to cash out at some point then it is best to use a hot wallet

Is crypto safe?

This is a difficult question to answer. Crypto is definitely a new asset class. It is still unregulated and definitely poses a lot more risks and threats compared to more traditional investment classes such as stocks or real estate. But then again, some real estate investments are poor and not every stock investment is great. Therefore, there are opportunities in crypto for the ones who seek them.

Read about the long Bitcoin journey to Redemption.

Crypto is very new, and most people will end up, as the crypto community says, “getting rekt”. But it is through this learning process that many people learn the benefits and disadvantages of crypto, and could decide how much time they want to commit to crypto. Some financial advisors are starting to allocate some of their portfolios to crypto, showing that crypto is becoming a part of some diversified portfolio strategies.

Conclusion

Just like stocks, it is possible to make money in crypto but it is a lot easier to lose money in crypto. Crypto is a new asset class that is growing, and many people agree that it is wise to have at least some exposure in crypto just in case. 

In the greater scheme of things, crypto is still extremely new and has not reached mass adoption. People compare the crypto bull run to the dot-com bubble.

The dot-com bubble had a lot of terrible companies, however the ones that survived the subsequent crash are now multinational giants. Amazon is a prime example of this.

Basically, we do not know which cryptocurrencies will remain relevant 10 years from now, but we do know that some of the cryptids that exist today could potentially perform like Amazon, Apple or Google have performed over the past 10 years.

Track your Stocks and Crypto in one place.

Download Front