Getting Started with Crypto in 2021 — #1
Are You Crypto-Curious?
The best crypto introduction on the internet.
Assuming you haven’t been living under a rock for the last decade, you’ve probably heard of crypto or Bitcoin at least once or twice. Tell me if this sounds familiar: you know that you need to get in on this crypto phenomenon, but you don’t know what you should do. You wonder if you should buy Bitcoin or Ether or NFTs or altcoins or etc, etc, etc. It can all be so overwhelming, and that’s what I’m here for, to help you wade through this jungle and actually make some money.
Most crypto investors limit themselves to just buying some assets on an exchange and leaving them there to hopefully appreciate in value, largely because they’re overwhelmed by choices. We’re going to go so much further than that, but don’t fret, I’ll be there to hold your hand through this journey. I’ll be showing you how to not only buy some assets but then also make them work for you. But before we run, we must learn to walk, so let’s do this.
Let me start with a couple of key terms that you’ll see over and over again. This is just a cursory introduction — so there’s a lot more than this out there — but for someone who’s new to crypto, these are the important ones:
- Blockchain (commonly referred to also as “crypto”): Blockchain is a new kind of technology that essentially allows for many computers around the world to all maintain a decentralized ledger in real-time 24/7/365. The computers in these blockchain networks work together to enforce accuracy and validity of all incoming transactions, making the network secure and reliable.
- Cryptocurrency: Currency was the first application of blockchain technology (Bitcoin). Cryptocurrency refers to a digital currency that’s managed and tracked by a blockchain (or sometimes multiple blockchains).
- Coin vs Token: The crypto world is awash in coins and tokens, but you’re probably wondering what the difference is. Well, broadly speaking, coins are cryptocurrencies that are native to the blockchain — the blockchain they live on is designed to track their movements in its ledger. Tokens on the other hand represent assets that live on top of the blockchain and are not considered currencies. Most commonly (but not exclusively) this refers to tokens in decentralized projects which represent, essentially, ownership shares of said projects. Of course, many people just use the terms interchangeably, so use your best judgement.
- Wallet: Your crypto wallet is where you store your crypto assets (coins, tokens, NFTs, etc.). Well technically you aren’t storing them physically there, rather storing a set of keys that can access your assets on the blockchain, but we’re getting into the weeds with that. As far as you need to know to get started, wallets store your funds and allow you to send your funds to other wallets.
- Address: An address in crypto is the public location of a specific wallet. It’s like your home address, only it points to your wallet instead of your home.
Okay now that we got that out of the way, let’s put it all together:
Blockchain technology maintains a decentralized ledger of transactions consisting of both coins and tokens all held by many wallets, each with their own unique address. With this technology, one is able to send cryptocurrency to a friend or business as well as invest their funds into both the native coins that fuel the blockchain(s) and the tokens that exist on top of them.
So Why Is Blockchain So Revolutionary?
Good question my Padawan. Blockchain technology has three core pillars that make it revolutionary:
1. Security
Blockchain technology is based on a cryptographic technique called “hashing.” This technology is not new at all — hashing is the same technology that internet services use to safely store your password for your account. It’s essentially a one-way encryption where if you provide the same string of characters, you will always get the same outputted “hash” but there’s no way to reverse that hash to get the original string from the hash. I won’t delve further, cause it gets real nerdy, real fast.
However, in practical terms, this means that transactions on the blockchain are unforgeable given that all transactions go through a hashing process such that if you don’t have the secret phrase for a wallet, you cannot make a valid transaction with said wallet. And since all transactions in crypto are push-transactions (meaning I have to send you something, you can’t take something from me), we can have an extremely high level of trust that every transaction on the blockchain is valid and was properly authorized. When you couple this cryptographic technology with the decentralized nature of the networks (meaning that many players are making sure all the transactions line up, in real-time, 24/7/365), you get a system that is extremely secure and reliable.
2. Trustlessness
Stemming from the first pillar, one of the amazing things about crypto is that you don’t need any centralized trusted parties to ensure validity of transactions. In the “traditional” world, we rely heavily on so called “trusted parties” like banks, processors, and governments to ensure our money is sound and our transactions are legitimate. This need to rely on a third party reduces security and speed (the final pillar) and means that someone else always has to be involved whenever you want to use your funds.
In crypto, this trust is decentralized amongst all of the computers that run the blockchain network. Further, because of the aforementioned cryptographic technology that undergirds blockchains, validating transactions is a trivial task easily automated away by computers with no need for people to be involved at all, making the system less error-prone and reducing dependencies.
3. Speed (and Cost)
Building off the previous two pillars, crypto’s final core pillar is its speed and cost of operation. Blockchains are principally driven by computers and not humans which means they are much faster than our traditional finance rails. They also don’t carry all the overhead of said traditional finance companies (aka the trust actors mentioned earlier), so they can be operated at orders of magnitude lower costs.
In practice today, there is still a lot of work to do to maximize blockchain speed in terms of transactions/second. Some blockchains are much faster than others: the fastest rival the transaction speed of traditional digital finance rails which have had many decades of improvements and refinements, while the slowest are, frankly, somewhat pitiful. But crypto is very much the new kid on the block (pun definitely intended), and with time, this technology is primed to be able to achieve far greater bandwidth and speed than traditional counterparts.
The Markets that Crypto Will Disrupt
Payments and Banking
The first application of crypto technology was cryptocurrency, and there’s a reason for that: blockchain technology is particularly well-suited to tracking and facilitating digital currencies. Whether this will be unbacked currencies like Bitcoin or so called “stablecoins” which are pegged to the value of a stable currency like USD is still up for debate. I am firmly in the stablecoin camp, but Bitcoin does still have a very large overall market cap and clearly isn’t going away any time soon.
Crypto technology is able to completely replace the need for cash or credit cards and, using decentralized platforms, can also be your new bank by democratizing the work that banks typically do and saving you the middleman fees. I’ve got more to say on this in a future article in this series on DeFi (Decentralized Finance) so stay tuned for that.
Financial Services
Crypto technology and tokenization will ultimately disrupt the financial services market by decentralizing a lot of financial services like stock markets, lending pools, exchanges, and commodities/derivatives markets. This is already happening but will only continue. Again, more on this in the DeFi article.
Property Deeds and Insurance
Crypto brings the ability to manage ownership with crypto technology, bringing all the benefits of crypto to the often extremely outdated and inefficient deeds and insurance industries. You will be able to hold your property deeds on a cold wallet (a wallet that isn’t actively connected to the blockchain and is therefor even more secure) totally digitally and retrieve them or validate them at any time for minimal cost.
Medical Records (and Other Confidential Records)
Crypto technology will allow you to store confidential or semi-confidential data about you on the blockchain in such a way that you can give access to whomever you want/need to give access on-demand. Imagine never having to fill out a doctor’s office questionnaire again or being able to control exactly who gets your contact/personal information. This can (and probably will) also extend to government services in the future.
Collectibles/Media
The NFT craze has shown that there is an appetite for collectors who want to own digital collectibles. Whether it’s a moment from an NBA game, a cute kitty with a unique genotype and appearance, or just some awesome art, NFTs have unlocked a whole new crypto economy that will almost definitely revolutionize the collectibles industry and provide new revenue streams for media creators.
Gaming
Crypto technology has the potential to change how modern Games-as-a-Service build their in-game economies, and with these games bringing in more and more revenue every year, it’s a huge market to disrupt. Further, crypto technology will open up new kinds of game design that utilize the blockchain as game mechanics. As a game developer myself, I’m very excited to see how this turns out (and maybe be a part of it, who knows).
And More
Believe it or not, this is just the surface. Many people who are far smarter than I are going to invent even more ways to use crypto technology to disrupt other markets and the world at large.
Getting Started With Your Crypto Investing Journey
After all that, I’m sure you’re at least curious about what’s next, how you can get in on all this action and be an owner of the next evolution of the internet. Well, tomorrow’s article is all about how to build out your first portfolio.
In the meantime, you should create an account at a crypto exchange like Coinbase Pro (not an affiliate link), as this will be the first step in your journey. Once you’ve signed up, it can take up to a few days to get your account verified and activated, but it can also be pretty quick (I was verified in under a day). Once you’re verified, you can follow along with my suggestions in tomorrow’s article to buy your first crypto assets. Keep in mind that using an exchange comes with a small fee on every trade — I recommend Coinbase Pro over Coinbase because the non-pro version charges significantly higher fees, up to 3%, whereas the pro version charges a flat 0.5% fee on trades (it’s paradoxical, I know, that the “pro” version is cheaper than the regular version). Coinbase Pro is also available in every US state except Hawaii, and not many exchanges are that freely available here. And they’re FDIC insured for all your cash deposits.
While you wait to get verified, let me know with a comment if your apprehension about crypto was diminished or your curiosity emboldened by this article. I’d love to hear how my story may have affected your view of this fascinating and wild new industry that I love so much.
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As I am not a registered fiduciary agent, none of my advice is legally binding in any way, and choosing to follow or not follow it is a responsibility that lies squarely on your shoulders. Crypto is a volatile market, and a significant crash in values is a normal event in this space, just as a significant increase in values is. Treat the market as an irrational actor (which is what it is), buy the proverbial dip when possible, take some profits along the way, and enjoy the ride.
