Welcome to the wonderful world of crypto — where entry is cheap and the rides are totally confusing.
Ever ridden a roller coaster and jumped off the top, onto a different roller coaster that crashed into the floor, leaving you with no lunch?
Ever met a costumed character who promised to make you rich, led you to a penthouse suite — then took all your money and ran, suddenly re-emerging with double your investment?
Crypto is no joke.
The money is real, the losses are real, but it’s not gambling if you do your research.
The Crypto Crash Course
Today I’m gonna give you a crash course in what it all means.
I call it a crash course because if you don’t follow up with further research, you will surely crash, of course.
This article is for all of the endearing newbies who would like to join the exciting and confusing world of crypto.
An investment in knowledge pays the best interest.
You may or may not want to speculate seriously, but if you do, I highly recommend that you quickly become obsessed with learning as much as you can.
The internet has a wealth of knowledge to offer you. There are thousands of articles, podcasts and videos that will give you all the info you need, and even more of the info you don’t.
Use your own perspective to make your decisions, don’t just listen to that one neighbour you know — that thinks he knows everything.
There are millions of us out here who think we know everything, you can’t listen to all of us!
This article is especially for all of you experienced speculators who are constantly answering questions about what crypto is, when you really just want to skip to talking about the coolest coins and projects.
Save your time, send them this article.
Let them do their own research, and then you can talk about the more interesting aspects of crypto, such as how to choose a good purchase.
Let’s start with the basics.
What is a Bitcoin?
Fun Fact: Bitcoin, Cryptocurrencies and Blockchain are three separate things. A Bitcoin is an asset, a cryptocurrency is a class of assets and a Blockchain is a type of technology.
Definition: Bitcoin is a cryptocurrency and worldwide payment system. It is the first decentralized digital currency, as the system works without a central bank or single administrator. The network is peer-to-peer and transactions take place between users directly, without an intermediary. These transactions are verified by network nodes through the use of cryptography and recorded in a public distributed ledger called a blockchain.
E.g. It’s 2018, Ben wants to buy a jetski off Heather, she’s interested in cryptocurrencies and is willing to trade Bitcoin for her beloved water vessel. She Googles “secure mobile cryptocurrency wallet” and downloads a mobile wallet app. Ben sends her the Bitcoin, and they sit and have a coffee while they wait for the transaction to land in her crypto wallet — on her mobile phone. When she sees the coins land in her wallet, Ben takes off straight to the river to enjoy his new jet ski.
Bitcoin is the first cryptocurrency — it’s not the best, and it may not always be the biggest.
It was a proof of concept that blazed a new trail, but compared to some of the next generation technologies available today, Bitcoin is like a stone axe in a world of power tools.
Bitcoins transactions can take half an hour or more to process, and there are at least a few dollars in fees charged with every transfer of funds. If you just want to buy an ice cream from the shop, this simply won’t do.
Altcoins
There are much faster cryptocurrencies available, with lower transaction fees. There’s many that can do a lot more, and are therefore going up in value much faster.
These are called Altcoins, “alternative coins” — meaning, any coin that’s not Bitcoin.
Chances are, Bitcoin will exist till the end of humanity, if only as a collector’s item.
But there are many coins out there lining up to take its #1 spot.
Unless Bitcoin’s development team can make it faster, and more affordable to use. We may see another coin become a preferred method of payment and rise to prominence, this year or next.
The computational devices linked together to process Bitcoin’s data are called a nodes.
Nodes
A node is a network of connected machines that receive data simultaneously, and encrypt it onto their hard drives. The fact that the data is stored on many machines instead of just one, keeps the data immune from cyber attacks.
This guarantee of secure, accurate data, is the foundation of blockchain technology.
Typically, a node can be a computer, a mobile phone or any number of computational devices.
Bitcoin is unique in the sense that it requires specialised mining machinery to run a node. This machinery is expensive and uses a lot of electricity. In essence, anyone can run a Bitcoin node, but it’s a lot of trouble.
Generally speaking, when a Bitcoin transfer command is received by the system, it requests an amount of Bitcoin to be transferred from one address to another by adding the transaction details to both addresses.
The sending address will have a subtraction entry added to its records, and the recieving address will gain an addition entry. The information remains there permanently.
This allows the system to calculate the current balance of both addresses, based on past events that are proved to have happened historically, by information stored on the public ledger.
The Ledger
The storage space that is used to hold Bitcoins data is called the public ledger.
Identical copies of the public ledger is stored on a network of nodes, and altered simultaneously by those nodes when a command is received.
A public ledger is essentially a database of historical information which will keep growing until the end of time. This pre-existing data cannot be altered, removed or tampered with unless the whole system is shut down, which isn’t possible unless you shut down many thousands of nodes at the same time.
This database is scattered over multiple nodes to ensure it is completely incorruptible.
What is a Cryptocurrency?
Fun Fact: Bitcoin is a type of cryptocurrency that utilises blockchain technology. There are currently over 1400 different cryptocurrencies available to buy on the internet.
Definition: A cryptocurrency (or crypto currency) is a digital asset designed to work as a medium of exchange that uses cryptography to secure its transactions, to control the creation of additional units, and to verify the transfer of assets.
E.g. it’s 2018, you walk into a retail store and see this awesome jacket, you love it. You grab it. You take it to the counter and see that you can pay using a whole host of cryptocurrencies including Bitcoin, Ethereum, Litecoin & Verge. You choose to pay with Litecoin because you don’t want to wait around too long for the transaction to go through. You send the Litecoin off and keep looking around the shop. You see a shirt you like, but you don’t buy it because you don’t want to have to wait for another transaction to finish. After a few minutes, the shopkeeper lets you know they’ve received the funds and you throw on the jacket and walk out feeling like a million bucks.
Cryptocurrencies vary vastly in speed, transaction times, environmental costs, privacy and functionality.
Finding a cryptocurrency that will actually be used in day to day living is the speculators Holy Grail.
Most cryptocurrencies aren’t practical because they’re too slow, expensive or complicated, but some have great teams of talented developers working to fix these scalability issues.
It’s expected that within a few years there will be cryptocurrencies that process instant transactions with miniscule fees.
Backing coins that are undervalued and picking the ones that will achieve practical integration into society is the whole game.
If you can do that — fine, have your Lambo.
A good cryptocurrency is limited in supply, and will go up in demand. That’s what raises the price. It needs to be fast, unhackable and easily transferable.
It needs to be useful.
Cryptocurrencies are stored, created and transferred by a network of nodes called a Blockchain.
You don’t need to understand how the Blockchain works to buy cryptocurrencies, but it will help you understand which coins will actually work, which are a pipe-dream, and which are pure marketing hype.