When I first heard about crypto currency a few years ago, I had some very mixed reactions:
“Is this actual money? Or just monopoly money”
“Wait, someone became a millionaire off this?”
“Is this a fad? Please, be a fad”
Fast forward to today, I am more excited than ever about the opportunity ahead for the crypto currency industry. In the last few years, we have seen the rise of Bitcoin billionaires, Cryptokitties, and Dogecoin enthusiasts. Whatever the next decade looks like, I wanted to make this series as a way of giving back to a community that has fundamentally changed the financial opportunity for millions around the world. As true understanding of this industry grows, more people will get involved, and our ability to build out a better decentralized future will increase.
You might listen to this series because your friend at work won’t stop talking about it. Maybe, it’s because you missed the boat on Bitcoin and are looking for the next explosion. Whatever it is you want to learn, we have broken this series up into ten sections that focus on the most common questions and obstacles people have when starting. Feel free to skip around and find what is most valuable for you and your current stage of the cryptosphere. If you still have questions, or want to get more involved with this growing industry, I encourage you to join our live chat community. On here, we answer questions, discuss trends, debate coins, and share all the latest crypto news.
Feel free to skip to a certain section by clicking on the links in the side menu. In our first section, we will discuss what crypto currency actually is. Let’s dive in.
What is crypto currency? Seems like such a simple question, but answering it is not a simple task. Especially if I am talking to my mother, sorry mom. The most common response I get when asking people about crypto: “You mean that bitcoin thing?”. While bitcoin is inherently a crypto currency, not all crypto currencies are bitcoin. Just like in the physical world, there are multiple forms of currency, from the USD and Peso, to the Yen and Euro. Bitcoin just so happens to be the most well known crypto currency at this time, but there are many others.
If you are confused about the world of crypto currency, you are not alone. Let’s dive into figuring it out.
This could be an entire series in itself, but a very common question: “Is crypto real money?”. To truly understand what money is, we have to accept and understand one major concept: money is an illusion. In today’s society, we have multiple people – mutually agreeing that a piece of paper – with a fancy picture of a president – the numbers “two, zero” on it – in the shape of a rectangle – is worth a tank of gas. It’s not crazy that we do this, but the value behind that piece of paper is a complete illusion.
There are only two things that must be true for something to be used as money. First, two people have to mutually agree it has a value. Second, there has to be something to transfer; like food, paper, or utilities.
In the case of crypto currency, millions of people have mutually agreed it has value, and we transfer ownership to one another as payment. Without this foundation, the idea of digital, cryptographic, monopoly money universe is extremely difficult to comprehend.
I think most people can understand the basic concept of what a currency is, but what is with this word crypto? Seems like some made up word from the Da Vinci Code or Legends of the Lost Temple.
By definition, “Crypto” (short for cryptographic) is anything written in a secret code or cipher. Thanks Webster. When we put these two words together, we can now understand that crypto currency is simply: money hidden behind a layer of code.
So why does there need to be a code? Why can’t we just use credit cards and cash? There are still a lot of unanswered questions here to get a full understanding of crypto and all its glory. In the next lesson, we will answer the question, how does crypto actually work?
Disclaimer, there are tons of videos online to give you a technical explanation for how crypto currency works. This section is focused on giving one simple analogy to get your feet wet.
Currently, when you want to send money to your uncle in North Dakota (does anyone really live in North Dakota?), you are probably going to use a third party to accomplish the task. One way you could do this is by transferring some money on paypal. If you are lucky enough to have the same bank, you might wire him the money. If you are feeling super paranoid, you could even attach some cash to a carrier pigeon and hope he makes it there in time for winter. In all these examples, whether you use Paypal, Chase Bank, or a carrier pigeon, you are putting your trust in another person/entity to successfully transfer your money. This, is what crypto currency changes. There is no middle man, and this is why it became so popular. Initially at least.
So how is this possible? Again, there are many more resources if you truly want to understand how this is technically possible. For now, we will use a simple classroom analogy to explain.
Imagine a room of 10 people; all with an imaginary $10. Everyone knows the rules of this room and how much money everyone else has. When Person A wants to send their imaginary money to Person B, they simply say it out loud. “I, Person A, am sending $5 to Person B”. The entire room hears what just happened and writes it down. When Person C wants to send money to Person D, they follow this same process. Announce their transaction, and everyone writes it down. At any time, we can ask the room how much money Person X has, and the room, as a whole should be able to tell you the correct amount. There is no teacher in the middle. There is no principle in the lobby. Everyone has an equal voice and relies on the trust of the group to come to a consensus of what is right.
But what if one the kids decides to be Mr. Krabs and gets greedy. He flubs his numbers on purpose to put a few extra dollars in his pocket. While he claims to have $13, the room can easily see this is incorrect, and throws out his response.
But, what if Mr. Krabs gets a few of his friends to gang up and corrupt the group? The most powerful thing about crypto is the network affect. While it may have been possible for Mr. Krabs to corrupt the group in the early stages, the classroom has now grown to over 100,000 people. For Mr. Krabs to truly make a difference, he would need to convince 50,001 people to corrupt the group. Not an easy task. The larger the class grows, the harder it is to corrupt.
This is a simple, yet effective analogy of how crypto currency works. While it’s a cool concept, in the next section we will jump into why crypto is becoming so popular.
So why is crypto currency becoming so popular? Telling people you are into crypto currency has become the new standard of telling people about your vegan-ness or personal crossfit records. To be honest, I might be guilty of this myself. Sorry Alex (my fiancée). To explain why crypto is becoming so popular, I must break down the popularity into two eras. We will call the first era the Sitoshi Era, which started in 2018, and the second era the FOMO Era, which started in 2016.
Sitoshi Era (2008-2015)
In 2008, the world was hit with the worst financial crisis of this century. But what caused this? Well, that’s a bit of a long story. But to keep it short, here is a quick summary of the disaster.
People wanted to keep their money safe, so they put it in banks.
Banks wanted to make money, so they took our money and gave it out as loans.
These loans, were not good loans, and people did not pay them back.
The banks declared for bankruptcy and the government stepped in to bail them out.
The Government used our tax money to pay off the money that the banks lost.
This makes people mad and not trust central authorities.
As a response, a mythical unknown person named Sitoshi Nakamoto published a white paper that described an alternative, decentralized solution to fix this problem. Thus, Bitcoin was created. Great things usually come out of desperate situations. It is not until something is broken until we realize it needs to be fixed; or better yet, a new way to being created. While it is still a mystery on what the early years of bitcoin was used for, many believe the popularity arose by the ability to do illegal things. Because there was no central authority or bank, it was a much better method for criminals to transfer money across the internet.
FOMO Era (2016-Present)
Fast forward 9 years, and we are currently in the FOMO era (Fear of Missing Out). While the principles of a decentralized economy are still a driving force, many people believe that the recent crypto boom is caused by people wanting to make money (not just as a tool for transfer).
In December 2011, you could buy bitcoin for $2. In closing up 2017, bitcoin is worth roughly $20,000. To put that in perspective, if you purchased $100 worth of bitcoin in 2011, today it would be worth $1,000,000.
The recent boom is caused by a lot of things. Social media, speculation, fear of missing out. This is one of the main reasons people believe we could be creating another bubble similar to the dot com bubble of 1999. Regardless of your outlook on the future, crypto currency is growing at a pace this world has never seen.
In our next section we will learn how to make (or lose) money with crypto.
Another disclaimer. I am no financial expert. I barely know how to fold my laundry properly, let alone advise you what to do with your hard earned money. All I can do is share with you my personal experience and what has/has not worked for me so far.
So, there seems to be two main ways people are making money from crypto. The first way to make money from crypto is by trading coins. Similar to those old 90’s movies where you see a lot of guys in ties on Wall Street yelling at numbers on a wall going up and down, you now have the ability to jump in on the high anxiety adventure. A coin is worth $1. You buy it. The value goes up to $2. You sell it. You just made a profit. These prices fluctuate based on news, rumors, hype, or sometimes just to hurt your feelings.
I must say, this is how I started with crypto, and it utterly consumed me. To make money in day trading you must be alert, consistent, and able to control your emotions. Even with all these qualities, it’s not uncommon to lose money, so do this at your own risk. I made a rule of only putting 10% of my net worth into the game (it’s very much a game), so I slept a little better at night. While it is up to you to choose your own level of risk tolerance, this 10% rule of thumb is a pretty common one from a lot of smarter people in the industry than me.
The second way to make money is a little more boring, but in my opinion, less risky: Holding On for Dear Life, or as the cool kids say it HODL’ing. With this strategy, you simply buy a coin, and hope over time, the value of the coin goes up. Similar to bitcoin, there are new coins being created every day. Any coin that is not Bitcoin has been given the name “Altcoin”. This simply implies it is an alternative coin. Warning: It is so easy to make a coin these days that MOST of these (more than 90%) will never be worth anything and have no real value. That being said, there are some coins with some really useful technology behind them that you could capitalize on.
Side note, I give some in depth analysis on which coins have potential and the technology behind them. Visit www.altcoinatlas.com/coins if you want to check that out.
In my current investing process, I HODL. I simply believe in the industry as a whole more than my ability to play the game of trading. It’s also a lot less stressful. I hope you take this insight and come up with your own style of investing. In the next section we will cover where exactly you go to buy and trade these crypto coins.
Ah, the first day of buying crypto. To some it feels like the first day of spring training. To others, its Christmas morning. Whatever your feeling is, let’s figure out where the best places are to buy crypto.
There are a few websites popping up that allow you to exchange fiat (or cash) for crypto, but they are so new and untested, the only website I feel comfortable and reliable enough to note at this time is coinbase.com. To get an updated list and review of where else you can buy, go to altcoinatlas.com/buy. The rest of the walk-through below will focus on the coinbase interface, but this process is very similar to the other websites.
According to the Coinbase website, all digital transactions are fully insured, and cash is covered up to $250,000 (fiat). That sure makes it a little less scary. The first thing you must do is identify yourself. While the world of crypto originally started with criminal activity, crypto exchanges are required to take a bit of precautionary screening to keep the integrity of their platform. After you go through their identity process, you can use a credit card or bank account to buy crypto. Be aware, sometimes this transfer process can take from a few hours to 7 days, depending on your method of exchange and the congestion of the network.
Currently, Coinbase is only selling three coins (Bitcoin, Ethereum, and Litecoin), but have recently announced they will be including many altcoins in the near future. This is an exciting time for the crypto community as currently; the only way to attain these altcoins is through trading, not buying directly.
Once your transaction goes through, three things will be created for you. First, a wallet. This is where your coins are being stored. We will talk more about this in the next section. Inside this wallet you have a private key and a public key. These are important, so listen up.
Think of the public key as your public phone number. You are open to giving this out to anyone and everyone you want. In our situation, anytime we want to send or receive money, we use this public key. Its your fingerprint on the crypto universe.
Think of the private key as the super secret code you use to open your phone. Don’t give this out to anyone. If they know this code, they will have access to all your crypto treasure.
With any investment, the next step should be making sure you keep this coin safe, and secure. In the next section, we will discover what a wallet is, and the best practices for keeping your newfound coin safe and secure.
When I was 4, I had a piggy bank in the shape of a basketball hidden in my closet. I collected quarters for years and years, when eventually the bank was full. Fast forward a decade; I have no idea where this basketball quarter infused piggy bank ended up. If you think losing track of a piggy bank is sad, losing track of your crypto coins could be the worst day of your year. Rule number one, don’t lose your crypto.
While there are many benefits of a decentralized currency, the one negative is there is no “customer support” line when you make a flub. There is no number you can call or manager you can demand to speak to. At a bank, you are their customer and first priority. On the blockchain, you are just another number.
This all sounds a bit dramatic, but it is important to keep in mind. If you lose your coins, they are virtually lost and cannot be recovered. To help keep our coins safe, we use something called a wallet. When you buy your first coin from Coinbase, it is important to understand that you are using THEIR wallet. Yes, you own the coins, but it’s being stored in their wallet. Here are the 5 types of wallets you can utilize to store your coins.
Web Base Wallet
A virtual web based wallet is similar to what coinbase offers. You go to a web page, log-in, and can access your account. Something similar to this would be logging in to your online bank account. The pro, it is the fastest way to complete transactions. The con, the coins are still not in your hands. If the website gets hacked, so do you.
Most altcoins offer a desktop wallet. To use this, you must first download a software (similar to downloading iTunes or Photoshop). This is a great alternative to taking the coins into your own hands. The pro: its incredibly easy to use. The con: if you forget to back up your wallet and your computer dies, you are out of luck.
Same concept as a desktop wallet, but on your phone. Simply download the mobile app from the app store and you are good to go. I personally think the first company to make a more effective mobile wallet is going to truly open up crypto to the masses. Pro: It’s more practical and has built in QR code reader for sending payments. Con: Phones are super unsecure compared to other options.
I am just about to invest in one of these, although I should have done it a long time ago. They usually come looking like a USB stick, with some extra added tech inside. The two most reliable brands are Leger and Trezor. You can buy them off amazon or directly from their ecommerce store. It seems counter intuitive to move a digital asset onto a physical wallet, but this is one of the safest way to secure your coins. Once you transfer the coins to the hardware wallet, you can take the coins “offline” to keep them safe from hackers. The pro: it is the most secure method to keep your coins long term. The con: Not quick to transfer off/on and requires some setup/installation.
I couldn’t quite wrap my head around this concept at first but it’s truly one of the simplest ways to store your coins. It takes the same concept of the hardware USB wallet, but uses paper. You go to a website that auto generates a wallet address and code for you. Print these codes off (maybe a few copies) and stash them away somewhere (preferably a fire proof safe).
Just a personal paranoia, I don’t use these. They are very commonly used, but I still haven’t researched enough about the creators behind these paper wallet websites enough to trust it.
Alright, so that was probably the long section of this series, but it’s probably the most important. Next, we will get into the fun part. How do you trade crypto?
While there are only a very few places to actually buy crypto with cash, there are tons of places to trade your crypto. Although there are many options to choose from, you must also understand how unsafe many of these exchanges are. One critical, critical thing that I did not fully understand when trading my first crypto:
When you transfer your crypto coin to an exchange, you are using their wallet, not yours.
I can’t focus on this enough. When an exchange has your money, this money is no longer in your control but sits in a temporary place on their server. If this server is to get hacked (has happened a few times before) you can lose your money.
Let’s talk about the three biggest things to think about before you choose an exchange is:
What are the transaction fees?
When I first started trading, I was a little upset about this. I thought the benefit of crypto currency was no middle-man, and therefore no transaction fees. While the transaction fees aren’t terribly bad, you must first do your own research on the small print. Some exchanges charge on every trade you make. Some charge when you put your money into the exchange. Some charge when you take money out of the exchange. To help with this, I made a super nifty page to at altcoinatlas.com/exchanges to help you figure out what exchange works best for you.
Side note, there are some decentralized currencies with no middle-men or transactions fees at all. These are less used right now, but my hunch is they will grow in the coming years!
What is their total volume of transactions?
Some exchanges are small, and only have a few hundred people using the service. Some are big and have millions of transactions a second. While the smaller exchanges can be useful to snatch up some of the smaller coins nobody knows about, many times it takes longer to trade a coin. If you are wanting to make multiple transactions a day, it is probably best to find a large volume exchange. Go to coinmarketcap.com/exchanges to view trade volume.
How reliable and trust worthy are they?
Ever see those off-brand shoes at Wal-mart that kind of look like Jordan’s, but then, not at all? This is how exchanges are. People are more willing to be a part of a trust worthy and reliable brand, even if it means paying a little more. In general, the exchanges that have been around longer are more trust worthy, but please keep updated on altcoinatlas.com/exchanges as I will continue to rank these companies.
You are now good start trading your way to your first millions, or divorce. Before you jump into the fire, there is some strange lingo the cool kids in crypto use when trading. In the next section, we will cover what these words, acronyms, and phrases mean.