Cryptocurrency, it's confusing... Why is everyone talking about bits and dogs? What's with all the memes? Why does your cousin's sister's nephew suddenly have a Lamborgini? All these questions and more will be answered. Here is everything you need to know about cryptocurrency to prepare for the future and sound smart at parties.
This is not investment advice. Please consult with financial professionals for investments.
Q: What is cryptocurrency? (If you see phrases you don't understand, check the glossary at the bottom of this article)
Cryptocurrency is like regular currency, but completely digital.
Cryptocurrency comes in many forms, intentions, and uses. The simplest way to look at cryptocurrency is a form of stored value (money) that is not beholden to governments or central agencies like banks, states, or companies. All records of its creation and when it's sent or received are stored in a sort of big digital book that anyone can access, keeping it honest. It can't (easily) be stolen or seized and can be used anywhere in the world.
Cryptocurrencies make it possible to lend, sell, buy, or borrow without an identity, credit score, or even a bank!
Some coins are used to transfer value (measured in a currency like dollars) cheaper and faster than using credit or conventional means. Meaning the cost to send someone crypto, which can be converted into regular currency, is cheaper than something like a check or wire transfer.
Others are the only form of payment, or value, that are accepted on exchanges or in software like video games. This is what made crypto very popular years ago on the dark web to purchase drugs or other illegal things through the internet. Instead of giving a drug dealer $20 USD for some drugs, a person would send that amount of USD value in the chosen crypto (usually bitcoin) directly from your crypto wallet to theirs.
However crypto is NOT just for illegal purposes. In fact, due chiefly to its price fluctuation and other reasons it has fallen out of favor on the black market.
In-depth explanation: A cryptocurrency, crypto-currency, or crypto is a collection of binary data (1's and 0's) which is designed to work as a medium of exchange.
This sounds complicated but even dollar bills all have serial numbers to verify them and keep a record. It's the same with cryptocurrency. They can also all be divided into smaller pieces similar to how USD can be divided into pennies.
Individual coin ownership records are stored in a ledger which is a computerized database using strong cryptography to secure transaction records, to control the creation of coins, and verify the transfer of coins between people.
Cryptocurrency does not exist in physical form (like paper money) and is typically not issued by a central authority. However, it can be and many governments are working to create a crypto coin version of its respective fiat currency.
Cryptocurrencies typically use decentralized control as opposed to a central bank digital currency. When a cryptocurrency is minted or created prior to issuance or issued by a single issuer, it is considered centralized. When created with decentralized control, each cryptocurrency works through what is called distributed ledger technology. Which is typically a blockchain, that serves as a public financial transaction database.
Bitcoin, which was first released as open-source software in 2009, is the first decentralized cryptocurrency. However, since the release of bitcoin, many other cryptocurrencies have been created with different uses and intentions.
Some tokens are exchanged directly for troy ounces of gold or make up digital art and certificates like NFT's, but that's all too complicated and advanced for a beginner to worry about. Wait to get into that part of crypto until you're familiar with the overall market and culture.
Q: What cryptocurrencies should I know about and why is it making people rich?
You've no doubt heard of Bitcoin and Dogecoin. This is primarily because the two coins went from being worth pennies to way, way more than that in a short amount of time. These coins are among two of the most popular for internet users because they are well known, and lots of people are invested in them. Which means they get the most memes and articles created about them.
This does not mean they are necessarily the best form of crypto overall or necessarily have the most inherent value. They are just the most popular, which in the crypto world, is sort of what gives them value. There are actually thousands of cryptocurrencies just like there are thousands of currencies used in countries across the world.
Some people have become very wealthy because cryptocurrencies fluctuate in value like a stock. In 2010 Bitcoin was worth pennies on the dollar when it first came out and now averages around $60,000 per coin. Demand for Bitcoin is going up and its supply is going down, basic economics dictates that its value increases as a result.
However, they also fall in value almost as quickly as they go up which is what attracts day traders to crypto. Crypto gains are also taxed like capital gains similar to regular stocks. So if you use an exchange you'll be taxed since they will report that to the IRS. However, there is a loophole when you pay directly with crypto from one wallet to another so... do with that what you will.
Above is an example of how much the price can fluctuate just in one day. Bitcoin went from 65k in the morning to 62k by midday. So you have to be comfortable making or losing up to several thousand dollars EVERYDAY.
Popular coins explained:
Bitcoin- Introduced in 2009 Created by "Satoshi Nakamoto" (Real name and identity unknown)
The world’s first successful cryptocurrency. Bitcoin is a decentralized digital currency that users can buy, sell and exchange directly, without an intermediary like a bank. There is a finite supply, only 21 million bitcoins can be produced as designed by the creator.
The Bitcoin blockchain is a full record of the network’s history validated by individuals running the Bitcoin software (nodes). This ensures that unlike most digital data, which can be freely copied and modified, bitcoins cannot be. Because bitcoins are scarce, divisible, and transferable; bitcoins are used as money.
DOGECOIN- Introduced in 2013 by Jackson Palmer and later Billy Markus
Dogecoin is a digital currency like bitcoin or ethereum. The coin was started as a joke, intended to be a satirical take on bitcoin based on a popular dog meme. Unlike Bitcoin, which was designed to be scarce, Dogecoin was created to have many coins. There is about 130 billion DOGE. Miners produce around 10,000 every minute.
That high amount is a key part of the idea. Dogecoin was created as a low-stakes Bitcoin alternative. When it was launched in late 2013, it began attracting a big online community.
Ethereum-Launched in 2015. Created by Vitalik Buterin
The decentralized Ethereum network makes it possible to create and run applications, smart contracts, and other transactions on the network. Ethereum is different from Bitcoin in that the network can perform computations as part of the mining process. People use what's called Ether as a digital currency in financial transactions, as an investment, or as a store of value. Ethereum is the blockchain network on which Ether is held and exchanged.
Litecoin- Introduced in 2011 Created by Charlie Lee
Litecoin is unique from Bitcoin in that it can produce a greater number of coins and its transaction speed is faster. The creators say it was intended to be a lighter version of Bitcoin. Litecoin can accommodate 84 million coins compared to Bitcoin’s 21 million. Litecoin was founded with the goal of prioritizing transaction speed and that's what attracts many people to the coin. As of October 2021, the total value of all bitcoins in circulation is around $1.2 trillion, making its market cap much larger than Litecoin, which has a total value of around $14.5 billion.
Stellar Lumen (XLM)- Introduced in 2015 Created by Jed McCaleb
Stellar is a decentralized computer network that operates using blockchain technology. On the Stellar network, you can trade its form of currency, which is called XLM. The creators say Stellar was designed to reduce transaction costs and serve as a bridge between fiat, digital and other currencies. The intended purpose of Stellar is to connect financial institutions via the blockchain and provide cheap transactions in developing markets. According to Stellar’s website, there are 50 billion lumens in circulation. Stellar will not produce any more lumens, so they cannot be mined.
There are many, many more cryptocurrencies but the top 25 are the most important to know at the start. Remember, there is more to cryptocurrency than just Bitcoin.
Q: How do I get into cryptocurrency?
The easiest way to start buying and holding cryptocurrency would be with an exchange. There are several popular ones and you can use them right on your smartphone. This allows holders to buy, sell, and store their crypto on their phone or on a computer.
All you need is to download the app and enter your info and connect to a bank account. After that, you can trade instantly, but be careful, you might get addicted and start checking it all the time...
Any amount of money is enough to get started because you can buy slivers of a coin, it doesn't need to be a whole coin. However, experts agree it's best to invest at least $100 across a few different coins to start.
Before making any investment decisions, please consult with financial planners and experts.
- Robinhood allows users to trade stocks and several cryptocurrencies. Also, Robinhood will give you a free stock for joining.
- Coinbase is one of the largest and most user-friendly apps dedicated to cryptocurrency. Follow this link to start and you'll get 10% of your first $100 invested paid back in Bitcoin.
For the more advanced, there are "wallet" apps that can be downloaded. This would mean the coins are held on your device in the storage drive, or in a virtual wallet. Users can access this wallet with a unique code.
When buying, experts agree its best to stick to the top 100 cryptocurrencies as they are relatively low risk and are quality projects. Anything under the top 200 is just gambling as most of the quality projects are already created and in the top 100.
This is by no means all there is to know about crypto. However, this should be a great jumping-off point to learn more. More advanced topics include how crypto and the systems they are used with could replace all currencies, middlemen, and even governments.
- Altseason- A trend of significant increases in the value of altcoins across altcoin markets.
- Altcoins- Tokens, cryptocurrencies, and other types of digital assets that are not bitcoin are collectively known as alternative cryptocurrencies. The term is also commonly used to describe coins and tokens created after bitcoin.
- Blockchain- A growing list of records, called blocks, that are linked together using cryptography. Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data. The timestamp proves that the transaction data existed when the block was published in order to get into its hash. As blocks each contain information about the block previous to it, they form a chain, with each additional block reinforcing the ones before it. Therefore, blockchains are resistant to modification of their data because once recorded, the data in any given block cannot be altered retroactively without altering all subsequent blocks.
- Fiat currency- Fiat currencies are a medium of exchange established as money, often by government regulation. Fiat money does not have intrinsic value and does not have use value. It has value only because a government maintains its value, or because parties engaging in exchange agree on its value.
- Ledger- A book or collection of accounts in which account transactions are recorded.
- Medium of exchange- In economics, a medium of exchange is any item that is widely accepted in exchange for goods and services. In modern economies, the most commonly used medium of exchange is currency.
- Meme- An idea, behavior, or style that spreads by means of imitation from person to person within a culture and often carries symbolic meaning representing a particular phenomenon or theme. A meme acts as a unit for carrying cultural ideas, symbols, or practices, that can be transmitted from one mind to another through writing, speech, gestures, rituals, or other imitable phenomena with a mimicked theme. But on the internet its usually pictures or graphics with funny things written on them
- Market Cap- Crypto market capitalization is the total value of a cryptocurrency. Where stock market capitalization is calculated by multiplying share price times shares outstanding, crypto market capitalization is calculated by multiplying the price of the cryptocurrency with the number of coins in circulation.
- Gas fees- Gas fees are payments made by users to compensate for the computing energy required to process and validate transactions on the Ethereum blockchain.
- Crypto Mining- Crypto mining refers to the process of gaining cryptocurrencies by solving cryptographic equations with the use of high-power computers. As the outcome of this work, the miners receive pay with the mined cryptocurrency. The method is called mining as it puts new coins into circulation.
- Crypto Wallet- A cryptocurrency wallet is a device, physical medium, program, or service which stores the public and/or private keys for cryptocurrency transactions.
- Stored Value- A store of value is any commodity or asset that would normally retain purchasing power into the future and is the function of the asset that can be saved, retrieved, and exchanged at a later time, and be predictably useful when retrieved. The most common store of value in modern times has been money, currency, or a commodity like a precious metal or financial capital. However, things like cows and rare comic books could also be a store of value.
- Stablecoins- Cryptocurrencies that maintain their value relative to a fiat currency like USD or Euro.
More from Brody and ABC on Crypto:
Disclaimer: Brody holds Bitcoin, Ethereum, Litecoin, XLM, Doge, and SHIB.