A Beginner's Guide to Cryptocurrency

By eatdostacos | eatdostacos | 25 Jul 2020

If you're new to cryptocurrency, you may be wondering how cryptocurrencies work and you probably have many questions. Here are answers to some of the common questions about cryptocurrency that many people had when they first got in to the space.

First, a short summary of how this came to be. In 2009, an anonymous developer named Satoshi Nakamoto created Bitcoin, the world's first cryptocurrency, as a way to break free from the traditional banking system. Not much is known about him, including his identity, although there are many rumors and speculations. Back then, Bitcoin was basically free and could be mined on any home computer, but had almost no value. Fast forward to 2020, and the crypto craze is bringing in many new people who are interested, but don't know where to start. Today, Bitcoin is being mined in huge facilities with cheap electricity and expensive mining rigs.

This digital payment network is secured by many different computers around the globe, leading to decentralization for a network that can't go offline due to a single server error or decide what you do with your money.

To get into cryptocurrency today, you will probably need to put in some fiat currency, but there are some places online to earn cryptocurrencies just for using a certain service where you can receive rewards.

FAQ Section

1. Is crypto a scam?

NO!!! Many people believe that cryptocurrencies are a scam because Bitcoin is often thrown into the limelight because of things like the Twitter hack where people associate Bitcoin and cryptocurrencies in general with scams. These scams just happened to use Bitcoin. Just because crypto in general isn't a scam, that doesn't mean that you should invest your life savings in any crypto related project that says you will make a ton of profit. Make sure to look out for the signs of scams like a guaranteed profit every month, or promising large returns. Some new coins do have the potential to go up and have similar returns to Bitcoin, but this is generally because the coin has a use other than just making a guaranteed profit.

2. Isn't this just printing free money? How can this be?

When a coin is mined, it gives out block rewards as payment to the successful computer that solves a problem first and secures the network by confirming transactions. This is how many coins are minted and distributed. The value of the different coins come from what use investors think the value is, so if a coin has a much higher supply, the price will be lower than if the supply was lower with the same market cap. You can think of it as the computer is doing work for that coin and getting paid for that work as an incentive to continue. Many people don't understand what the miner is actually doing, and believe that your computer is just getting tons of free money for nothing.

3. How many cryptocurrencies are out there currently?

The current total number of cryptocurrencies out there is in the hundreds of thousands, but the vast majority of those are tokens that are easy for anyone to create, leading to people creating them for fun and not doing anything with them. There are currently around 750 coins with a market cap of over $1 million, with the majority of these being between $1 million and $10 million.

4. Should I invest in crypto?

This is up to you, but if you do, always research what you are going to buy first to make sure that it is not a scam and not part of a project with a team that will abandon it.

5. How do I buy crypto?

Currently, there are many exchanges that offer USD to BTC and other pairs, but in the US there are laws that require you to verify your identity with the exchange, often including Social Security Number verification, so make sure the exchange is trustworthy before signing up.

6. What are the cons of this system?

One of the pros is also a con. Because you act as your own bank, there is no third party to help you if you lose access to your wallet (unless you're using the wallet in an exchange or owned by someone else), or your coins are sent to a different address. Another con is the lack of many places accepting Bitcoin or Altcoins. Currently, not many businesses accept cryptocurrencies, but some are warming up to the idea and allowing you to pay with cryptocurrency at their stores.

Cryptocurrency Vocabulary

Address - text that is put in to tell the coin where your transaction should go, commonly a long strings of numbers and letters
Altcoins - coins other than Bitcoin
Block - group of transactions all confirmed at the same time and written on the blockchain together
Blockchain - list of all the transactions that have ever occurred between users of that cryptocurrency
Coin - cryptocurrency that runs on its own blockchain and usually has the supply distributed over time in block rewards (Bitcoin, Ethereum)
Fork - when the software of a cryptocurrency is changed this happens, come in two variations, Soft and Hard
Hard Fork - when a fork occurs that makes its own chain and is incompatible with earlier versions
Hashrate - the number of hashes ("guesses" at the key to confirming a block) often calculated in H/s
Keys - come in private and public, private enables access to your coins and public is what is shared to prove that you own and can spend the coins, corresponds to an address where funds can be sent to
Soft Fork - when a fork occurs that is compatible with earlier versions of the software and both versions can be run on the same chain without problems
Token - cryptocurrency that runs on a different coin's blockchain and often has the whole supply created at the beginning and given to the creator (Tether, Basic Attention Token)
Wallet - piece of software that holds your keys and allows you to send and receive transactions