Hello crypto

In this article I want to introduce some critical concepts for success in the crypto world.  The ideas covered in this blog post are aimed at anyone who still feels like crypto just isn't for them, but they secretly feel like they might be missing out on something great.

It is now 2022, bitcoin was launched in 2009.  Its been over a decade, well over a decade and yet here I am (with many of my peers) only starting to dive deep into what we now simply refer to as "crypto".  

First, a quick intro to "me".  I have a business degree, worked in business for a few years but moved into tech around 2013.  Ill be coming up on 10 years in tech, in that time span I have worked in numerous roles and got acquainted with countless tech stacks, languages and processes.  Who cares?  I think its important to point out that even though I am fluent in tech crypto was one of those things that I kept at arms length.  I didn't want to get distracted, I had other topics I needed to deep dive into.  I was also a little concerned I wouldn't be able grasp it, that the concepts would be too foreign for (even) me to understand.  I was wrong.  


The basics

If your looking to skim the article, this is where you start.  Everything under here is considered essential for success.

What is Crypto?

I like to frame answers in a way that I can tie the new concepts to commonly understood models or objects.  

The best way to think of crypto currency is exactly like you do regular currency.  I am an American, so I deal in US Dollars ($).  A $20 bill has a value printed on it and a serial number (see pic):

This serial number identifies the $20 bill, where it was created, who created it and where it has been.  

If I were to take this $20 and deposit it into my bank account, this transaction would be recorded.  My bank account number, the bills serial number, date/time and so forth would be a part of the transaction data.  

This concept is identical to the Bitcoin.  While Bitcoin doesn't have a serial number, each transaction does include an account number (aka a wallet address), a quantity of bitcoin transacted, the date/time and so forth.  

Now I can hear my wife's uncle, "But Bitcoin has no value!"  This is something we dive into below.  

Is Crypto safe?

This is a broad question, but a common one.  To answer it, its important to define "safe" and the personas involved in each scenario.  Really, there are two personas that need to be concerned with the safety of crypto.  The first is you, the individual buying, holding and selling crypto.  The second is the community of users, but I will focus mostly on the individual concerns.  

Bitcoin "hacks" always sound quite scary, because it seems like tens of thousands  (or hundreds or millions) of dollars just get carried away by some clever criminal.  In reality, historical bitcoin "hacks" took advantage of early crypto adopters ignorance to crypto best practices.  For instance, many a holder of Bitcoin early on were tricked into sending their currency to attacker wallet address...not knowing this is a one way transaction with no recourse.  Yet others would leave their currency on exchanges, then when the exchange was breached (typically leveraging common attack techniques) they would have their crypto stolen.  

In reality, if you follow a few simple rules crypto is quite safe to transact.  This doesn't exempt you from making poor investment decisions, but it does mean you won't have to worry about losing your crypto to a simple trick.  

How to keep crypto, safely

  1. Invest in a cold wallet. Use the cold wallet. Don't keep your crypto on an exchange.
  2. Verify wallet addresses prior to sending.
  3. Alwasy use multi-factor authenticaion on your financial accounts (not just crpto!)
  4. Deal only with reputable exchanges
  5. Be extra cautious with DeFi until you understand it fully

Types of Crypto currency

There are two main types of crypto.  Coins and Tokens.  There are very few actual coins, but thousands upon thousands of tokens.  

Coins

Coins, like Bitcoin, act as a currency and designed to be used as a currency.  You exchange Bitcoin for good and services, you keep the currency in your wallet.  This concept should be well understood.  

There are very few coins because in order for a coin to function correctly, the ecosystem (technology) that the coin is designed for must be very wall throughout and tested.  This is very hard to do, which is why there are only a few "coins" in crypto.

Tokens

Tokens are where we start to have fun with new crypto concepts.  Tokens are not used as currency, or at least not designed that way.  For this reason, they are trivially easy to product and inexpensive to mint.  For these two reasons, we have thousands and thousands of tokens in the crypto world.

While the idea of a token can be hard to grasp, the easiest way to tie it to a real world concept is this.  The value of a token is directly attributed to the utility it creates or provides to the holder of the token.  

Need an example?  Take a look at the now famous board ape yacht club Non Fungible Tokens (NFT).  Not only does the holder of this token benefit from its (ever) increasing monetary value, but a holder of one of these NFTs is given access to a private discord server where they are given the opportunity to mingle with famous people (I doubt Eminem is frequenting this Discord).  

But, like with all things you must be careful with crypto tokens.  There are numerous  schemes lingering on the internet, just waiting to take advantage of new crypto investors.  There is no recourse if the token you select to get rich off from, runs off with your money.  There are however sound and proven strategies to identify worthy tokens, but that won't be covered in this intro to crypto.

Why is crypto valuable?

This was touched on briefly above, but this is the section where we go deeper.  While central bank backed currency, like the US Dollar, is valuable because the world agrees that its got a certain amount of value this is not always the case with crypto.  

Crypto value instead is much more like stock value.  A companies stock is valuable because the company creates value, it provides utility in some way.  For example IBM delivers services that generates revenue, GM produces vehicles that generates revenue, Solana (a popular blockchain tech, which has a token) enables DeFi application (dApps) to run efficiently.  

Just like companies, the various technologies (and their tokens) have competition.  The value of the token is usually directly proportional to the value the technology creates.  The good news here, is that you can apply many of the same fundamental or technical indicators to token investment as you do with more common investments like stocks!

This however doesn't include very small or very new tokens that could be manipulated through social media, but that's for another post.  

Why is it so volatile?

Finally, someone that everyone knew to crypto asks sooner or later is why do prices swing so violently in the crypto world.  Technology like Bitcoin and Ethereum can see swings of 10-15% in a busy day and that's normal!

The reason for this is simple.  The value of Bitcoin (and similar crypto) is still being determined.  The greater the uncertainty in its value, the wilder the swings will be.  This applies to most crypto coins and tokens, again barring those manipulate through various means.  

When the market agrees on a value, years (maybe decades) down the road you will see Bitcoins price reflect that.  Volatility will shrink, and crypto will be boring.  


So where do you go from here?

In the following weeks I release a series of blog posts, much like this one, aimed to increase your comfort level with crypto and explore some of the more interesting or lucrative areas I find interesting.  

DeFi, Yield Farming, Oracles, consensus models and more!