Getting into the cryptocurrency world means implies that you need to understand the industry background and some of the basic technical terms and concepts. So, before you get whisked away by this interesting and thrilling space, pin down the “need-to-knows” and jargon. This is recommended, especially if you start investing and taking your hard-earned fiat and using it in the crypto sphere.
A brief background
The origins of cryptocurrency go back as far as 1998 and a computer scientist named Nick Szabo who developed Bit gold but, the actual creation of a viable cryptocurrency was ten years later in 2008, by Satoshi Nakamoto, whose whitepaper outlined how a linear, time-stamped network could fuel a cryptocurrency called Bitcoin.
Thus, the coin/currency/token/digital asset (these terms are interchangeable) is stored on the chain — a distributed ledger. The main feature of true cryptocurrency is that there is no central control over the currency, unlike banks or governments. You do, however, get centralized cryptocurrencies where there is a measure of control exerted. Check out this list of centralized and decentralized crypto. The blockchain and cryptocurrency industry’s overall sentiment and purpose are to be a democratic alternative to traditional currency.
The crypto culture
As you dabble and delve into crypto, you will become very aware that there is a strong community backing this new industry. The community has a powerful ethos and purpose related to individual control of their financial destiny and provides financial access to users that may not qualify for traditional financial services.
Decentralized blockchain networks are chains of validation nodes. These nodes are basically stakeholders that verify transactions. There is no central authority, and the system is set up based on parameters determined by the code upon which the blockchain operates. Several blockchains exist, and they have their own currencies — for example, the Ethereum blockchain fuels the ETH cryptocurrency.
It is worth noting the players involved in the cryptocurrency culture or even subculture.
Un-jumbling crypto wallet jargon
Understanding the background, how the tech was built, and who continues to maintain, participate in, grow and invest in the blockchain and cryptosystem should give you an idea of where or how you want to fit in. So whether you aim to mine crypto with the view to becoming a venture capitalist that supports and funds exciting and innovative projects or if you want to simply trade crypto or perhaps yield farm, everyone has to start in the same place — getting the best crypto wallet. Without a crypto wallet, no transactions can be made.
And that is where this list will begin. It will have a dual purpose in that it will offer an explanation for terms and sequentially transport you along your journey to entering the crypto sphere.
1. Decide on a wallet
Ï Hardware and software wallets
Hardware wallets are physical storage devices like an advanced USB that stores your currency. A software wallet is basically like online banking. To access your crypto, which can also be called digital assets, you need to provide private keys which open access to your currency and give you the ability to transact.
Ï Custodial and non-custodial wallets
A custodial wallet is usually run by a central or semi-centralized blockchain, just like a traditional bank. A centralized wallet stores your private key and provides backup and security for your crypto. For some starting in crypto, this can be reassuring.
Non-custodial wallets are software wallets in which you are the only one that has the keys to access the data. No one but yourself has custody of this information, so if you lose the private key information, there is no way to recover the wallet’s assets.
A non-custodial wallet can be referred to as a Decentralised Finance or Defi wallet. This is true decentralization of financial power and responsibility.
Ï Public and private keys
In case you hadn’t realized as yet, keys are special passwords that are cryptographic. There is a public key that is matched with a private key. Whatever is encrypted with a public key can only be decrypted by the private key. When signing up for the wallet of your choice, you will be guided through the process of securing your keys. It is essential to keep the private key somewhere safe.
Ï KYC — Know Your Customer
The blockchain and crypto community, as you know now, are driven by decentralization, protecting privacy, and, to some extent, anonymity. For the most part, the community prefers anonymity, but crypto users, when utilizing a crypto wallet, need to verify their identity when interacting with Fiat, for regulatory purposes. The process of verifying your identity is called KYC and is aimed at curbing illegal financial acts like money laundering, tax fraud, and financing terrorism or illegal activities.
2. Buy and trade some crypto
Ï Transaction fees
Once you have your wallet, you will be able to buy the cryptocurrency of your choice using fiat. Fiat currency is normal traditional money — the currency of where you live. Any transactions conducted have a fee associated with them just as a normal bank but crypto fees are called gas fees. The Gas price is the amount you pay for every unit of gas just like the cost for a liter of petrol for your car.
These fees enable and power the transactions and are usually paid for in the form of a utility token depending on the blockchain — more about that below under tokens.
Different types of transactions require differing amounts of gas depending on the degree of computational difficulty. Also, the term gas limit refers to how much you are willing to spend on a specific transaction, if you don’t specify enough gas the transaction cant be completed and will fail but because work has been done on the transaction the gas you did specify won’t be reimbursed.
Usually, you will buy or rather exchange your fiat on a crypto exchange. There are several different exchanges — they are the marketplaces where trading currencies happen almost like a stock exchange or changing your Euros into another currency on the forex exchange. It should be noted that there are centralized and decentralized exchanges, and as in the case of the wallets, the former has a central body that controls it.
Simultaneously, the latter is distributed to nodes that uphold a central smart contract, which underpins all exchange operations and has been agreed upon by all stakeholders.
For example, Altcoin can’t, and won’t be found on any exchange. It is a collective name for all coins that are not Bitcoin.
Ï Types of crypto
There are so many types of cryptocurrencies available. If you are part of any crypto communities on Telegram or follow crypto enthusiasts on Twitter, then knowing what they are generally referring to is very helpful.
Tokens represent a unit or portion of a cryptocurrency and may be considered securities in some jurisdictions depending on the specific rights of the token holder. Typically when a new cryptocurrency is introduced, parties who are funding the new currency are given tokens representing their participation, or investment.
Don’t be confused between security tokens and utility tokens. They are different. Utility tokens are designed to enable certain functions on a project or blockchain platform, also referred to as “gas.” Utility tokens are not necessarily backed by any assets and afford you no rights to dividends, shares of a company, or other ownership.
Security tokens, however, are a store of value that are often traded, meet the “Howie Test,” and can appreciate (or depreciate) giving the owner asset appreciation and returns from investment. Specifically, the Howey Test determines that a transaction represents an investment contract if “a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party.”
Stablecoins are cryptocurrencies that are linked to the price of another asset or group of assets. This lowers volatility in the market, and usually, the assets linked to the stable coins are established and quite resistant to price fluctuations. Tether, Goldcoin, PAX, and Binance USD are some of the most frequently used stable coins.
3. Spend your crypto
Once you have stepped onto the crypto pitch with your Defi wallet app accessible or with your crypto debit card in hand, there are many activities you can undertake, and it really is worth exploring the different investment avenues, opportunities, and crypto mining strategies in play. If you have opted for a wallet that exists within an expansive ecosystem like the Eidoo wallet mentioned earlier, you may have to look no further for an exchange and access to other decentralized finance (Defi) solutions like lending and borrowing.
4. Track your crypto
At this point it is worthwhile investigating Blockchain explorers – a blockchain explorer is like the Google of the crypto world. Blockchain explorers like Etherscan let you access the details related to your transactions on specific wallet addresses and blockchains. The details include the amount transacted, where the funds came from or went to, and their ongoing status.
Explorers make crypto more transparent and are very helpful as you can track payments and you investigate different investments and actions that have taken place on the chain.
It is essential to do your research and reach out to the crypto community which can guide you through these processes. Happy spending and hopefully earning too!
ABOUT THE AUTHOR: Michele Montecchi is a project manager at Eidoo. He’s also a project developer looking over the tech part as well.