Welcome to our ~10 min guide to getting started in crypto
Getting into crypto seems hard. Information is scattered all around the web, jargon is often super technical and you might say – I will never get it!
Luckily, there is cryptohunt now! And we are here to tell you: It’s actually really easy stuff. The key? Learn a few core concepts, and it’ll all click. We promise.
That’s what this is: This guide will explain the 10 most important terms, so you can start putting the pieces together.
Let's dive into it, shall we?
1. A short look at the history of crypto
It all started in 1983, when a researcher called David Chaum imagined digital money, and his idea slowly started to resonate with the cypherpunks movement. This group was interested in ways to preserve anonymity through cryptography in the early days of the internet, and an anonymous digital payments system was eventually outlined by one member, Wei Dai, in 1998.
But the internet was young, and that idea remained dormant until 2009, when an anonymous programmer under the pseudonym of Satoshi Nakamoto launched Bitcoin.
In the first transaction ever, Satoshi referenced an article about a bank being bailed out by the British government after the 2008 financial crisis, leading people to believe that Bitcoin was a protest against government controlled financial systems.
Bitcoin became popular quickly and in May 2010 someone made the first real world transaction – he paid another person 10,000 Bitcoins in exchange for two pizzas. It may sound silly in retrospect, but this was significant: Bitcoin suddenly had a value.
The year after, the first major alternative blockchain was launched: Litecoin was a Bitcoin clone, aimed at improving upon it. Many more so-called altcoins followed it.
At this point, crypto was only used to store value or send money around. But a young computer programmer called Vitalik Buterin wanted to replace the entire financial system: Smart contracts would turn crypto into programmable money with infinite potential.
2. What is a blockchain, anyway?
Blockchains are the underlying concept of all cryptocurrencies and tokens. It’s actually as easy to understand as it is useful: Think of a blockchain as an electronic journal that records every transaction that ever happened in chronological order, without ever missing one.
Now, each page in that book is called a block, and each block contains several transactions. That is because it is more efficient for computers to crunch multiple transactions in a block rather than one at a time.
So there you have it - a chain of blocks, or pages in a public book, are what makes a blockchain.
And that concept is very useful: An up-to-date copy of a blockchain is saved on thousands of computers, that’s why we call blockchains decentralized. It can’t be deleted from all of them, and is openly accessible to everyone to see the entire history of transactions. In fact, you can still look up the very first time Bitcoin changed hands.
3. What is Bitcoin
The first and most valuable cryptocurrency to date — launched in 2009, right after the economic recession. It was initially created by an anonymous figure or group called Satoshi Nkamoto in 2008, but no one knows their real identity.
The initial idea was to create a cash alternative to pay each other with digital money without the need for a bank. From day one the supply was set to be a finite number of 21 million bitcoins.
Because of that scarcity it is often compared to gold. Bitcoin attracted the crypto-curious investor as a store of value and because of its digital nature it can only be stored digitally.
Bitcoin is volatile and the idea to use it as cash failed — mostly due to high transaction cost and low speed. But similar to gold, people often buy Bitcoin not because they expect to be able to go to the store and spend it, but because they expect it to hold its value.
4. What is Ethereum
Ethereum has passed Bitcoin in transaction volume, and that is no surprise to many — it enables a much wider range of uses. But how?
It’s easiest to compare it to Bitcoin. Both are blockchain technologies, but Bitcoin has just one use: A currency you can use to send Bitcoin between wallets. Which is huge in itself, but that’s it.
Ethereum on the other hand is “programmable money”. Insiders call what’s built on top of it dApps. What that means is that people can create any type of crypto contract on it, as they can set the terms of how transactions work. Want to make a currency that sends 5% of all transactions to charity? Want to sell the rights to your artwork as an NFT? Want to create an insurance product? All possible.
That’s why Ethereum is all the rage, because it has the potential to disrupt the entire financial system without anyone having central control over the awesome things people will do with it.
However, Ethereum also has its critics since transaction speed is slow and fees for every transaction are high. Thousands of other so-called “Alt Coins” (other alternative coins to Bitcoin) innovate in the space. We talk more about that later in this article.
5. What is a wallet?
Although they are called wallets, crypto wallets are more like your bank account. And like that bank account, they allow you to accept transactions from anyone using the same blockchain, meaning you will need a different wallet for Bitcoin than Ethereum and so on.
Let’s understand what these wallets actually do: They are essentially nothing more than what is called a public address and a private key. Think of those as the same as your account number, and your online banking password: People can send money to your address or account number without your permission, but in order for funds to leave your account, you’ll need your private key or password.
Ever heard of those people who lost Bitcoins worth a fortune? You guessed it: They lost their wallet, and in it their private key.
So how do you choose a wallet you can’t lose? There are many options.
You could simply print out your address and private key and put it into a safe location - that’s called a paper wallet, but isn’t very practical for most people and the information is easy to steal if you leave it out in the open.
A variation of the paper wallet is a hardware wallet: A little USB device that saves those keys, but can be locked with a password or fingerprint. But you have to carry that with you wherever you want to use it.
Another option is a little program, such as Metamask, that works directly in your browser. It’s a good middle-ground: Operated by you, but on your computer and ready to use when you need it.
6. What is DeFi?
DeFi is short for “decentralized finance”, where blockchains are used to replace the world of traditional banking.
We’ll explain how the world of traditional finance works, so you understand where things are coming from.
Imagine sitting on the busy trade floor of an investment bank. What is actually going on here? People are busy on their phones, looking at screens, taking orders and placing orders on behalf of clients everywhere.
It might sound crazy simple, but those financial instruments being traded are all just contracts: Promises to get or give something in return for a payment, often at a specific date. Take stocks for example. If you buy one Apple stock for $150 dollars, in return you get to vote on shareholder proposals - it’s nothing more than a controlling interest in a company. It just happens to fluctuate in price, so you might make money holding it.
Or take options as another example: Those are contracts to agree to buy or sell stock for a predetermined price at a later date. It’s essentially a gamble on the future value of that stock.
Those traders on the trade floor, what do they do? They sit in the middle, matching buyers with sellers, to make transactions happen, and then collect a fee. In other words, they are a centralized institution.
DeFi gets rid of those banks, who act as a powerful middleman. But how does that work?
Blockchains like Ethereum are “programmable money”. Crypto developers can just write any financial contract in computer code. That’s called a “smart contract”.
That could be a simple financial instrument like stock or options. And there are real advantages to doing it on a blockchain: First, since the contract is written in plain code and stored on the blockchain, anyone with the skills can read it, which creates full transparency.
Second, and most importantly, you don’t need banks facilitating these contracts anymore. Two parties can enter into those contracts directly through the power of a decentralized blockchain.
So, what are some popular examples? Take lending: You could lend someone Ethereum, and the smart contract determines how much interest you get, when you get the money back, and gives you a token in return that represents what you lent so ownership is documented.
Or ownership in a company: If you own what’s called a “governance token”, which represents a stake in the company or project that issued it, you have verifiable ownership, and may even get voting rights. It’s just like real stock, but on the blockchain.
7. What is Web 3
To understand Web 3, let’s first talk about what got us here: Web 1 and Web 2
Web 1 refers to the early “read-only” web. Sites like Yahoo that served static content to you or businesses like Amazon that moved physical businesses to a web page.
Web 2 was when users like you started interacting with sites, creating content. These were entirely new business concepts, like Facebook.
But there are problems: Companies need to make money for their shareholders and suddenly, you become the product. They own your content, and your data, and can decide what they want to do with it. They have centralized control, even though you made them happen.
Web 3 turns that idea on its head: It decentralizes ownership and control. Imagine a new kind of Facebook: That project could issue a token instead of shares and users earn it for participating. Also that token gives them the rights to vote on future plans. If things are going well, more people will buy that token, driving the price up. And if they decide it’s going the wrong way, they can just sell, driving the price down.
And because everything is on the blockchain, every decision and vote are public and fully transparent.
An example teaches more than a thousand words! So – let’s say you decided to create a new social network called BetterBook, and it will be Web 3, decentralized and inclusive. How would that look like?
First, you’ll likely create your own token, which will do two things: It’ll give people an ownership stake in BetterBook, and they also get the right to vote on what you should build or change.
Then you’ll set out to build the initial product and attract a whopping 1000 people in the first few days. Things are going well and you give them tokens for joining early.
Someone in the user community then has the idea to give tokens to everyone who invites new users - clever! They submit their proposal visible for everyone and the token holders can vote to implement it.
A few months later it turns out: That was an amazing idea. BetterBook has millions of users now, all have some sort of ownership in the company, and the token started trading and gaining value. Now users are actually making money by growing the community. People buy BetterBook tokens to become part of setting the direction. Users who don’t agree sell, keeping the power in balance.
And that’s how you would build a Web 3 product - one that works for everyone, not just the company itself and has the potential to outlast Web 2 companies.
8. What are NFTs
To explain NFTs, let’s first remember how cryptocurrencies work: Every Bitcoin has the same value and utility: Meaning I can give you one of my Bitcoins, you give me one of yours in return, and we’d still have the same value. They are completely exchangeable by design. Another word for that is fungible.
Non-fungible tokens, or NFTs, are the opposite. They represent a group of assets that are not all the same. In fact, they are all different and one isn’t just like the other. Let’s take two digital images for example - both unique. They could be traded as an NFT. And just like with Bitcoin, the blockchain would record transfers to verify ownership.
So the difference between cryptocurrencies and NFTs is quite simple: While both can be traded on the blockchain, one represents an exchangeable value like a dollar bill, the other something that is uniquely valuable, like a collectible coin that is valued by its own rareness and unique condition.
You might have wondered: Why do people spend all that money on them? Let’s dive into the two main reasons: Uniqueness and speculation.
You might have heard of the so-called cryptopunks. They are 10,000 NFTs of the same series of artwork: A pixelated illustration of a person’s head. But while they all share common traits (for example a picture background or hair), the style of that trait can be unique. Orange hair, called “crazy hair” for example, is only worn by 414 of the 10,000. Combine that with the green “Zombie” face, which only exists 88 times, and suddenly that specific cryptopunk is really unique among the others.
It’s just like art in real life. People adjust their price accordingly, comparing NFTs, and giving more unique ones a higher valuation.
But why did someone just offer a staggering amount of 111 million dollars for an alien-headed cryptopunk they can’t do anything special with? Blame speculation. See, that same cryptopunk was sold for $7.5m in March 2021 and has since received offers up to 126m. Whoever offers this much money simply hopes to ride the wave and sell even higher.
Cryptopunks are extreme examples of this market, but they show you nicely how NFTs get their value.
Are NFTs just good for speculation, or are they a new way of helping artists? Does this actually solve any problems for artists?
First, selling artwork as NFTs opens up a whole new market for artists who were traditionally constrained to selling locally - through galleries for example, which can also want a big commission. With NFTs, artists can theoretically reach the entire world through websites like OpenSea.
Second, some NFTs also allow artists to make a commission every time their artwork changes hands. Imagine you create a painting, sell it as an NFT for a few bucks, but it takes off - like those cryptopunks. With physical art, you’d never see any money after the initial sale. With NFTs, you could.
Third, NFTs allow artists to sell rights to the same artwork more than once. It’s like Picasso using print techniques to create a series of the same painting – it allows for more people to own and enjoy the same piece, and potentially more revenue for the artist.
And lastly, the most popular wallet is the online wallet, often provided by an exchange. They will create and operate your wallet on their servers. That’s very convenient, but the risk is that they can get hacked, or even just take your money and run.
9. How to start investing your first $10 into crypto
Let’s go step by step through the process of putting your first $10 into crypto. But before we start, this or any part of cryptohunt is not investment advice. Only invest what you can afford to lose.
But if you have decided that you want to dabble in crypto… how do you actually start?
First, understand that you’ll need to go through a few steps – those are exchanging real money into crypto, finding a wallet to keep that, tracking your investment, and eventually selling it if you want.
The easiest way to solve all of these problems is to trade through a public exchange, the largest two being Binance and Coinbase, but there are many more. Those handle all of the steps above in one simple app.
But which exchange is right for you? Generally consider that the larger ones tend to be more reliable, but also see if they operate where you live. There is also a difference between the cryptocurrencies each supports. Ask your friends too - often they can generate a referral link for you, and you both get something for free.
\Once you’ve chosen your exchange, simply download their app, open it, and create an account. It will very likely want to see a government ID or other things to prove your identity, so be prepared for that.
Inside the app, you’ll also need to connect a bank account or another form of payment. Keep in mind that buying crypto with credit cards is usually more expensive due to fees.
And lastly, you’ll need to make your crypto purchase right from the app. And voila! In just a few minutes, you’ve become a proud owner of crypto and can see the value of your portfolio right there in your app.
10. Energy consumption of blockchains
Blockchain technologies – to the enthusiasts, they promise endless financial freedom and the ability to finally take part in the web economy. But does all that come at the expense of our environment?
Yes, for some blockchains, it really does. Bitcoin is probably the largest offender. Never built with energy efficiency in mind, a single transaction on the largest cryptocurrency uses as much power as 700 thousand Visa card transactions or 55 thousand hours of watching Youtube. And that won’t change, because Bitcoin’s technology is locked in place.
And similarly, an Ethereum transaction is estimated to use a week’s worth of energy for an average US household.
But not all is lost. The problem is that those two examples use “proof of work” - meaning the solving of complex computer problems - as a way to validate transactions. Climate-friendly approaches favor “proof of stake” - meaning that owning a large stake gives validators (or users that own a lot of tokens) the power to approve transactions nearly instantly.
Ethereum will actually switch to “proof of stake” in 2022, likely reducing energy consumption by 99% in the process. Called Ethereum 2, this update is the most important it has ever gone through.
So no, not all crypto is bad for the planet - some projects are even carbon negative since part of their smart contracts is to donate carbon certificates, planting trees or other positive climate projects.
This was it, our 10 things to know about crypto in ~10 minutes. We want to leave you with 3 things:
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