Beginner’s Guide to Cryptocurrency

You’ve probably heard about cryptocurrencies (or cryptos) from a friend, a coworker, or maybe just on the news. There’s a lot of confusion out there, and so this guide aims to clear that up. Whether you want to invest, or simply learn more… we’ve got you covered!

If you’re an absolute beginner, we’d recommend you read this whole guide. However, if you have more specific questions, click on the links below to jump to the relevant section.

  1. What is Bitcoin?
  2. Why Bitcoin (And Other Cryptocurrencies) Are the Future
  3. The Blockchain and Why It’s Important
  4. What About the Other Cryptocurrencies? What Do They Do?
  5. How to Acquire your First Portion of Bitcoin

Part I: What Is Bitcoin?

One of the best ways to truly understand what cryptocurrencies are is by simply focusing on the biggest of them… Bitcoin.

If you’ve heard of cryptocurrencies, you’ve definitely heard of bitcoin, even if you may not fully understand it.

So, what is bitcoin?

  • It is a new type of currency that is entirely digital, non-fiat based.. — (link to definition of fiat currency) Bitcoin is a digital asset, or cryptocurrency.
  • It can be used to purchase various goods and services, much like a dollar can. It’s important to note however that bitcoin hasn’t yet been widely accepted. Currently, you can’t go and buy a cup of coffee with it.
  • Bitcoin runs with the help of a technology called the blockchain, which is explained here.

To further illustrate this, here’s a quick real-world example to help you conceptualize how a cryptocurrency like bitcoin works…

Let’s say you have a homemade apple pie and you want to sell it to someone else. You just hand it over, right?
But what if that pie was digital? You couldn’t just hand it to the purchaser, you’d have to transfer it digitally. This presents a few problems:

  1. You could create millions of pies which would instantly devalue the entire pie market.
  2. You could say to the recipient it’s an apple pie, but then change the code so that it’s blueberry.
  3. You could hack into the transaction and take your pie back after it’s in transit.
  4. You could sell the same digital pie to 5 different people and collect a payment from each. Then only send one person the pie.

Bitcoin, and the underlying blockchain technology that powers it, solves these problems.

Copying Pies: How Bitcoin Solved the Double Spending Issue

How does bitcoin prevent people from “copying their pies” or duplicating their bitcoin before they send it?

People don’t have bitcoin itself on their own computer, so it can’t be duplicated. Instead, they have a code which leads to the location of their bitcoin online. So, you can’t select the bitcoin file on your computer, then copy & paste a million times.

So what’s stopping someone from hacking into the transaction and taking their bitcoin back after purchasing something with it? Bitcoin is a cryptocurrency, meaning that it’s fundamentally un-hackable. It relies on extremely complex cryptographic methods to protect itself. In the entire history of bitcoin’s existence, its code has never been hacked.

Another issue that bitcoin and other cryptocurrencies solves is “double spending”.

What if you take your bitcoin and quickly spend it in three different places?

When you make a purchase using bitcoin, the transaction is added to the distributed ledger or blockchain. It is then verified by a group of computers, repeatedly.

These verifications are called “confirmations”. A transaction generally needs at least six confirmations before it is considered valid. If you send multiple transactions using the same bitcoin, only the first transaction registered will be the one considered valid. All others will be marked as failed and not go through.

Part II: Why Bitcoin (And Other Cryptocurrencies) Are the Future

So why is bitcoin important? What advantages do bitcoin (and other cryptocurrencies) offer, and why are they a big deal? There are six major reasons…

1.) The first and most fundamental advantage is that bitcoin eliminates the middleman. It’s decentralized, meaning it’s spread across hundreds of thousands or millions of computers. It’s not controlled by any one entity, or banks. Decentralization’s primary advantage is that it greatly lowers costs associated with transactions and maintenance. Additionally, decentralization can allow a given network to stay online so long as its users want it to. Bitcoin can’t go “out of business” because any one company fails.

This is quite a difference from what happens to a bank if the corporation that owns it goes out of business. Finally, decentralization makes bitcoin and other cryptocurrencies extraordinarily difficult to ban. Even if a government announces a ban on bitcoin, it’s still spread across millions of computers around the world and can likely still be traded.

2.) Cryptocurrency itself is immune to hacking. If a value is ever changed by an outside party, it is shown, as well as what the original value was. 51% of the computers all must agree on what the value of a given transaction on the ledger is for a value to be overwritten. What this does is make cryptocurrency values unchangeable by hackers. No one can “hack in” to bitcoin or other cryptocurrencies and mess with the values of transactions, or make copies of bitcoin etc.

3.) Bitcoin has built-in scarcity. Most other cryptocurrencies do as well. Bitcoin is coded so that there will only ever be 21 million bitcoins.

Since there will only be 21 million bitcoin, so long as the number of people buying bitcoin grows or stays the same, the value of an individual bitcoin will go up. This rewards those who support the bitcoin movement by buying and holding it long term.

Timeline of bitcoin price over one year.

4.) Bitcoin can be mined, and it gets progressively more difficult to mine over time. Mining bitcoin is accomplished by having a computer solve an extraordinarily complex equation. Once this equation is solved, the computer that solved it is rewarded with bitcoin. As time goes on, the equations grow more complex and more difficult to solve, increasing the scarcity of bitcoin. This makes bitcoin a good long-term investment – so long as you get it at a good price.

Cryptocurrency mining is cheap and can make you a lot of cash. If you wanted to mine a traditional asset, like gold, you would have to spend a fortune to set up a huge, expensive operation.

With digital assets like bitcoin this isn’t the case. You can get started with a $500 graphics card, use that to mine, and make your money back in a few months.

5.) Bitcoin and other cryptocurrencies perform spectacularly well in countries with a destabilized national currency. If a country’s currency is rendered valueless, what can they turn to that still has value in their society?

Bitcoin and other cryptocurrencies are an extremely attractive option. They’re global and are an extremely viable alternative to a valueless currency. In some nations they’ve become the de facto currency.

6.) In countries with a high unemployment rate, bitcoin and other cryptocurrencies can provide jobs. You can day trade them, much like trading stocks. Or you could mine them. You can even produce goods and services and sell them for bitcoin in certain instances. Cryptocurrency day traders have been known to start with less than $2,000 and end up having a career making over $100,000 per year.

In Zimbabwe, bitcoin is in very high demand. People there pay a 40% premium for it. Many people choose to offer goods and services online in exchange for bitcoin. This is because their own currency is destabilized, and crime rates are through the roof. This is one of the few places where bitcoin is indeed used as a currency rather than a store of value.

In South Korea, over a million people are registered cryptocurrency day traders. That means that one in every 50 people in South Korea are doing well enough at trading that it’s become their job.
The barrier to entry in cryptocurrency day trading is very low as well. You can get started with under $1,000, and using methods articulated in this guide (guide will be released soon) make over $2,000 per month to start. There are tons of people using the method I employ that make over $100,000 per year trading from home!

You could also create your own cryptocurrency that solves a certain problem and then do an Initial Coin Offering. An Initial Coin Offering, or ICO, is a funding event a startup hosts that allows investors to purchase a new coin at a cheap price.

Generally, these coins are not yet available on the trading market, and when they are you won’t know what price they’ll be selling for. ICOs are very risky and deserve their own article.

Cryptocurrency exchanges can also be created, which are basically places people go to buy and sell cryptocurrency. These are just a few of the ways the cryptocurrency industry creates jobs.

If you’re looking for the industry of the future, where you have the potential to make millions of dollars, you’ve come to the right place.

Part III: The Blockchain and Why It’s The Next Internet

The internet connected us, but the blockchain is internet 2.0.

a digital ledger in which transactions made in bitcoin or another cryptocurrency are recorded chronologically and publicly.
“we can actually have a look at the blockchain and see evidence of what’s going on”

The blockchain’s name comes from blocks of information, verified by groups of computers. One group or block of information is put into a database, then another, then another, forming a chain. Hence, the blockchain.

Here are some key attributes of the blockchain:

  • The blockchain is a continuously growing list of records that is incorruptible and un-hackable. This list of records can store a massive variety of types of information, much like a database can. It can store anything from unpirateable music, to lists of how many people voted in an election, along with who they voted for and what district they voted in. Or it can be used to access the transactional history of bitcoin.
  • The blockchain is collaborative and decentralized; meaning many different people from all over the world can add data to the blockchain. The fact that it’s decentralized is one if its key innovations. Decentralization means that the blockchain is spread across millions of computers, greatly decreasing the costs associated with maintenance and upkeep. Theoretically a decentralized blockchain can operate forever, because it’s spread across millions of computers – there’s no central “node” that can fail.

The blockchain is a revolutionary way to store, organize and optimize data. Corporations of all kinds thrive on data, as do technologies and applications.

Why is the blockchain revolutionary? The answer is in one word: Trust. The blockchain combines the security of cryptography with the accessibility of peer-to-peer networks. What this means is that we finally have a hack and scam-proof way to transfer assets and information to one another. If the internet were summed up by the word connectivity, the blockchain would be summed up by the word trust. The blockchain has never been hacked, and it likely never will be.
Additionally, the blockchain is universally applicable. You can use it to upgrade almost any business or application. This is because any type of information can be entered into its ledger. We are only on the cusp of seeing what the blockchain can do.

The internet changed the world by connecting everyone. The blockchain will revolutionize the world by optimizing and upgrading that connection, both for individuals and for businesses.

Imagine sitting down, putting in hours of effort to create a really spectacular post or blog article and submitting it. People love your article and it goes viral. They start giving it positive votes. Here’s where the incredible thing happens. For each positive vote, you get $1.00 in Steem cryptocurrency as a reward. Thousands of people give you positive votes. Suddenly that post you created, partially for your own enjoyment has paid your expenses for the month and entertained thousands of people. Or more.

Example of revenue from steemit posts. Making $800 off one blog post isn’t bad, is it?

Consider a computer game on the Ethereum network, which is a host for decentralized applications. You could create a new version of World of Warcraft for the Ethereum Network. Each item would be worth a certain amount of ether, which is a cryptocurrency similar to bitcoin.

You could literally make money while playing video games and selling items on the game’s auction house!

Imagine that one gold is $1 USD.

Companies such as Walmart are already using blockchain to track farm origination details, batch numbers, factory and processing data and expiration dates for example.

Blockchain technology will provide a powerful competitive edge to any company that embraces it. This edge will force companies the world over to either embrace blockchain technology or fade into irrelevancy.

The internet connected everyone. The blockchain is the evolution of that connection.

Part IV: What About the Other Cryptocurrencies? What Do They Do?

If bitcoin is a method of payment, is that what all cryptocurrencies are? For example, if bitcoin was the dollar, is another cryptocurrency the euro? The answer is an emphatic no.

Cryptocurrencies are generally tokens that represent the blockchain they’re associated with. Each blockchain has its own unique function and purpose as well.
For example, ether is a cryptocurrency that represents the Ethereum blockchain network. Ether is used to conduct transactions on the Ethereum network.

Ether may sound like bitcoin, but they’re extraordinarily different. The Ethereum network is designed to host decentralized applications. Basically, these are applications spread across millions of computers. In the future, ether will be used to purchase these decentralized applications, or digital assets associated with the apps.

That is much different from bitcoin, which is intended more as a generalized currency and store of value than a host for programs.
Here are some other examples of cryptocurrencies:

  • Steem, which is intended as a social media and blogging cryptocurrency. Whenever someone blogs using the Steemit platform, other users can vote positively for the content. If they do, the content creator is paid in Steem tokens. These can be redeemed for USD.
  • CasinoCoin, a cryptocurrency designed for use with online gambling. It’s designed to have extremely fast transaction times to facilitate the needs of online slot machines, poker and other forms of gambling.
  • SiaCoin, a cryptocurrency used to decentralize cloud storage. SiaCoin uses the hard drives of hundreds of thousands of computers to store data cheaply. SiaCoin cloud storage is over ten times cheaper than its lowest competitors such as Amazon or Google. It’s also completely private. Keep an eye on this one!

There are over 1,384 cryptocurrencies as of January 2018. Listing what each of them does would be impossible. From organic farming to sports to music, there will be a cryptocurrency and blockchain for everything.

Part V: How to Acquire Your First Portion of Bitcoin

So you’ve read this guide, and you’re totally excited about bitcoin – great! You want to be a part of this cryptocurrency and blockchain revolution, but naturally don’t know where to start.

First, understand that it’s possible to buy a fraction of one bitcoin, so you don’t need to get started by spending thousands of dollars buying a whole bitcoin. In fact, I’d recommend only buying a few hundred dollars of bitcoin at most, then grow from there if you’re comfortable.

For advice on a good price to purchase bitcoin at, go to our Ultimate Guide to Cryptocurrency Trading & Purchasing (guide to be released soon).

Here are the steps needed to acquire your first portion of bitcoin:

  1. Click here to sign up for Coinbase
  2. Set up 2-factor authentication for your account. This prevents hackers from accessing your account by stealing your password. The ideal 2-factor authentication method is to use Google Authenticator. Be sure to print the secret key the authentication process gives you. Do not put the secret key on your computer in case a hacker gains access to it. Put this in a safe place where you won’t lose it. If you ever lose your phone, or it breaks, you can use the secret key to restore the Coinbase codes. If you don’t back up your secret key and lose your phone, you can’t access your account.
  3. Click Buy/Sell in the upper left next to Dashboard. Choose bitcoin, your payment method, and the USD amount ($100 minimum recommended for the $10 in free bitcoin). Now click the blue “buy bitcoin”. There you go! You’re all set.

Congratulations, you’re now a participant in the cryptocurrency revolution!

Hopefully this guide has taught you the fundamentals of what cryptocurrency and the blockchain are, along with how to begin your journey in investing in cryptocurrency. The blockchain and cryptocurrency have the potential to change the lives of everyone on the planet. At the very least, this change can start with you!