Cryptocurrencies 101

Now there tons of cryptocurrencies out there today, and a lot of them utilize different technologies or have different functionalities built into them. I am going to go as general as possible here with my definition of a cryptocurrency and steal Investopedia’s definition of a cryptocurrency as a “digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized networks based on blockchain technology—a distributed ledger enforced by a disparate network of computers. A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation.” (Source).

I’m sure that I might have lost some of you with that last bit. That’s ok! It is confusing at first, but I’ll take you step by step. The important takeaway from that definition for now is that cryptocurrency is some digital thing that (should be) secure that you can send to other people. Think of putting money in an envelope and mailing it to someone – it is almost quite literally that, but just over the internet. Additionally, they are generally not backed by a central authority. This means that there is no world government behind cryptocurrencies deciding the value of and how much of any given cryptocurrency is out there at any point. This glosses over some key details, but this should be your base understanding of a basic cryptocurrency.

So we should start out with the original, cryptocurrency: Bitcoin. Bitcoin is a digital currency created by someone under the name Satoshi Nakamoto in the wake of the 2008 financial crisis. They envisioned a digital asset that you can send to other people without the need for a bank or government interfering with the transfer. In his initial paper which he outlined his vision for Bitcoin, this would be a currency that you can send money directly from person to person. Basically, it is supposed to be a currency made for the people of the world and it is controlled by the people of the world, without the need to rely on banks or governments. The very first Bitcoins were created on January 8th, 2009.

Now, once we go into altcoins, this can get really complicated. But for now, I’m going to be sticking with Bitcoin. There are a few different ways that you can acquire Bitcoins. Firstly, you can go to a website like Coinbase which are exchanges. Once you make an account with them, you have the ability to purchase coins with your USD. And honestly, without knowing much more about cryptocurrency, that should be about as far as you go. However, another way to get some Bitcoins is by mining. However, this process is costly upfront and requires some more knowledge when it comes to computers, command line interfaces, and just general crypto knowledge. The process is not for the first timers out there, but it is doable, albeit costly – and not necessarily worth it - like I said before.

(It should also be noted that when you buy/get/mine/acquire Bitcoins (or any other cryptocurrency for that matter), you don't necessarily need to get a full coin. The nice thing with these cryptocurrencies is that you can hold/send fractions of a coin. For example, at the time of writing, 1 Bitcoin is about $35,420. If you buy $70 USD worth of Bitcoin, you will now have about .002 BTC (BTC is just Bitcoin abbreviated))

This is anothe reminder that this is not necessarily a comprehensive overview of mining or how to mine. I will simplify a lot of things in order to make sure that you at least get a grasp of what mining is.

Mining is basically getting a computer to solve mathematical problems, and as a reward for solving them, get paid Bitcoin. There are hundreds of thousands of computers all over the world competing with each other trying to get that reward for solving that math problem first. You can also group a bunch of computers together into things called "pools" that combine your computer's power with other computers in hopes of solving the problem first. I can go into more detail explaining mining pools, block confirmations, and consensus among miners, and ASICs but none of that really matters to you unless you are trying to get into mining yourself.

There are a few different places where you can store your Bitcoins/cryptocurrencies: an exchange, a software wallet, or a hardware wallet just to name a few. I will be going over all three, but to start out with, you should probably focus more on the exchanges or a software wallet.

Firstly, it is definitely not the best idea for storing your coins on an exchange. Hundreds of thousands of people do it, but it leaves you more susseptable to losing your coins (from either hackers breaking into your account or from the exchange misplacing your coins - maliciously or accidentally. All this method of storage entails is you keeping the coins you purchase on the platform you bought them on.

The second method of storage would be a software wallet. This is just an app or software application that you would have on your phone or computer. For Bitcoin in particular, these can include Electrum, BitPay, BRD, Bitcoin Wallet, and Bitcoin Core just to name a few. All of these wallets have the basic features that you need in order to send and receive Bitcoin.

Yo, good question dog