Crypto

Crypto

Getting Started

What is a Blockchain?

A blockchain is a ledger that records transactions. Public blockchains let anyone create an account on the ledger and make transactions. All of the data on a blockchain is verifiably true thanks to cryptography.

People dedicate computing power or a portion of capital to secure a blockchain. They earn fees for securing the network. This technology is what cryptocurrencies like Bitcoin and Ethereum are built on to enable nearly instant settlement of transactions globally without the need for intermediaries like banks to run them.

What are some commonly used blockchains today?

Bitcoin - first mainstream blockchain launched in 2009. Primarily enables users to create accounts and transact in Bitcoins

Ethereum - first mainstream blockchain with smart contracts enabling people to build financial applications on top of the blockchain

Polygon - one of a few solutions that is focused on scaling transactions. They are built using the security of Ethereum.

It is important to distinguish between a blockchain and a cryptocurrency. As mentioned above, cryptocurrencies are built on blockchains. Sometimes a blockchain is built specifically to support one currency. For example, Bitcoin runs on the Bitcoin Blockchain. In other cases, one blockchain can support multiple cryptocurrencies. For example, Bancor and DAI currencies both run on the Ethereum blockchain.

How are blockchains secured?

There are two primary methods to secure a blockchain:

  1. Proof of Work - computers dedicate processing power to secure the ledger. When people talk about mining, they are generally talking about a Proof of Work blockchain. If you are interested to do a deep dive into Proof of Work I recommend reading The Alchemy of Hashpower from Anicca Research
  2. Proof of Stake - shareholders have a collective financial interest to keep the network secure. For a deep dive into this I recommend What is Proof of Stake? from Consensys

What makes a cryptocurrency valuable?

Cryptocurrencies can become valuable for a number of different reasons including:

  1. Utility - The value of what you can get when buying something with or holding a particular cryptocurrency
  2. Scarcity - Limited amount of cryptocurrency available
  3. Meme/Sentimental Value - People liking a cryptocurrency because it is funny or means something to a group of people
  4. Implied Future Value - What a cryptocurrency will do or be valued at once it is at a later stage in development

Getting Cryptocurrencies with Dollars

These are the best exchanges to buy cryptocurrency with dollars for US citizens:

To get started, I recommend buying Ether (ETH) because you can do a lot with it. When you buy Ether, or any other cryptocurrency on a centralized exchange like the ones listed above, they are the custodian of your crypto. Some people like having a centralized entity manage their balances, but most people like to create their own wallets to store crypto.

Best Security Practices

Generally, storing cryptocurrency on an exchange is the least secure way to manage your crypto. If the exchange shuts down or wants to close your account they can take away your access to your money. Today we have major publicly traded companies that are licensed and insured running some of these exchange so depending on your needs, this could be the most desirable option.

To be more secure, most people move the cryptocurrency to their own wallet. You can think of a wallet like a bank account. Each wallet has a public address, which is like the account number to send money, and a private key which is the password to access the money sent to the public account.

Wallet Examples Metamask - a desktop based web wallet that stores all of your Ether and other assets on Ethereum

Ledger - a hardware wallet that provides an additional layer of security for your crypto

Argent - a mobile based wallet that store Ether and other assets on Ethereum

What types of transactions can I make on a blockchain?

There are three major areas of development currently for the types of things you can do on a blockchain. They are broken down into DeFi, NFTs, DAOs.

DeFi (Decentralized Finance)

DeFi brings all activities that used to be done through banks and money managers to blockchains. Companies are building financial instruments and applications that run entirely on computer code. These programs are often called dapps or Decentralized Applications. With them you can:

  • Send/Receive - like Venmo you can send money between friends or to businesses. Any wallet can provide this functionality.
  • Lend/Borrow - you can take a loan by collateralizing your crypto or earn interest for providing the loan money. One of the most popular platforms to do this today is Aave
  • Exchange - trade between different currencies on a blockchain. Uniswap and Paraswap both provide these services
  • Provide liquidity - earn fees by giving crypto to an exchange so people can trade with it. Exhchanges like Uniswap offer this option to all users
  • Stake - earn fees by helping to secure a network or show loyalty to a project. Polygon and Cosmos are two blockchains that have staking enabled.
  • Trade Options - buy options contracts. With Hegic you can buy a Bitcoin or Ether options contract in about a minute.
  • Trade Synthetic Assets - trade derivatives of existing or totally new financial instruments. Synthetix , UMA and Mirror are all providing different forms of decentralized derivatives to trade
  • Insure - you can get insurance on your cryptocurrency while it is being held inside a dapp through projects like Nexus Mutual

NFT (Non Fungible Token)

NFTs are digital assets. Today we primarily see NFTs being used as digital collectibles. Digital works of art are created and launched as NFTs on marketplaces like Foundation and Rarible. We also see in game items as NFTs in digital worlds like Decentraland and CryptoVoxels.

Another interesting area of development in the NFT space is bringing ownership of physical world assets on chain.

DAOs (Distributed Autonomous Organizations) and Social Tokens

The simple way to think about this category is digital communities and businesses. In the not too distant future, most companies and communities will have their own currency and run a part their operations right on a blockchain. This section of development is just starting to come to life in 2021. Some projects that are doing interesting work in this space include:

  • Aragon
  • Colony
  • TryRoll
  • Rally
  • DAOStack

Foundation recently released a good overview on DAOs. It's still very early but soon we will see:

  • Loyalty programs
  • Municipal currencies

Good Newsletters

EthHub Newsletter

Rekt News (their newsletter and feed are both good)

Helpful Resources

CoinGecko - track cryptocurrency prices on your desktop or mobile

Crypto Twitter - to learn about the most recent updates directly from projects and their founders, Twitter is the most direct source of information

Etherscan - block explorer to review transactions on various blockchains

Simpleswap - easy way to swap between currencies on different chains without needing to go on an exchange