Crypto guide for someone who knows nothing about crypto

Business

Elizabeth McLaughlin, Editor
Header Image: QuoteInspector

This will be my last article in the business section of my beloved school newspaper. Reflecting on my time spent editing this section for the past year, I have one regret: I wish we had talked about crypto more.

That’s not because I’m a crypto fanatic; I don’t own any Bitcoin or Ethereum or tokens. But I am about to complete my B.S. in finance and launch my art and design business. Given my background in finance coupled with my perspective as an artist, crypto clearly intersects with my interests.

I’ll admit: for the past two years or so, I would have groaned at the mere mention of the blockchain. What do you mean it’s digital money? Isn’t my money digital when I send it through Venmo? And what do you mean crypto is “decentralized…” where exactly is it? And what the f*ck is an NFT?

First, a few disclaimers:

  1. Crypto isn’t going anywhere. Whether you like it or not, it is part of the future of finance.
  2. There are strong arguments in favor of crypto. There are also strong arguments in opposition to crypto.
  3. I have not found a single, comprehensive guide to understanding cryptocurrency, probably for a few reasons:
    1. The field is constantly evolving.
    2. Part of its appeal is that it remains ambiguous; cryptic, if you will. Pun intended.
  4. It’s actually not that difficult to understand.

With those disclaimers in mind, let’s get into it. This guide heavily quotes the information provided by Cryptopedia.

  1. Cryptocurrency is a blockchain-based digital asset. There are two main blockchain-based digital assets: crypto and tokens. We’ll get to the blockchain later.
  2. “A digital asset is anything that is stored digitally and is uniquely identifiable that organizations can use to realize value.”
  3. The difference between crypto and tokens is that cryptocurrencies have their OWN blockchains, whereas tokens are built on EXISTING blockchains.
  4. Where does the term “crypto” come from?
    1. Cryptography: an advanced encryption technique that assures the authenticity of crypto by eliminating the possibility of counterfeiting or double-spending.
    2. Encryption: computer-speak for converting data from one form into another; more specifically, plaintext into ciphertext.
  5. What is the blockchain?
    1. Imagine a bank. Way back when, banks kept written records of all their transactions. Then computers came along, and they could print out data and store it in filing cabinets. All of this transaction data existed in real time and space, not just online. The blockchain is the digital “place” where transaction data is stored.
    2. Essentially, the blockchain is “a distributed ledger that connects a decentralized network on which users can send transactions and build applications without the need for a central authority or server” (Gemini).
      1. I implore you to look further into this and discover just how murky the “decentralization” truly is — basically, it is very difficult for any technology to not be centralized by one person or organization. Back to the basics.
    3. Bitcoin is the native cryptocurrency of its own blockchain. Ethereum is the native cryptocurrency of the Ethereum blockchain.
  6. When and where do these networks operate?
    1. Everywhere, all the time. These networks are called peer-to-peer, or P2P, meaning you can communicate from Philadelphia to Seoul almost instantaneously, without first passing through a dedicated server.
  7. So we understand the blockchain, and that the two biggest digital asset classes are crypto and tokens. What can you do with crypto?
    1. Trade it, use it as a medium of exchange, use it as a store of value.
  8. What is a token? What can you do with it?
    1. It’s easier to tell you what it’s not. It’s not the native, or main or flagship currency that accompanies a blockchain.
      1. For example, Ethereum (the blockchain) has ETH (the crypto), but it also has DAI, LINK, COMP and CryptoKitties.
    2. Like crypto, tokens hold value and can be exchanged. They can also represent physical assets. They are also used by users of certain blockchains to vote on actions/policies taken by the blockchain. In other words, users can use them to guide the course of their network.
  9. Is any of this stuff regulated?
    1. What a big question. I can’t answer it all in one guide. I can say, however, that tokens do follow sets of standards, known as ERC-20 and ERC-721. I cannot give you much more information on these standards than that. I never said I was an expert.
    2. Speaking strictly from a United States perspective, crypto is really hard to regulate from a governmental perspective. The age of the average Congressperson is around 61 years old. For context, I am 21 — I’ve had a Facebook account since age 8 — and even I don’t know where to begin with regulation.
  10. How do cryptocurrencies/tokens gain or lose value?
    1. There are many ways. One thing that heavily contributes to the rate of Bitcoin, the first and biggest cryptocurrency, for example, is hype. People “in the know” buy low and sell high, as one does in any stock market situation.
    2. Their value can fluctuate greatly and quickly — it is a volatile market.

I hope this guide has clarified what cryptocurrency is. I invite any insight and/or corrections from those who are more well-versed in it than I. For further reading on the topic, I suggest:

Don’t let the finance bros gatekeep this knowledge from you. In fact, nobody should gatekeep financial knowledge of any sort — we all know the sayings, “knowledge is power” and “money is power,” so knowledge of money? Priceless.

I’m not saying crypto or finance in general are simple to understand; there are a lot of variables and context that you need to consider. In my research on crypto, I’m learning that there’s a lot more about coding that I’d like to know; information that would definitely enhance my understanding of digital finance.

But with this and with all new endeavors, remember to give yourself time. Nothing happens overnight, meaning you won’t wake up tomorrow with a full, clear understanding of the blockchain or how to invest. Just like investing, good things take time. 

You owe yourself the time it takes to understand how to function in our modern world. And you can do it. Perhaps I’m talking to myself here, or the handful of people who will read this article; either way, you can do it. In the words of Elle Woods, “What, like it’s hard?” Cryptocurrency in many ways needs to evolve before it is publicly accepted, especially due to its environmental impact, but it is the future of currency exchange and it’s here to stay.

Editor’s Note: There are many controversies surrounding cryptocurrency. For example, it is believed that one Bitcoin transaction, let alone mining, takes up the same amount of energy that a U.S. house uses in 42 days. 102.38 kilograms of CO2 is created from one Ethereum trade. 30,000 tons of electronic waste come from crypto a year. 35 percent of Bitcoin is mined in the U.S. and over 60 percent of the U.S. power grid runs on fossil fuels. NFTs can be used in pyramid schemes due to the public’s lack of understanding and pleasant nature of the images. The ethics of using NFTs to dodge copyright laws undermines the entertainment industry and art industry. Bitcoin is also used to fund criminal activity as it is difficult to track and regulate in many countries.

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