Learning a second or third language can be challenging, and learning the language of cryptocurrencies is similar. You are entering into a new world, full of words you didn’t even know existed.
Today, I will attempt to give you a good starting point in your journey into the crypto wonderland. I will convert these words into the common tongue so all comprehend what I am speaking about today. If you want a more scientific definition, please Google at your earliest convenience. Let’s get started.
Cryptocurrencies are digital tokens that are usually mined digitally by a computer workforce. As computers mine them, they can also be offered up to be bought by speculators. Some tokens also can be used on the blockchain, which we will talk about later.
CryptoCurrency 101: Let’s Invest in Crypto Together!
Fiat currencies are your regular monies that governments issue. Cryptocurrency and fiat currencies offer different attributes of scarcity and freedom. Knowing who controls each is vital to your success in crypto.
The Blockchain is the innovation first brought to the world with Bitcoin. The blockchain is the heart of Bitcoin (and others)—it is a unique string of digital blocks visible to the world as a whole. People use computers to mine for these blocks by solving complex math problems. Each block contains data from the block prior, ensuring that the chain cannot be disrupted or hacked.
Cryptocurrency Digital Wallet stores public and private keys to buy, trade, and sell cryptocurrency.
A Centralized Exchange is where a third party controls your digital wallet for you. Some examples of a centralized exchange are Coinbase and Voyager. With a centralized exchange, the third party will hold the keys to your digital wallet.
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A Decentralized Exchange or (DEX) is where you control the keys to your digital wallet. It is vital to keep your private key private. Many people write it down and keep it safe. If you write it down in a digital format, it opens the possibility for someone to steal it digitally. Your wallet has no personally identifiable information, so anyone with your private key can gain access. Uniswap is an example of a decentralized exchange; here are some more examples.
Here is a good article on the difference between a centralized and decentralized exchange. It is essential to know which exchange you are using and why. You can have multiple wallets on either type of exchange.
Proof of Work is the term used to identify the confirmation of what is written to the blockchain. The network of computers works together to verify anything that someone writes to the blockchain. So, in theory, nothing can be written or deleted from the blockchain because of the computer network’s confirmations.
Proof of Stake is a different type of blockchain verification that uses much less energy. Ehtereum 2.0 is moving to a proof of stake platform.
Passive Income in CryptoCurrency
Smart Contracts are self-executing contracts between a buyer and a seller directly written in lines of code. The contract is then distributed across a decentralized blockchain, like Ethereum. The code controls the execution, and transactions are trackable and irreversible. Read more about smart contracts here.
If there is one item to get familiar with, it is smart contracts. In my opinion, they are the wave of the future and give cryptocurrencies legitimate staying power. Once you understand smart contracts, you will appreciate the actual fate of cryptocurrencies.
Gas Expense is the cost of writing items, such as smart contracts and NFTs, to the blockchain. Nothing in life is free, so why would writing on blockchains be an exception. You pay the gas expense in the native token to the blockchain. For example, to write on the Ethereum network, you pay with Ether (ETH). Ether is the same coin that speculators can buy on centralized exchanges, like Coinbase.
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Non-fungible tokens or (NFTs) are wholly unique items written on the blockchain. Basically, you can create something, like a book or artwork, and give it its own unique key (or token) on the blockchain. This key serves as verification that the work is wholly unique. NFTs are the wave of the future and another reason to be bullish on blockchain, smart contracts, and cryptocurrencies.
Whew, I think that is enough for today. The key isn’t knowing a ton of words but understanding the concepts of cryptocurrencies. Many people are speculating on the coins without knowing the deeply rooted thesis of the crypto-verse.
I am investing, not speculating, in the world of crypto. We are still extremely early on, kind of like the internet in the early 1990s. We thought that the internet would be websites and images, but we never could imagine what it has become today. Smart refrigerators, cars, Google Maps, internet on phones were not in our minds in the 1990s.
Cryptocurrencies are in the same position now. Look for the utility of the coins you are buying, so you will know what its futures hold. For example, a coin I am investing in is Chainlink (link). Chainlink is an application that helps smart contracts interface and verifies information with real-world data.
5 Takeaways from “The Nft Revolution”
Let’s say you create a smart contract that pays your brother one ETHER if the weather in San Diego is above 80 degrees at noon on a particular day. Chain Link would gather the data from multiple sources, create an average of the data, and report back to the smart contract. If the data shows the correct information, the smart contract will pay the money out.
Now, we can think about things like sports betting, bonds, etc. How about child support arrangements written on the blockchain with smart contracts. No more keeping track of payments; everything is written securely and available for everyone to see.
These are the actual use cases of cryptocurrencies—everything else is hype and speculation. Become an investor and learn about what the future of cryptocurrency holds. It is okay to speculate from time to time, but most of your investing should be with coins that serve a function. Good Luck!
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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