The Comprehensive Introduction to Cryptocurrency
compiled and abridged by Seim Kuruc
The world of cryptocurrency is full of acronyms and wording that can easily confuse even the most tech-savvy investors. Before we begin, let us examine some of the most common terms one might stumble across in this field. Many of these are primarily used in casual conversation on social media, and I’ve attempted to limit their use within this guide. It is best to understand these terms before researching any crypto in order to fully understand market conditions in online discussion.
- Altcoin – Any Cryptocurrency other than Bitcoin
- ATH – All Time High (price)
- Bagholder – Investor holding on to a cryptocurrency that has dropped in price
- BTC – Trading acronym for Bitcoin; most cryptos trade using an acronym of three or four letters.
- BTFD – Buy the f*cking dip (buy when prices have fallen significantly)
- DAPP – Decentralized APPlications
- Dump – To sell off a coin en-masse, also may refer to downward momentum in price
- DYOR – Do Your Own Research
- Fiat – Government issued centralized currency like USD, RMB, JPY, INR, EUR, etc.
- FOMO – Fear Of Missing Out
- FUD – Fear, Uncertainty, and Doubt
- Hard Fork – Software update to the block structure code which may result in a new cryptocurrency operating in parallel with the old.
- HODL – A purposeful misspelling of the word “Hold”
- ICO– Initial Coin Offering; similar to IPOs in stocks.
- Moon – Extreme upward momentum in price resulting in massive gains
- OTC – Over The Counter
- Paper Wallet – Physical record of the private key to a software wallet
- Pump – Temporary upward momentum in price
- Rekt – Utterly ruined and destroyed with losses due to crypto trading; misspelling of “Wrecked”
- Satoshi – Smallest fraction of a Bitcoin; nom de plume of the creator of Bitcoin.
Now that we’ve covered the most often–used terminology, we will move on to explaining the underlying principals of cryptocurrency in the following sections:
What is Cryptocurrency and Bitcoin?
First of all, Bitcoin is a cryptocurrency. There are many others such as Tron, Ethereum, Neo, etc. Bitcoin was created by Satoshi Nakamoto in 2009 and is widely regarded as the first successful cryptocurrency. Cryptocurrency is a digital or virtual medium of exchange that uses cryptography to secure and verify transactions and also generate more units of crypto. You can transfer units of crypto to anywhere in the world or you can buy it and store it as an asset.
In the US, cryptocurrency is not considered legal tender, but it is not banned; you can trade cryptocurrencies in many markets but it may be difficult to buy or sell using USD due to regulatory restrictions. There are options to buy or sell crypto using peer-to-peer exchanges or over the counter sellers. Coinbase is one of the most well-known OTC sellers for US citizens.
Where do you store Cryptocurrency?
Cryptocurrencies are stored in a secure digital wallet. A wallet has two keys, Public key and private key. A Public key is your wallet address. You can receive cryptocurrency to your wallet from anyone who sends to your public address. Think of it as your account number. When you give it to someone, they can send crypto to it. Because it is an open ledger, anyone with your public key can also see your transactions and wallet balance in some cases.
Some examples of Public Keys/Addresses:
Bitcoin – 3HY1ohq6u1jUQskrrdD8J6mZ8fsHfd9FVk
Ethereum – 0x010c0003e542101d581392bdfc4a968072f7bf8f
Neo – AravMMjas3a4rLiZ9NJCeLTfZDziKVkptz
Tron – TBKcfxQ5YAEPhxBzyNEAVSAhY4CKZef6bN
For you to send Cryptocurrency to someone you need to use your private key. It is a key that must not be shared with anyone. You need the private key to access your wallet and sign transactions. Think of this as your password.
The most secure place for a cryptocurrency is a hardware wallet. A hardware wallet is not connected to the internet and hence it is not prone to online hacking. This is also called a cold wallet. If you plan to hold your assets for a long time it advisable to move your funds to a hardware wallet.
Why should I invest in Cryptocurrencies?
Cryptocurrencies are a product of technological innovation. Many crypto projects are offering better solutions with decentralization and distributed ledger technologies which store many types of data on a blockchain.
If you believe that these innovations will become a widely used technology and can make people’s lives better in the future, you can invest in such projects. Cryptocurrencies are the tokens/coins of such projects that can also act as fuel. If a product is successful, the price of the cryptocurrency will increase.
This is the risk you take when you invest. You invest in land hoping for the prices to go up. You invest in shares and stocks, hoping for the company to perform well. Similarly, you invest in cryptocurrencies with the hopes that the technology behind that crypto will be successful.
The prices can skyrocket; the prices can go to zero. Cryptocurrency investments carry a lot of risk. Be careful.
Where to Buy Cryptocurrencies?
You can buy cryptocurrencies from exchanges. In the US, Coinbase is the primary OTC exchange that offers multiple cryptocurrencies to buy and sell. Others are in the process of accquiring regulatory approval in order to offer fiat to crypto trades. Some exchanges offer only crypto–to–crypto trading. It means you can only buy cryptocurrency using another cryptocurrency like BTC, ETH, BNB, etc. You can buy Cryptocurrency on one exchange and transfer it your personal wallet or another exchange. It is not mandatory to buy and sell or even hold your coins on the same exchange.
Difference Between Shares/Stock and Cryptocurrencies
Shares are units of ownership of a company. If a company has 10000 shares and you own 1 share, you own 0.01% of the company. While in cryptocurrency, you do not own the units of the company. The cryptocurrency coin or token is just a medium of exchange of value of utility.
Currencies like Bitcoin can be used to transfer value. For example if you want to send $1000 to someone in London. You can buy $1000 worth of BTC and send it. The receiver can redeem it on any exchanges in the UK. Cryptocurrency transfers are cheaper than many other forms of transfer especially banks.
On other hand, Bitcoin can also be used to invest money. You can buy bitcoin now as an investment and sell it when the price is higher.
Why are there so many coins and which are the best to invest in?
Each company or foundation that release their own cryptocurrency normally do so to raise money. During the ICO, an investor pays in legal tender or any other accepted cryptocurrency to acquire an amount of the new coins that the company is generating. After the ICO, these new coins are usually listed on exchanges and can be traded.
There are many companies issuing crypto via an ICO every year. It is subjective to decide which one is the best for you. There are also numerous scams that can happen during ICOs, so you must be vigilant where you invest your money.
An ideal way to determine if a coin is worth investing in is by examining their product, their team, the community response, and determine if it really solves an issue. If a company is reinventing the wheel, sooner or later it may become irrelevant.
Are my Coins safe on Exchanges?
In many big exchanges such as Binance they are usually safe. But, no exchange is fully safe. A hacker may access an exchange and steal cryptocurrency. You may lose your holdings or in some cases, the exchange may cover your losses. However, this happens rarely with reputed exchanges. If you are planning to hold short–term or trade frequently; keeping your funds in reputed exchanges is the safest option.
For long–term holding, it is advisable to move your funds to a personal software or hardware wallet.
My Exchange has stopped deposits or withdrawals, what should I do?
Watch for updates from the exchange management, either on social media or on crypto news websites. Beware price volatility when withdrawals are resumed, and determine beforehand if you want to hold your positions in the market or liquidate. It may be advisable to liquidate on a different exchange platform to avoid price volatility. Do not panic sell, educate yourself thoroughly and make a plan.
I bought when Bitcoin was at $19,000 USD, now what?
There are multiple options:
If you believe the prices will recover to $19,000 USD, hold it and wait.
You need money? Sell it for a loss. Next time be careful.
If you want to bring down your cost of purchase, buy more at lower rates now so you can average out; for example, if you bought 1 BTC at $20,000 USD and you buy 1 BTC at $6,000 USD. The total 2 BTC are purchased for $26,000 USD at a price of $13,000 USD /BTC
Invest the Bitcoin into other cryptocurrencies on Crypto-Crypto exchanges like Binance. Diversify your investments.
I think the prices will never go up.
Sell your positions and invest in crypto again when you feel ready. Why go against your gut?
Ideally, you can sell half of your positions and keep the rest and forget about it. If the prices go up, you will be rewarded. If prices go down you can be happy you got half the money out.
This is strictly my opinion. You can choose to do anything you want. Nothing in this guide is intended as investment advice.