Blockchain 101: Getting Started in Cryptocurrency
If you’re reading this, chances are you’re new to the world of crypto – which can seem like a daunting task to the uninitiated. We’ve put together this guide to walk you through the process and explain the lingo in hopes of making your investment into blocks and tokens a little less painful.
What is a blockchain?
A blockchain is a form of distributed ledger technology (DLT) that logs information. It is kept secure and accessible to participants connected to the network of computer systems on the blockchain.
Every time there is a new transaction, this information is made available on the participants’ ledger. This information is encrypted and cannot be changed. Often these participants remain anonymous or operate under various pseudonyms.
A DLT is a decentralized database that is created and used by several of these participants. They are taking advantage of DLT and using it as a means of handling digital money, which was previously a concept that was seen as too risky and little was known about its true value.
It wasn’t until the introduction of Bitcoin that volatility in the digital currency market began to normalize, attracting interest from investors.
Creating a currency out of thin air casts doubt on the true value of that currency. Before Bitcoin, it was difficult to gain trust in cryptocurrency.
Bitcoin uses blockchain databases to solve this problem. This widely accepted form of cryptocurrency is managed by many participants who cannot artificially increase or decrease its value.
In the past, legacy databases were under the control of a single responsible person who could, in theory, inflate the value of the digital currency he or she creates and become a millionaire overnight.
Getting started with cryptocurrency is easier than you think, and before you get started it’s important to understand how you will store your first “coin”. To do this, you need to create a crypto wallet.
A crypto wallet is a place where you can store your cryptocurrency. If you’d rather not be dependent on a particular exchange or want a more secure way to buy, creating a “cold wallet” is a viable option if you want to take that approach.
A cold wallet allows you to refer your coins to it and differs from conventional crypto wallets in that you can store your coins offline. This will prevent your investment from online attacks, but there is always a risk of losing your holdings.
Choose your crypto
There are a lot of cryptocurrencies on the market. So it is important to choose a reputable coin. Bitcoin and Ethereum are the most traded, while thousands of others are less so. After you’ve decided how to store your first coin, it’s time to choose an exchange to buy crypto assets.
Buying these assets can be done by making payments through various means, including bank transfers and third-party transaction applications such as PayPal or Venmo. Recognizing whether certain exchanges are right for you often means checking to see if those exchanges charge fees for certain debit cards and wire transfers.
Before making your first investment, you must create an account. First, you need to verify your identity to make sure that your legitimacy as a buyer is good. You will need documents such as a government-issued photo identification card or a birth certificate, and proof of address is also required. This process can take several days for confirmation, so patience is key.
Then you have to decide on your investment. A single bitcoin costs thousands of dollars. However, you have opportunities to buy a fraction of an expensive cryptocurrency like Bitcoin, even though there are far less expensive coins you can invest in that won’t break the bank.
As with any investment, it is important to prepare for potential losses. Since the cryptocurrency market can be unpredictable, it is important not to invest more than you can afford to lose. Losses are a reality, and a single coin’s value can rise, stay flat, or crash as its value fluctuates.
Once you’ve chosen an exchange and you’ve set up your digital wallet, you’re ready to make your coin purchase. Bitcoin and its various derivatives can be used at thousands of merchants. And as cryptocurrency grows in popularity, purchasing goods and services is becoming more common.
Converting cash to coins is yet another option and can be done by visiting a Bitcoin ATM. When you convert cash, you will receive a QR code that can be used to send coins to your digital wallet.
Crypto Term Cheat Sheet
Altcoins
A category that includes all coins other than Bitcoin, the first and most successful of all cryptocurrencies. Ethereum and Ripple are altcoins.
Bitcoin
Bitcoin is the most reliable form of cryptocurrency and can be used to make purchases and transfers. This coin can be worth thousands of dollars and participants can own a fraction of a bitcoin or can invest in many other coins that are cheaper but far less volatile as there tends to be less trust in other coins.
Bitcoin ATM
This form of technology allows participants to convert cash that can be added to a digital wallet by providing a scannable QR code.
Block
The blockchain consists of blocks. Each block contains a historical database of all cryptocurrency transactions made until the block is full. It is a permanent record, like a bag of data that can be opened and viewed at any time.
Blockchain
A blockchain is a form of distributed ledger technology, also known as a DLT. Blockchains keep logs of detailed transactions up to date across the ledger of all participants accessing the blockchain on the same network of computers. The data is kept secure and protected.
Consortium Blockchain
A privately owned and operated, yet publicly transparent, blockchain.
DLT
DLTs, or “decentralized databases” are managed by multiple participants who make use of these secure ways of handling digital money to continue investing, selling and transferring these funds.
Hardware wallet
A physical entity, similar
to a USB stick, which stores cryptocurrency in its encrypted form. It is considered the safest way to hold cryptocurrency.
Initial Coin Offering
To raise money, the creator of a cryptocurrency will post an initial batch of the coins for purchase. This is an initial coin offering.
Public key
This is your unique wallet address, which appears as a long string of numbers and letters. It is used to receive cryptocurrencies.
Token
The “coin” of a cryptocurrency is a token. In fact, it is the digital code that defines each fraction, which can be owned, bought and sold.
Wallet
A digital wallet is usually given to a participant when he or she buys coins on an exchange. Those who do not want to be tied to a specific exchange and want a more secure way to protect their investments can choose a “cold wallet” to which coins can be directed.
