New to Crypto? Start Here!
Cryptocurrencies, digital tokens, blockchains, ICO’s, bitcoin, ethereum, etc. If you’ve seen these words, but they may as well be greek to you – then this is your onboarding point!
All of the above rely on math – specifically cryptography – to provide the trust, similar in the way that you trust a bank to hold your money. You are betting that all of their security, vaults, guards, etc will be enough to ensure your money is safe. In crypto’s the math ensures the safety of your wallet contents and that math is rigorously tested on a daily basis as it is also responsible for securing all of the most secure computer systems around the world. In other words, it is some very secure math.
But what is it?
A simple answer from a very complex reality is that cryptos represent a way to secure and securely transfer digital information.
This information can represent nearly anything in our digitized world. It most familiar use is bitcoin. Bitcoin has many utilities, chief among them is that it is used as a digital currency and digital store of value. Bitcoin the currency has a maximum cap of 21,000,000 – that means there will only ever be a maximum of 21,000,000 bitcoin in existence. The information that is recorded in Bitcoin’s blockchain is primarily transactions happening between parties recorded into a giant ledger.
A blockchain is the core of a cryptocurrency or token it is a record of all transactions that are verified by all the participants in the network (e.g. everyone who runs a bitcoin node). This secures the rules of the system as every person running a node(the software that runs the protocol). The protocol is bitcoin, a node is a bitcoin wallet and every transaction that is added to the bitcoin blockchain(by a process called mining) is validated by every node on the network. Each of these nodes checks the tx’s and ensures the nodes it is connected to are enforcing the same rules.
Mining is a process that uses a computer (but can be calculated by hand as it is an algorithm – computers are just much faster) to run an algorithm. When it finds a solution to this it creates a block and in that block places transactions that are waiting to be broadcast to the network into the block and then sends out the block. This provides the block part in the blockchain and is how transactions are sent to the network. When a miner gets a solution and creates a block the protocol(bitcoin) then rewards the miner with an amount of the currency as well as all of the transaction fees from all of the transactions that are included in the block they just created. The difficulty of finding these solutions is enormous and requires specialized computers called ASICs to try and solve the equation. That difficulty is how the network/protocol bitcoin is resilient to hacks because it would require computing power greater than the majority of all the computer power dedicated currently to mining to even potentially impact the network.
This basic process incentivizes and secures crypto networks in a variety of ways which ultimately makes more sense to play by the rules than to try and game the system because even if you had the ability to game the system, the harm you would do would de-value your effort and applying that effort in a way to re-enforce the system would/should provide a great value.
Welcome to crypto some of the first things you should know, besides generally how it works, is how to secure your crypto assets properly.
Rule 1. If you don’t own your private key, you do NOT own your crypto’s.
A private key
Rule 2. Proper creation, storage, and usage of your private key is the most crucial step in setting up a crypto presence.
Rule 3. If there is 2-factor authentication available – always use it.
Rule 4. The most secure storage is cold storage
A private key is what is generated, or you create, at the creation of a wallet. The best practice for this is to have a password that is actually a series of random words at least 13 in length. You never want this to touch a digital file, write this down in a notebook and store it away. It is surprisingly easy to memorize these words by making them into stories. For the greatest security you want to create a wallet on an air-gapped device – this is a device with no networking hardware (no wifi, no sim card). You only need one private key for yourself, you can tether many different addresses to that one private key.
2-factor authentication is using a 3rd party service to verify your logins to a site where you have something of value (email, exchanges, etc.) Whenever 2-factor authentication is an option you want to enable it. This will eliminate the vast majority of phishing and hacking attempts.
Cold storage is a blanket term that signifies any device, or object that can store bitcoins offline. This can be a variety of devices from physical coins, paper, hard drives, hardware wallets, and other creative methods. Choosing your cold storage is important if you want to maintain any sort of long term investment into cryptocurrencies.
This fascinating evolution of technology will touch every aspect of the business world from here you can explore an endless array of rabbit holes, but always remember: never invest what you can’t afford to lose & never stop researching.