Discover how you can start the Crypto Journey. On the way you’ll transform from a beginner investor to a sophisticated sovereign of personal digital wealth.
Discovery
The first time most people hear about Bitcoin they dismiss it, including many of the cryptographers and developers working on it today. For most, the concept and implementation of money is not something we’ve ever questioned. Before accepting a new way of “doing money”, we must first transcend a pillar of our modern economic thought: the violently enforced ubiquity of our State currency. We are not ready.
While we question our reality, the bitcoin price tempts higher highs, and lonely lows. Journalists, fawning then dismissive, fill our news feed with financial gossip. The steady crypto drip submerges our consciousness. We soften to its subversion. “What if this thing takes off? Maybe I should throw a little money at it…”
First Buy
Most people start with Coinbase. Coinbase runs a cryptocurrency exchange, modeled to look like familiar bank software. It lets one convert fiat currency (US dollars), to cryptocurrency (Bitcoin, Bitcoin Cash, Ethereum, or Litecoin).
Bitcoin is the most conservative choice to buy. It is a digital record of transacted money; it’s written and secured by a network of peers operating a cryptographic, distributed database called a blockchain. Nobody is in charge of this ownerless, borderless, immutable, digital money ledger. Because of its revolutionary decentralization, Bitcoin is largely immune to both internal and external politics. It is difficult to change without the overwhelming consensus of its community.
Some people, responding to the much lower price of Litecoin, opt to invest in Bitcoin’s little brother, the silver to Bitcoin’s digital gold. Others, seeking a familiar brand, but a lower price, choose Bitcoin Cash, a Bitcoin clone executing a competing vision of how to grow the technology. We choose the familiar Bitcoin: our first expression of crypto fashion.
Expansion
With skin in the game, we start paying more attention to the crypto phenomenon. We wonder whether it’s healthy to let a number on a screen dictate our mood, but check our Bitcoin balance anyway; it’s too late, we are hooked.
Everytime, we notice Ethereum’s price tracking Bitcoin’s rise and fall. One day we notice it has spiked in value. “Ok… what’s this?”
Researching Ethereum teaches us that cryptocurrencies are more than just digital money. The ability to keep a decentralized written record is not only useful for keeping track of account balances, but also to keep track of the state of a computer program. Deploying code, called smart contracts, on the Ethereum blockchain, enables us to create decentralized applications, or dApps. Once launched, dApps are no longer under anyone’s control. They allow us to build powerful applications without being corrupted by that power.
ICOs
With no one to chart the course, dApps must issue a currency, recorded on their blockchain, to incentivize network participants to do valuable work and prevent abuse. Launching a blockchain, on top of a decentralized network with a native currency, is challenging. Ethereum allows developers to host cryptocurrencies, called tokens, recorded on the Ethereum blockchain. Issuing hosted tokens lowers the barrier-to-entry for building decentralized applications by letting developers focus on their particular use-case, instead of on maintaining a blockchain.
Developers can issue such tokens to investors, prior to building the dApp, via Initial Coin Offerings (ICOs). Investors purchase the tokens with the expectation that, once the product is built and adopted, the tokens will appreciate due to their necessity for the dApps operation. In this way, developers have created a new funding mechanism for entrepreneurial endeavors, but also drawn the attention of regulators concerned about the lack of investor protections.
The World of Cryptocurrency merges the frontiers of finance, computing, and communication, and like the Wild West has unbounded opportunity, and dangerous pitfalls. For every world-changing project run by developers, we learn of another run by thieves, who abuse naive investors of their wealth. We burn the DYOR (Do Your Own Research) mantra into our minds, so as to remain sober in the face of the rolling waves of greed.
Having learned the difference between hosted tokens, and “pure” cryptocurrencies like Bitcoin, running on their own blockchains, we realize that there are thousands of both types. We’ve researched the projects that resonate with us, that we think can bring value to the world, and have chosen to invest in their coins, but Coinbase doesn’t carry them… what to do?
Exchanges
Coinbase is not the only exchange out there. In fact there are hundreds, spread out all over the globe. If we want to purchase a currency or token we will have to sign up for an exchange like Kraken, or Binance, which have much larger coin selections than Coinbase.
Having signed up for Binance, we learn why everyone starts with Coinbase. They don’t allow us to trade dollars for the thousands of currencies they offer. How do we buy EOS, or IOTA then?
This is why Bitcoin is the reserve currency of the crypto world. To purchase more esoteric coins which do not have fiat trading pairs we must send the Bitcoin in our Coinbase account to deposit them into our Binance account. We can then use that Bitcoin to trade for any of the coins available there. To a lesser extent, the same can be done with Ethereum.
Not every exchange has every coin, and it’s possible that even if they do, another exchange may have a better price (denominated in Bitcoin). To get the coins we want, or a really good deal, we may have to keep cryptocurrency balances at multiple exchanges. We find ourselves logging in to several websites just to check our investments’ performance. This is where a crypto portfolio tracker like Cryptograf comes in useful. Instead of dealing with many websites, we can sync our crypto portfolio tracker to track our investments, whichever exchange they are on.
We’ve now been exposed to the cryptoverse, and the various decentralized projects being built. Some have resonated with us, and we’ve made investments to accelerate their development, and profit from our foresight. But we have not yet exercised the power cryptocurrencies grant us. In fact, although keeping our investments in exchanges is convenient, it carries risks…
Hardware Wallets
Every once in a while we read about an exchange getting hacked for millions of dollars. A properly implemented cryptocurrency is extremely difficult to hack, but exchanges are another story.
Cryptocurrency balances are recorded on the blockchain using public-key cryptography: a linked pair of numbers is generated, one to serve as our public identity, our public key, and another to serve as the password linked to that identity. Blockchains guarantee that only those with access to our private key can spend the balances associated with our public key.
Because exchanges are typically used for trading cryptocurrencies, they need to be able to send and receive them in real time. This means storing the private key, controlling user funds, in a “hot” wallet connected to the internet. If a hacker can gain access to the private key, they can send themselves the funds.
Understanding this risk, we decide to take responsibility for our own security, and exercise our digital sovereignty by moving our funds from the exchange’s custody into our own hardware wallet. Hardware wallets like Trezor, and Ledger, are like usb sticks especially designed for storing private keys. They are only plugged in, and connected to the internet, when we need to send or receive the crypto stored on them. Being disconnected from the internet means that hackers cannot access the private keys, nor the funds the keys control.
Enlightenment
Having sent our crypto from the exchange to our hardware wallet, we have taken responsibility and control of our investments. After encountering countless dApps working to disrupt entire industries, we’re surprised to discover that the most revolutionary thing about crypto is the sense of independence one gains from the knowledge that no one can censor our digital wealth.
When money is data, the vault is your mind.
Originally published at cryptograf.io on April 24, 2018.