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Five Things I Wish I Knew Before I Got Started in Crypto
When I look back on my first time using cryptocurrency, I wasn’t terribly well informed about what it was exactly I was buying. It was a lot more trusting and not much verifying, which flies against the commonly referenced slogan “don’t trust, verify” used throughout the cryptocurrency space today.
So what advice would I give to myself if I could go back and let me from the past know? Find out below.
What the Heck is a Blockchain?
Personally, I found it helpful to first learn what the underlying technology behind cryptocurrency is to understand the rest of it. The first principles of cryptocurrency are related to the field of cryptography. Cryptographic codes produced by a type of software called a blockchain are what allows cryptocurrency to be used as a currency.
Blockchains are not a monolith, they can be programmed in a variety of ways. Similar to how a web browser is still a web browser, but there are different kinds of web browsers, like Firefox, Chrome, and Microsoft Edge. In the exact same way, there are different kinds of blockchains, like Bitcoin , , and Polkadot for example.
The Lingo
Perhaps the first and immediate barrier to entry for cryptocurrency is the language of the subculture. The language used in the cryptocurrency community is a combination of references to internet memes, terms from traditional finance, and combinations of the two. For example “hodl” is a common misspelling of the word “hold” and in the era of phone keyboards and word processing, hodl is a common typo. Nonetheless it’s become a common reference in the field of cryptocurrency. Hodl now refers to holding your crypto assets in times of extreme volatility and can be expanded to Hold On for Dear Life.
The language used in the memes related to cryptocurrency are probably the easiest to pick up on, since they’re commonly spread and humorous. The ties back to the traditional finance system are a little more finicky for newcomers to cryptocurrency, especially if cryptocurrency is your first experience with asset management.
As well, some of these terms have only come to apply recently, as cryptocurrency is an emergent technology in the wider field of finance. For example, knowing what an asset class is, was not a part of my knowledge when I first began to get to know cryptocurrency. However, because of the way cryptocurrency has come to be regulated (like a security), I have learned the many terms used to manage my investments.
The Factions
From the outside, cryptocurrency is a monolith, it’s a type of security. Not so much on the inside of the world of cryptocurrency. Cryptocurrency traders occupy certain camps the same way someone might identify with a sports team, soft drink choice, or political party.
The Bitcoin maximalists, for example, are all about Bitcoin specifically and are critical of other cryptocurrencies and PoS systems. While Bitcoin’s largest competitor, Ethereum, has its own fan following. These are important to be aware of, since these are the groups who will attempt to convince you, perhaps dogmatically, about the value proposition of a specific asset. It’s best to do your own research (DYOR) and come to your own conclusions.
The Miners and the Stakers
Cryptocurrency isn’t printed out of thin air, at least Bitcoin and other proof-of-work (PoW) systems are not. The opposition to PoW systems are proof-of-stake (PoS) systems. Cryptocurrencies that use a PoW system require the existence of cryptocurrency miners, who contribute computing power on the network. The miners are rewarded proportionately to how much computer power they contribute to the overall system. The most famous example of PoW is Bitcoin, where since the inception of bitcoin, people all over the world have opted to plug in computers to mine BTC.
By contrast, PoS systems are less energy intensive, which has been a common selling point for them in an environmentally conscious world. However, PoS systems are also under the scrutiny of the SEC, and is the crux of a currently ongoing lawsuit between Coinbase, a reputable cryptocurrency exchange, and the SEC. PoS systems don’t require miners & energy to create new currency. Instead, PoS systems require users to purchase and stake their crypto on the network in return for various incentives. The nature of returns and rate of return varies by size of your stake and the offer of the network, which varies by network.
The Exchanges
Cryptocurrency exchanges are where I bought crypto for the first time, and it’s a common entrypoint for newcomers to cryptocurrency. They are the nexus of cryptocurrency market activity. Selecting an exchange to trade on can be a big deal if you’re investing on a large scale, but for those just starting out, Coinbase is a pretty good place to start. It is simple to use, easy to navigate, and it’s not going to break the bank on transaction and trading fees, especially for the uninitiated.
Drawbacks of Exchanges
Even though exchanges are the easiest place to start, they do come with certain drawbacks. As you get experience in the field of cryptocurrency, you might find that the exchange you started off on doesn’t have all the bells and whistles you need to get more involved in the crypto industry. That’s when you’ll know you’re ready to spread your wings into other platforms.
Arm Yourself with Knowledge
The takeaway from my experiences is that it has never hurt me to be more informed about the services I’ve used and the coins that I’ve bought. Starting with a small investment and then continually learning about exchanges and wallets helped me arm myself with the knowledge needed to make crypto a worthwhile investment.
There will be many coins and offerings in the world of cryptocurrency, so it is best to prepare a strategy and gradually gain an understanding of how to navigate this rapidly expanding industry.
