The Quick Crypto Crash Course

For those who are on the fence or have been too afraid to ask questions, this is a quick crash course on crypto, blockchains, and wallets.

Welcome to the quick crypto crash course. Many of my readers are not crypto-fluent. With the cryptocurrency market giving back a considerable amount of gains in the last few weeks, some of you may be wondering if now is a good time to buy in. What I'm not going to do in this article is tell you what or when to buy crypto. What I will attempt to do is help you get a better understanding of what cryptocurrency is, what it could be used for, why the blockchain is significant, how you can buy and store crypto if you decide it fits into your personal portfolio of investments, and how you can easily receive crypto in couple short steps.

Most of the people chasing cryptocurrencies are doing so because "number go up." This is not a very sophisticated reason to buy any cryptocurrencies or digital assets, but it's important to remember why so many are in the space. At this point, crypto is a highly speculative asset class that is still trying to find a real world use case for the masses. While it's easy to scoff at what might appear to just be a gambler's asset with no purpose, if you have an open mind, hopefully we'll spend the next few minutes addressing some of those concerns.

The Blockchain

I think as a baseline necessity for grasping crypto, understanding what blockchain technology does is important. There are many different types of blockchains. Some utilize a proof-of-work (PoW) system while others offer proof-of-stake (PoS). We're not going to dwell on the differences between the two in this article. What both systems provide is a completely transparent ledger of activity that is verifiable and immutable. When somebody sends Bitcoin to a friend, that transaction is recorded on the blockchain where it remains in perpetuity. That digital record logs the sending address, the receiving address, and the amount sent.

The "miners" are who verify the transactions. These miners though aren't like precious metal miners who move rocks and dig into the earth, these miners use super computers that require a tremendous amount of electricity to verify the transactions on "the blockchain" ledger. The miners are essentially the keepers of the network. Without the miners, Bitcoin and many other cryptocurrencies like it, can't continue. Miners are essential. They provide security to the network, provide an immutable record of activity, and verify the legitimacy of all transactions. For the cost associated with keeping these records, miners are rewarded with newly minted cryptocurrency.

Blockchains can be used for all sorts of things; cryptocurrencies and NFTs are just a small part of it. Smart contracts on a blockchain can be used to facilitate just about any record keeping. From health care, supply chains, IP management, to voting. All of it can be transparently kept on a blockchain.

Cryptocurrency

I get it. To many, cryptocurrency seems ridiculous. It's magic internet money created out of thin air! Not really true. I think part of the disconnect comes from not utilizing great analogs. I actually think the decision by Grayscale to position Bitcoin against Gold was a poor one. Not because Bitcoin can't be an inflation hedge in the same way many investors view Gold, but mainly because most investors actually hate Gold. And those who love Gold love it because it's physical and eliminates third party risk when you hold it in your hand. The better analog for Bitcoin in my opinion has always been fiat money.

Did you know over 90% of US dollars are already digital? It's true. For every paper dollar that can be physically exchanged back and forth there are nine more that don't physically exist. And you probably use the digital dollars far more than the paper ones. Every time you swipe your credit card, you've actually created digital dollars that will be destroyed when you pay off your balance. Your paycheck is probably directly deposited into your bank account. You probably digitally send some of the paycheck to your mortgage holder, your car note holder, and your credit card underwriter to make your debts are made good without ever actually holding the cash in your hand. And even if you, dear reader, personally don't do any of this, most Americans do. When you internalize this truth, cryptocurrency can begin to make more sense. Digital dollars that are transacted electronically are essentially ones and zeroes. Or code. Just like cryptocurrency. The only difference is cryptocurrency can be sent from party to party nearly instantaneously without a centralized entity like a bank or custodian.

Bitcoin, which will be the example that I turn to the most in this article, has a supply cap of 21 million coins. Because the coins exist only as code on a blockchain, they can be broken down into much smaller fragments of a bitcoin. Those fragments are called "satoshi" or "sats." There are 100,000,000 sats in a Bitcoin. So if Bitcoin ever reaches a price of $1,000,000 per coin, 1 sat will equal about a penny. The hard cap on the supply of Bitcoin is why so many younger Austrian economic proponents have taken a liking to Bitcoin. It's the anti-central planning, anti-government spending monetary asset. It theoretically combines the best elements of gold and fiat to create something better.

Exchange vs Wallet

There are two main ways to hold Bitcoin; self custody or through a third-party/exchange. There is a very big difference between using an exchange like Coinbase for holding Bitcoin and taking custody of Bitcoin through a self-custodial wallet address. The most straight forward way to hold crypto is through an exchange. You just provide your KYC info, link a bank account, and you're off to the races. You can start building your portfolio right in the app. You don't need seed phrases with Coinbase or any other exchange. Seed phrases are the 12 to 24 word recovery codes that grant access to the funds on the blockchain. It is imperative that you keep your seed phrase safe somewhere in case you ever need to import it again.

Holding Bitcoin in a self-custodial wallet is like holding paper cash. You are responsible for keeping that cash safe. If you lose the wallet or purse that has your paper cash, you’re outta luck and the money is gone. The same is true with your Bitcoin wallet seed phrase. If you lose the seed phrase needed to unlock your funds, the funds are gone forever. This is crucial to understand; the cryptocurrency is on the blockchain. The wallet app is just the door to the blockchain. The key to actually open the door is your seed phrase. There are many different types of crypto wallets. I've used several. BRD, Edge, Atomic, Unstoppable, Coinbase Wallet (not to be confused with Coinbase Exchange), and Exodus. If you create a wallet in Exodus on your smartphone and you drop your smartphone in the toilet, you can download Exodus or any other Bitcoin wallet on your new phone and recover the funds by importing the same seed phrase. Remember, the wallet is just the door. The seed phrase is what actually gets you access.

The core ethos that can't be avoided in the cryptocurrency community is self-sovereignty. Many early cryptocurrency adopters are big believers in self storage over holding assets on an exchange. Here, our best analog is probably a traditional checking account vs cash. Most of your liquid wealth is probably with a bank or custodian like Bank of America or Wells Fargo. In the crypto world, the closest comparison would be something like Coinbase, FTX, or Gemini. If you forget your password or pin number, there are security questions and safety parameters that can help you regain access to your funds. This is not the case with an on-chain crypto wallet. There is no safety net. The user is solely responsible for keeping the funds secure.

That might sound like a lot of risk to take on but there is always risk with holding crypto through an exchange as well. Common risks that come to mind would be the exchange gets hacked, a bad-actor internally starts siphoning customer funds, or the exchange goes offline when you need to make a transaction. These examples are not limited to just crypto exchanges, this could happen with any financial institution. It's all unlikely though. Crypto exchanges also happen to be the easiest way to actually get crypto at this point.

What's the use case?

This answer is simple. Peer to peer payments. It is incredibly expensive to send funds overseas. For foreign workers who want to send their earnings back home to family in other countries, those remittances can get very costly. Bitcoin really does fix that as funds can instead be sent on the Bitcoin network in a few minutes and cost just a few dollars no matter how large the transaction value is. Cryptocurrencies are also censorship-proof. We've seen lately that powerful payment processors like PayPal can turn off one's ability to receive donations from the public. This can't be done with Bitcoin because the miners are decentralized. Bitcoin and other cryptocurrencies are essentially the complete removal of centralized payment rails. It gives power back to the people. And that's something we haven't had in a very long time.

Extras

My on-ramp of choice is Coinbase. Referral link alert! I recommend opening up an account with Coinbase if you do ultimately decide crypto is right for you and you want to get started. With my referral link, we'll both get $10 in Bitcoin after you buy $100 worth of any crypto of your choice. Coinbase will allow you get a feel for buying the assets and then actually sending them if you do decide you want to use them for peer to peer payments. Be advised though, movements on Coinbase are generally considered taxable events. If you don't care as much about sending crypto to friends but want exposure to the idea as a "number go up" speculation, iTrustCapital might be a better fit as those are IRA accounts. I can hook you up with a referral link if you would like one and we'll both get $100 bonus after you fund your account.

Some of you who read this site are also writers. If you want to set up the ability get donations through Bitcoin or other cryptos, there isn't currently an easy way to do that through Substack though I hear they are working on a solution with OpenNode. For the time being, I would recommend simply sharing the QR code from whatever wallet you choose to use. You can get a QR code from Coinbase. Or you can get a QR code through any self-custody wallet if you don't want to open a Coinbase account. My personal favorite is Unstoppable. Though I also really like Edge. This is decent tutorial for Atomic. All of the wallets mentioned will allow you to share a QR code for donation or payment receipt. Here's my QR code as an example:

32xt2VWNoKpAJqaaggXnp3igwZrApYsyjJ

That jumbled string of characters under the QR code is my public key. By scanning the QR code, other crypto users can easily send funds to your wallet address without heeding the public key string.

So that's the basics. If you have any questions, throw them in the comments and I'd be happy to try to answer them. I'm not an expert by any stretch but I've been playing around in this space for a few years and I've learned a lot.

Disclaimer: none of this is investment advice.