What is Bitcoin and what are cryptocurrencies? A beginner guide and FAQs.
This report is not meant as financial advice and please do your own research and take responsibility for your own trades. This report is meant to update you regarding the markets so that you can make informed decisions.
NOTE: If you are a beginner check out my beginner series here.
Good evening, I’ve produced this guide for friends as well as newbies that are coming into crypto for the first time and further explain all the jargons you need to know to be familiar with the space.
What exactly are cryptocurrencies?
Cryptocurrencies use a combination of cryptography and blockchain technology to solve the double-spending problem and allows peer to peer transactions without a centralized 3rd party. Its main benefits are decentralization(no one can stop you for sending money to whoever you want), transparency(every transaction on the blockchain is visible to anyone) and in Bitcoin’s case, the first self-custody digital store of value.
Why does it have value? Isn’t it just numbers on a computer?
This is one of the most debated subjects not just in the crypto space but especially in the traditional assets space where investors are used to physical store of values like gold or money generating assets like shares.
The way to evaluate the value of a cryptocurrency is very complex so I’ll just focus on Bitcoin today. The main criteria being utility and adoption, typically the higher the utility and adoption, the higher the value of the currency. Utility and adoption stem from demand.
We don’t really see the value proportion for BTC in 1st world countries that well but in the 3rd world country, its a whole different story.
Argentina and many African countries transact in Bitcoin as opposed to their local currencies, which are plagued with hyperinflation. These people are willing to buy BTC at any price simply because even though BTC is volatile, it holds value better than their local hyperinflated currency. This is evident with bitcoin selling for 5–10% premiums with increasing local bitcoin volumes for the past 3 years. We expect more citizens from these countries to join and buy more bitcoin & cryptocurrency in the next decade, similar to how smartphone adoption and mobile internet has been growing there.
It is also the first money that is free from government dilution. For context, 35% of USD has been created out of thin air just in the past 10 months which explains the plunge in USD’s value as well as the spike in price in both BTC and the stock markets.
The demand from hedge funds and institutions which I go deep in this article is also immense. They are trying to find a place to hedge the ever devaluing USD and are currently moving huge into BTC and Gold. Many funds and smart investors are choosing BTC over gold after discovering its superiority.
The other factor is the economics of supply. In Bitcoin’s case, it was built on the backbone of Austrian economics. Bitcoin was designed to be the hardest sound money in existence today. There is a fixed cap of 21 million Bitcoin that will ever be produced and it’s released on a tapering curve where the daily minted supply is cut by half every 4 years.
This mirrors commodities such as gold and other precious metals. In fact, BTC is far superior to gold as a store of value. This is as when gold prices spike up, more companies are incentivized to mine more gold for profits which dilutes the current market supply and pushes down the price.
The Bitcoin protocol has a difficulty adjustment mechanism built in so that the number of daily minted BTC will remain the same regardless of the number of miners trying to mine it, making it increase in price organically faster than gold.
What are hardware wallets?
To understand hardware wallets you need to first understand the idea of custodianship. When we trade stocks or use financial services, they are all under a custodian model where there is a 3rd party involved in holding and transferring your funds/assets for you, examples are the bank and stock exchanges.
However for crypto, due to its cryptographic nature, you are able to take self-custody of your assets for the first time in human history. You can do that with any crypto wallet but hardware wallets adds an additional layer of security which requires you to physically press a button on your device ( the most famous one being the Ledge Nano S) to move or approve transactions from your wallet. This is so that when hacker get remote access of your computer they are still unable to shift the funds out as they are not physically present there.
What are seed phrases?
Seed phrases is a group of words that allow access to a cryptocurrency wallet. They are also known as mnemonic phrases, mnemonic seed, recovery phrases, backup phrases or private keys.
Although seed phrases allow you to have self custody of your digital assets, they are also the most common way of how hackers try to get your cryptocurrencies.
Seed phrases are an all or nothing system. Firstly, if you lose your seed phrase, you lose access to your money. No one can help you retrieve them and you need to use a computer to brute force the seeds for 135 years to get it back, there is no help hotline for you to call either. Secondly, if someone else finds or steals your seed phrase, they gain access to your money. Once these cryptocurrencies are transferred to another account, there is nothing you can do to reverse that transaction.
This is why there are a lot of hackers that create fake versions of wallet for you to insert your seed phases, unknowing folks who enter their seeds into such wallets will lose access to all their cryptocurrencies.
This is why I think most people are not ready to take custody of their own funds when they cannot even keep a piece of paper safely. If this is you, you are better off storing your crypto on a centralized exchange but choose a safer and reputable one like Binance or Coinbase.
Note: Do not lose your seed phrases, write multiples copies and store that piece of paper as if it is made of gold. This is because that piece of paper is literally worth the amount of crypto inside. To be extra safe, you can buy something like Cobo Tablet, a steel card that allows you to store your seed phrases safely as it is water, fire and shockproof.
I heard Bitcoin or crypto can be hacked?
The hack that you’ve heard about is most probably about MTGOX. In that case and many others, the actual cryptocurrency network is not hacked but its the user’s or exchange’s private key that got hacked, which allow the hackers to move the funds into their own pockets.
What are altcoins?
Altcoins stands from Alternate Coins. In crypto, the term is loosely used to refer to any cryptocurrency that is not Bitcoin and this is crucial to know if you’re trying to understand how money flows between Bitcoin and Altcoins as well as how Bitcoin’s movement affect Altcoin prices. I’ll explain this money flow in the crypto beginner investment strategies guide that I’m currently writing.
How do I start buying Bitcoin and cryptos?
In USA, the easy way is to either use Square or Paypal.
In Singapore, you first need a SGD to Crypto on ramp, where you change fiat currency into crypto. I would recommend using Xfers and Crypto.com.
The basics are here:
- Transfer money from your own bank account into Xfers
- Wait for money to be credited into virtual currency wallet in Xfers
- Choose amount and which Crypto you want to buy in crypto.com app
- Pay with Xfers
- Done. Sit back chill and get rich.
I’ll make another more detailed guide on this if there are any request but that the gist of it. Once you have the crypto in the crypto.com app I’ll recommend moving it to Binance to trade as the fees are lower(0.1% per trade versus 1% on crypto.com). They also have a wider selection of cryptocurrencies as well as better liquidity, which means better price due to less slippage.
What’s is moon?
This is a term used in the cryptospace where we use to explain massive amounts of gains. It is similar to how the price uses a rocket and shoots for the moon. A tat lame but it’s a fun term people use around and it’s important for you to know to understand the conversations in crypto better.
Whats the difference between BTC and Bitcoin?
BTC refers to the actual cryptocurrency but Bitcoin refers to the network. A better example is ETH where ETH is the cryptocurrency used to pay gas fees in Ethereum and Ethereum refers to the Ethereum Network.
What are fiat currencies?
Many newcomers will be foreign to this term but you need to understand this term in order to fully grasp the full potential of BTC.
Fiat currencies are government-issued currencies that are not backed by a physical commodity, such as gold or silver, but rather by the government that issued it. The value of fiat money is derived from the relationship between supply and demand and the stability of the politics and economic activity of the issuing government, rather than the worth of a commodity backing it as is the case for commodity money.
Examples are the U.S. dollar, the euro, and other major global currencies.
Did you know before 1971, USDs were physically backed by gold? You can actually exchange your paper currency for a certain weight of gold at the bank but President Nixon decided to remove this peg in order to adopt the current Keynesian economic system which allows the government to stimulate the economy.
Till this day, Keynesian economics has proven to not only to kill savers as inflation kills their interests earn from banks which increases the gap between the rich and poor as rich people have more spare income to invest. It has also funded wars to become longer and more disastrous due to the amount of money the government can use to research and develop military weapons. It has also led to the financial crisis and a weaker USA economy due to government bailouts that allowed inefficient companies to survive and become zombie companies.
List of abbreviations commonly used in cryptocurrency trading.
#Altcoins: Alternate cryptocurrency that is any cryptocurrency other than bitcoin
#Bag Holder = A person who buys and hold coins in large quantity hoping to make good profits in the future.
#Bear/Bearish = Negative price movement
#BTFD = Buy The Fucking Dip
#Bull/Bullish= Positive price movement
#DILDO = Long green or red candles
#Dump = To Sell off a coin
#DYOR = Do Your Own Research
#FA = Fundamental Analysis
#FOMO = Fear Of Missing Out
#FUD = Fear Uncertainty & Doubt
#HODL = Hold/Hold a position
#Long: Margin bull position
#MCAP = Market Capitalization
#Moon = Continuous upward movement of price
#OTC = Over The Counter
#Pump: Upward price movement
#Shitcoin = A coin with no potential value or use
#Short = Margin bear position
#TA: Technical Analysis
#REKT: When you have a bad loss
#Whale = Very Wealthy trader/Market mover.
#Weak Hand = a coin holder prone to selling at the first sign of a deep in price.
That’s all for now, I’ll update this page with more questions that I find useful as I get them from subscribers. Do hit me up in the beginner’s telegram chat or on Twitter if you have any heart-burning questions. Please share this to your friends if you find it useful.
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Have a great day and make a killing out there. Knowledge is power my young ones.
