9 insights from Vestpod’s ‘Crypto for Beginners’
Disclaimer: We are not financial advisers! This presentation is for educational purposes only and does not constitute regulated financial advice. Those seeking specific financial advice about their circumstances should consult a regulated financial adviser. Investing is for the long term! All financial investments carry risk, especially crypto.
*This article was written by Adele Barlow*
The other night, I logged onto Vestpod’s session with Clara Medalie of Kaiko, not quite knowing what to expect. All I knew was that crypto kept coming up in daily conversations and at work. Suddenly, I needed to learn more about what Cardano refers to and how a newbie like myself could get started as a crypto investor.
Below are some notes (and some links I looked up) on crypto context and practicalities for other newbies who cannot tell the difference between bitcoin and blockchain. Consider it a beginner’s guide to the beginner’s session that Clara so patiently and eloquently ran through!
1/ 2021 was a pivotal year for crypto.
Last year was a big year for crypto as we saw the largest VC inflows to blockchain companies out of all previous years combined.
In just Q1 of 2022, tens of billions of dollars were invested into cryptocurrency startups. Traditional financial firms also invested.
2/ Historically, money has always been about trust.
Not everyone thinks that the government should be the one issuing currencies. There's a very long history of private money. Private money is essentially any type of currency issued by an institution that is not a government.
Bitcoin was invented in 2000 by an anonymous individual or collective called Satoshi Nakamoto, who released the Bitcoin white paper in 2008 on a public message board, which outlined the design of the Bitcoin technology.
Bitcoin's unofficial motto: in cryptography we trust.
3/ What is crypto? Trustless currency.
Blockchain technology = a decentralised currency with no centralised authority. No one has to approve any transactions. So you're trusting the technology itself rather than trusting the government to back your currency.
Digital transactions are not new, but almost all of them are currently managed by highly secure centralised authorities. That's why the government can shut down your bank account - the bank can just turn off your access.
What has attracted many people to crypto: no one can ban you from using it. Anyone can access this technology. So the main innovation of Bitcoin and cryptocurrencies is that it removes the need to trust a centralised authority.
People call it a trustless currency. You don't trust anyone. You trust the technology.
4/ How does blockchain work?
Bitcoin runs on decentralised software. Thousands of computers worldwide make up this massive distributed and decentralised network. And the way this is possible is through blockchain technology.
What a blockchain is: think of it as a list of transactions in chronological order. These transactions are grouped in what is called a block, and then these blocks are tied together in what's called a chain. So that's why you get the word blockchain.
Each block can contain thousands of individual transactions. And one block is added to the Bitcoin blockchain about every 10 minutes. So as people are transacting, it can take about 10 minutes for your transaction to be fully added to the blockchain.
It's almost impossible to reverse. The more blocks added, the harder it becomes to ever reverse the transaction. So that's why people say that it's one of the most secure payment networks in the world. Because once your transaction is recorded in the blockchain, you can never reverse it. And it's there forever.
5/ Mining is how Bitcoin stays secure
Mining is ultimately how the Bitcoin network stays secure. Minors are adding blocks to the chain. And who gets the reward? This is done through a process called proof of work.
When you have thousands of minors worldwide, all of them are competing against one another because only one minor earns the Bitcoin reward with every block added to the chain.
These minors are working to solve puzzles. These are mathematical puzzles determined by an algorithm programmed into the Bitcoin blockchain. Once your computer solves the problem, you earn a reward, you earn Bitcoin, and you get to add the block to the chain.
6/ A consensus algorithm stops minors from going rogue
A consensus algorithm is a second fail-safe method. You need all other minors in the network to improve the block that was just added so that no rogue minor can just add a list of transactions.
Rather than all minors, a consensus of minors in the network needs to approve everything added to the blockchain. So that's how you make sure that the network stays secure, and these minors are incentivised for this network to stay secure because they earn Bitcoin.
You cannot have a successful blockchain without cryptocurrencies as a reward because cryptocurrencies are the only way to incentivise minors to add honest blocks to the blockchain.
7/ How to explore the blockchain
So how do we explore the blockchain? A block Explorer lets you publicly explore the Bitcoin blockchain. All transactions are public and searchable.
Bitcoin is not a perfect blockchain. Today Bitcoin processes, on average, about 4.6 transactions per second. This is compared with Visa’s 1,700 transactions per second. This is because it takes about 10 minutes for every transaction to be fully verified.
Also, there's limited storage space. It takes a lot of energy to keep these Bitcoin mins up and running, and it's gotten a lot of concern, especially in the United States, over the past few months.
8/ Ethereum = the largest alternative blockchain network to Bitcoin
Bitcoin is not the only blockchain out there. There are many different types of networks. Bitcoin is proof-of-work. Whereas Ethereum is proof-of-work today, it's migrating to proof-of-stake.
Ethereum is today the largest alternative blockchain network from Bitcoin. Bitcoin is essentially a transaction ledger: you can't do much beyond sending and receiving Bitcoin.
Conversely, on Ethereum, you can do pretty much anything as it's not just a cryptocurrency: instead, it's a platform that lets you build many different types of decentralised applications (dApps). These dApps run on the Ethereum network, which has Ether as its native currency.
There are very high fees on the Ethereum blockchain, and this is one of the most significant barriers today to widespread adoption.
9/ How do you get started in crypto investing?
One of the issues with crypto is that you still need to use a centralised platform to access these decentralised services.
Coinbase is a cryptocurrency exchange that is one of the biggest in the world. You can't just make an account on Coinbase. You have to show your ID; you have to go through an approval process.
There’s also Kraken which is pretty popular in Europe.
These platforms have really easy interfaces and walk you through how to set up an account and how to make your first purchase. They also have a lot of good resources for beginners.
Resources
Re-read this article with Ambre Soubiran about Crypto 101 and listen to the podcast episode
Books:
Digital Gold by Nathaniel Popper
Bitcoin Andreas Antonopoulos
Cryptoassets: The Innovative Investor's Guide to Bitcoin and Beyond by Chris Burniske and Jack Tatar
Blockchain Revolution by Alex Tapscott and Don Tapscott
Exchanges:
Centralised: Coinbase, Kraken, Binance
Decentralised: Uniswap
Ledger: Hardware Wallet
Learn more and news:
https://www.theblockcrypto.com/
Thank you Adele for writing this article! Find Adele here at Copy & co