One thing you will hear a lot in crypto is the phrase "not your keys...not your coins." This refers to the private key that can be used to unlock your wallet. I will dive more into keys and wallets later, but first, watch this video about blockchains. This video will help you understand what the biggest piece of technology that drives cryptocurrencies is…arguably at least. Four foundations are required for a cryptocurrency to work and they are cryptography, consensus mechanisms, peer to peer networks, and blockchains. Understanding how blockchains work is the first piece to understanding what makes crypto so special, however, just know that the other three technologies are very important to keep cryptocurrencies open, public, borderless, neutral, and censorship-resistant.
***I will add several videos to this blog. Please take the time to watch them all the way through so you understand the next talking points.***
As you can see in the video, blockchains help create an immutable system for people to transact on and are built in a way that makes double-spending impossible. I’m not going to get too deep into peer to peer networks or consensus mechanisms, but I will at least explain their purpose. I will also leave out cryptography as I’m sure you have heard of that before.
Peer to Peer (P2P) computing or networking is a distributed application architecture that partitions tasks or workloads between peers. Peers are equally privileged, equipotent participants in the application. They are said to form a peer-to-peer network of nodes.
Peers make a portion of their resources, such as processing power, disk storage, or network bandwidth, directly available to other network participants, without the need for central coordination by servers or stable hosts.
Consensus Mechanisms are fault-tolerant mechanisms used in computer and blockchain systems to achieve the necessary agreement on a single data value or a single state of the network among distributed processes or multi-agent systems.
In any centralized system, like a database holding key information about driving licenses in a country, a central administrator has the authority to maintain and update the database. The task of making any updates – like adding/deleting/updating names of people who qualified for certain licenses – is performed by a central authority who remains the sole in-charge of maintaining genuine records.
Public blockchains that operate as decentralized, self-regulating systems work on a global scale without any single authority. They involve contributions from hundreds of thousands of participants who work on verification and authentication of transactions occurring on the blockchain and the block mining activities.
The reason Bitcoin has had 11 years of immutability is due to the combination of peer to peer networks, consensus mechanisms, cryptography, and blockchains. In my personal opinion, this makes Bitcoin the greatest invention of modernity. We live in the information age and cybersecurity doesn’t have the best track record. Centralized servers have too many attack vectors and are constantly hacked. Bitcoin has never been hacked…it is impossible to penetrate!
The invention of Bitcoin brought forth a rush of other cryptocurrencies. Some of them essentially do the same thing in so much as providing a digital currency and others were created to fix problems in society. There are charity coins, cloud computing projects, universal basic income projects, projects that aim to put the entire human genome onto a blockchain, and even meme coins that have no true purpose other than a joke, but there is no other project that stands out as Ethereum does.
Bitcoin paved the way for decentralized currencies to exist without the need for human intermediaries and even made currency, for the first time in history, personless. Appliances, robots, or software itself can now possess currency and obtain it without the need for people, but Ethereum took things a step further. You can think of Ethereum as a computer that exists in the cloud that anyone can write an application and install to it. That code will forever run on this “cloud computer” and you do not need permission to develop on it.
In traditional computing, a programmer writes code to create applications, but Ethereum runs what is known as smart contracts. A programmer writes a smart contract and deploys it to the Ethereum blockchain and it is immediately accessible anywhere in the world by everyone. Users can pay Eth (the native currency to Ethereum) to transact on the Ethereum blockchain. I will stop right here and give you a video to watch explaining Ethereum a little better, but just understand that the possibilities are endless with Ethereum. Robust new systems are being built on top of Ethereum right now that are going to change/ enhance the traditional financial systems we currently have.
As you can see in the video, smart contracts, when deployed, have a state to them. For that state to be changed a user has to pay Eth in the form of gas to change it. This innovation helped usher in a new type of finance dubbed “DeFi” which stands for Decentralized Finance. All of the traditional things we have in finance such as credit, insurance, banking, marketplaces, etc can all be achieved with Ethereum. I will attach a video explaining DeFi, but just know this is the current state of crypto and is the marketplace that is most profitable right now. There is a high risk with it as anyone can create a contract, so beware there are a lot of scammers out there. I will discuss later how to deal with them.
Ok, that is enough of explaining the history and what makes crypto work behind the scenes, I will now get into the trading aspect of it.
The beauty of cryptocurrencies is the ability to be your own bank...not just have your own bank account, no you are your own bank!
To hold crypto you will need a wallet and there are three different types of them. You can have a cold, warm, and hot wallet.
A cold wallet is one that is not connected to the internet. It can come in the form of a piece of paper with a code on it, a USB drive, etc. A cold wallet is a lot harder to lose than a hot one. As long as you have access to or remember your code (private key/ seed key) you will always have access to your money. You can literally keep billions of dollars stored inside of your mind!
A hot wallet is connected to the internet. It’s where your crypto ends up if you buy via an OTC (Over The Counter) marketplace, an exchange, or receive via a transfer. The most popular hot wallet is Metamask.
Warm wallets are experimental and new, to the point that they work with few exchanges, marketplaces, and cryptocurrencies. Anytime you want to make a transaction or payment, you make an “intent to move” block that registers your impending action. Afterward, there is a period of time within which your transaction can be canceled. This means that warm wallets work like hot wallets with an “undo” button: an important feature that helps prevent fraud, theft, mismanagement, and more.
Warm wallets may not be as secure as cold storage – but they’re a good way to improve on hot wallets, which aren’t always secure.
Public and Private Keys
The public key is, as its name implies, public and open to anyone in the system. The public key is used to encrypt data. The private key however is private. It is stored on a user’s device and is used to decrypt data. You can give out your public key to anyone, but NEVER give anyone your private key. Giving someone your private key is like giving them the password to your bank account.
A seed phrase, seed recovery phrase, or backup seed phrase is a list of words that store all the information needed to recover crypto funds on-chain.
Whenever you set up any wallet you will be given a seed phrase. This phrase is typically 12 words in a specific order. If you forget your password to get into your account you can always input the seed phrase or your private key to recover your account. This is why we say you can carry a billion dollars in your brain…all you have to do is remember the seed phrase.
Centralized Exchanges vs Decentralized Exchanges
Centralized Exchanges (CEX’s) are exchanges that hold your private keys. You do not have access to these keys and you never will. A CEX acts as your custodian. You typically have to sign up for KYC (Know Your Customer) and present your ID. Your account can be frozen at any time and being that the exchange is centralized your account stands the possibility of being hacked. If you remember it was the decentralization paired with the blockchain that helps make Bitcoin immutable. Your coins can be stolen if they are stored on a website (exchange) that is centralized. Remember they are in control of your private keys. If someone can find where they store your keys they can drain your account. Most CEX’s only carry a limited number of coins and those coins have gone through a vetting process to make sure they are not scams.
The most popular CEX’s are Coinbase, Bittrex, Crypto.com, and Kraken.
Use this link to get $10 when you deposit $100
At the time of this writing, the only way (at least I know of) to turn fiat (traditional money) in to crypto is to onboard with a CEX and send it to another wallet or DEX.
DO NOT BUY "CRYPTO" ON PAYPAL!
At the time of this writing, PayPal does not give you access to private keys nor do they let you send and receive the “crypto” you purchase on their site. Do not allow them to trick you into using their services. At least with a CEX you have a public address, so you can send and receive any currency you purchase on and off of the exchange. The video below explains more.
Decentralized Exchanges (DEX’s) are commonly referred to as Automated Market Makers (AMM), although, they are not the same. Most of the time if something is deemed a DEX it has a collection of coins and you can create an account to use it. To use an AMM you do not need an account and are swapping coins with other users through liquidity pools. You are in control of your private keys with DEX's and AMM's and are more than likely free to use a cold or hot wallet with them. DEX’s/ AMM's are typically easy to list coins to and have little to no restrictions as to what coins can be listed. It is very easy to be scammed on these platforms, however, with the risk comes a high reward.
The number one AMM is hands down Uniswap. Uniswap has a great backend to it but isn’t the best when it comes to looking up a coin. For that other tools have been created that sit on top of Uniswap. Dextools for instance is a frontend application that uses Uniswap's API to trade through. Dextools also has TradingView integrated into it. I would suggest watching the following videos on Uniswap and Dextools.
***Keep in mind that anyone can create a smart contract. If you are just typing the name of a coin into Uniswap or DexTools you could be buying a scam. A lot of people will name their scam token after a successful project. Always verify the contract before buying.***
*Note that to trade with Uniswap you will need to have Eth in your wallet as that is the blockchain that the AMM is built upon.
Just as you have a wallet address so does a smart contract. I mentioned earlier that currency is now personless. Well, a smart contract can send and receive money, so it has an address just like you do. You can always verify if you are buying the right contract by verifying the address.
How to Use Metamask
The following is one of my Eth address (feel free to donate to help me create more content):
You will notice that the address starts with 0x
All Eth addresses and related ERC-20 addresses will start with 0x
Anyone can post their address to the public and money can only be deposited to that address. You can put your address into Etherscan and see everything you have in it.
When you set up a Metamask wallet you will receive an ERC-20 address. I highly recommend getting a Metamask address now. The whole crypto market revolves around Ethereum now and all other projects seem to be transacting on their blockchain. Even Bitcoin itself has been wrapped to work across the Ethereum network.
The following video will explain how to use Metamsk with Uniswap.
For any trade to work there has to be sufficient liquidity. In a traditional centralized exchange, there are a certain number of coins that are deposited into the exchange itself, but due to the nature of decentralization, there have to be pools created to provide the liquidity necessary for an exchange/ swap of one currency to another.
You can be rewarded pretty well just by adding liquidity. Most AMM's will allow you to receive fees from every trade just by providing liquidity to it. The following video explains liquidity pools in more detail.
Just like you can earn rewards for providing liquidity, you have the ability in Decentralized Finance to stake/ farm for rewards. The following videos explain staking and farming. There are two types of staking one is the process of actively participating in transaction validation (similar to mining) on a proof-of-stake (PoS) blockchain and the other is where you purchase a token and lock it into a contract on a website commonly known as farming. Both methods will yield more of the native coin.
As with any asset, company, or coin that you want to trade market capitalization is extremely important. To determine the market cap in a cryptocurrency you take the circulating supply and multiply it by the market price. You can also use CoinGecko to see what other coins in the same industry have done in terms of market cap to help justify a purchase. Crypto markets are highly speculative and revolve around debating possible market caps. It can be argued that market cap is the single most important factor in determining what to purchase.
In crypto, the term “trading pairs” describes a trade between one type of currency and another. For example, take the trading pair ETH/BTC. With ETH/BTC you can buy Ether with Bitcoin or sell Ether for Bitcoin. "Trading pairs" are assets that can be traded for each other and let you compare costs between different cryptocurrencies.
You will notice on exchanges that with crypto you have a few different number amounts. Typically indicated with 8 decimal places…at least for Btc pairs anyway (Eth has 18). These decimal places are known as “sats.” Named after Satoshi Nakamoto, one sat is the lowest amount of Btc at 0.00000001 in value. Some people only trade in BTC pairs and when they sell they are doing what is known as “stacking sats.” They aren’t concerned with the USD amount, but rather how many sats they can stack up.
Crypto moves extremely fast and if you want to have an edge you need to follow certain channels on YouTube and you will need to keep an eye on Telegram and Discord channels. Telegram has a huge crypto userbase in DeFi and any good project will have a channel there or on Discord. You can join me for discussion/ help navigating the crypto space with the following links. My handle is "scrooge" in both.
Research/ DeFi Sites/ Tools
There are many tools to help you find projects, but hands down the most popular tool is going to be CoinGecko. This site lists stuff that has been vetted by them. You typically aren’t going to find a coin that is hours old on there unless that coin has proved its worth to them.
CoinGecko has a pretty robust site that lets you filter different crypto industries, market caps, supply, etc…always use CoinGecko when you can. You can also find out what exchanges a coin is located on by filtering that out.
These sites will enable you to better research projects in the crypto space.
CoinGecko is a site used for figuring out the market capitalization, social sites, and fundamentals of a coin.
UniSwap is an AMM (Automated Market Maker) used to buy and swap cryptocurrencies.
DexTools is a front end for Uniswap with built in charting tools from TradingView. I highly recommend using this over Uniswap’s UI.
UniMonitor is a site used to find brand new listings on Uniswap.
DeFi Pulse is a site where you can find the latest analytics and rankings of DeFi protocols.
ERC20 Verifier will help you determine if a smart contract meets ERC20 standards.
Zerion is a portfolio manager and even lets swap coins right through their UI.
MetaMask is easily the most used hot wallet for ERC20 tokens.
EtherScan is a site that allows you to browse the Ethereum blockchain for real time transactions. You can look up any address here.
Eth Gas Station is a site that shows you the current price of gas based on the congestion of the Ethereum network.
How To Snipe New Listings and Spot Scams
As stated earlier, the DeFi space is very risky and people will try to scam you. Playing around on UniSwap can be very profitable, but you need to verify that the contracts meet ERC20 standards as well as vetting the team. The following video will help you understand the process.
If you are interested in this field I can’t recommend this book enough. It changed the way I thought about crypto and helped me realize the importance of it beyond just making a profit.
The Internet of Money
This is another good read and is the original whitepaper for Bitcoin
Videos Worth Watching
YouTube Channels to Follow
Crypto Scrooge (my page)
Telegram Groups To Join
Download Telegram here:
Once installed to your device you can paste the following groups into the search bar to join them: