Crypto 101: Understanding the Basics of Cryptocurrency

Welcome to the fascinating world of cryptocurrency, where the digital meets the traditional concepts of investment and value. Like the gold seekers of the 19th century, today’s cryptocurrency enthusiasts are part of a modern 'digital gold rush'. Whether you’ve heard a bit about Bitcoin or Ethereum or are completely new to the scene, this guide will help you understand the essentials. This is not investment advice but it does try and answer some of the simple questions you may have. Each section could be an entire chapter but for the sake of simplicity I have tried to keep it brief.

Crypto: What is Cryptocurrency?

Cryptocurrency is a type of digital or virtual currency that uses cryptography for security. Unlike traditional currencies, it is decentralised and typically operates on technology called blockchain, which acts as a public ledger for all transactions. What does that mean? In a similar way that traditional money is actually just a “promise to pay the bearer” and is a piece of paper with a number of security features (watermarks etc), crypto is that (similar) concept but he paper is actually “code” or specifically blockchain. With traditional money everything ends up routing via single entities (banks etc), with crypo that is not the case, that has wider appeal in an every more global existence.

The Blockchain: The Bedrock of Crypto

Think of a blockchain as a continuously growing list of records, called blocks, which are linked securely together. Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data, making them inherently resistant to modification. What makes crypto secure is that the blockchain is shared, so every transaction is copied throughout the chain - if a transaction doesn’t match or a block is different it is removed - it must be a fake. So whilst people often think that crypto fuels some dodgy underworld, it’s actually inherently traceable - every transaction is visible to anyone. (Caveat to that.. the transaction is visible but who is behind it isn’t).

But I don’t understand it? Well I’d guess you probably don’t know how ApplePay or contactless actually works - blockchain is the underlying method of passing those transactions around. Simple to a point, complex in the detail.

Cryptocurrency Mining: The Digital Gold Rush

Much like the physical mining of gold, mining in the cryptocurrency world involves using computational power to solve complex mathematical problems. The first to solve the problem gets to add a new block to the blockchain and, in return, earns some cryptocurrency as a reward—like finding a nugget in a riverbed. This analogy is important, it underpins the often asked question “but what is it?”

Bitcoin: The 'Gold' of Crypto

Bitcoin is often likened to gold, not just because it was the first cryptocurrency, but because it also shares characteristics with the precious metal. It’s a store of value, and its worth is determined by market supply and demand. However, unlike gold, Bitcoin’s supply is fixed; there can only ever be 21 million Bitcoins in existence. Gold is right next to lead on the periodic table of elements, they are very similar in many physical characteristics - one people attach more value you.

Cryptocurrency Wallets: Safeguarding Your Digital Gold

A cryptocurrency wallet doesn’t store physical coins but instead holds the cryptographic information necessary to access the amount of cryptocurrency assigned to it on the blockchain. Key to this are your 'seed phrases'—a series of words generated by your cryptocurrency wallet. These words act like a key to your vault and should never be shared with anyone or entered on suspicious websites. I will say that again: never share your seed phrase with anyone, do not type it into a website so matter how helpful the person is suggest you do. The seed phrase gives total access to your wallet, it’s the most prevalent scam out there - BE CAREFUL. I’ve fallen for it.. please don’t.

Exchanges: Your Gateway to Cryptocurrencies

An exchange is where you can buy, sell, or trade cryptocurrencies, much like an exchange bureau or stock exchange. Platforms like Coinbase offer a straightforward way for individuals to start purchasing cryptocurrencies with traditional currency, like pounds or dollars.

Coins: Diverse Coins and Tokens

Beyond Bitcoin and Ethereum, there are numerous other cryptocurrencies, each with unique characteristics. Some offer faster transactions, others privacy, and others like MemeCoins are more speculative and akin to gambling chips in a casino—they may hold value momentarily but are inherently volatile and risky. Cardano, Sui, Solana, NEAR - there is a very long list of coins, each attracting their fair share of interest, utility and in some cases hype and hot air. There is a phrase you might hear in this world of acronyms: DYOR, it means Do Your Own Research - don’t get sucked into the many multiple gains promoted, stick to some basics first.

MemeCoins, things with silly names like Doge, DogWifHat, Pepe, Bonk are complete speculation - what’s that phrase, if it’s too good to be true it probably is. If you want to chance some money on them feel free, but they do often fall to £0.

Safety: Staying Safe in the Digital Frontier

Unfortunately, with innovation comes opportunities for scams. Remember, in crypto, your seed phrase is as important as the keys to your bank vault. Scammers often exploit technical jargon and urgency to trick you into handing over your keys. Always be vigilant and skeptical of requests for your seed phrase or urgent actions.

Views: Why does this all mater?

Global macro economics are complicated and of course unpredictable, if you want to day-trade the crytpo markets, I hope you have good stress tolerance! But if you want to take a macro, high level view,and look at how the world works then they offer something quite interesting. Ever since the crash in 2008 national debts as a percentage of GDP have been huge and growing, the way these are paid down is by debasing the currency (printing money). This currency debasement means you are getting poorer - similar to inflation. I don’t understand the full extent of this, I wouldn’t pretend to, but if you want listen to a view (or which there are many) then I think that Raoul Pal explains it well, take the time, it’s a long video and you don’t need to understand it all: Click Here

The Future of Crypto: More Than Just Digital Money

As this technology evolves, various blockchains are developing to offer different solutions—whether it's for faster processing, more secure transactions, or implementing smart contracts that automate legal and commercial processes.

Conclusion

Just as gold has been a standard of value for millennia, cryptocurrencies and blockchain technology are laying the groundwork for a new era of digital finance. Whether as an investment, a technological curiosity, or the future of money, understanding crypto is understanding the future of how we will interact with value itself.