Cryptocurrencies, NFTs, DeFi, seem like they're quickly becoming part of our conversations, but what's behind it all? Today we’ll look at how crypto works!
Should We Get Into Crypto?
In the last episode, I mentioned that I did a money experiment. If you're subscribed to the newsletter, you got a sneak peek of what we're talking about: cryptocurrencies.
While crypto isn't anything new. In the last few years, especially within the last year. I've just noticed a dramatic shift in promoting them. I've also noticed that there's been a lot more noise and big promises and not much in the way of education.
I see companies spreading the word about crypto focused on how revolutionary it is and how we can close the wealth gap. But I don't see enough discussion about the underlying technology behind it, and how it actually works.
I'm a big believer in educating yourself and understanding things before you go invest in them.
Based on the feedback I've been seeing with you guys in the community. I see that some of you are dabbling in crypto, but you wanna know more.
I decided I was going to do six-month experiment to learn a little bit more about the ins and outs of crypto.
This isn't the first time I learned about cryptocurrency. But it is the first time I dedicated myself to sitting down reading the articles, and talking within the community to understand how the technology works itself.
I wanted to learn how easy was it to buy, sell and mine the crypto coins.
Man, what a time I jumped in! Just in the past six months, we've seen:
- cryptocurrencies such as Bitcoin, Ethereum, and Solana have their value slashed by over half
- Fidelity announced that its customers could add Bitcoin to their retirement accounts
- just recently Terra stablecoin collapsed
So there were a lot of things happening, but for me, this was an opportunity to understand the pros and cons up close.
Even with everything down and people questioning whether crypto is here to stay, there are plenty of people who are saying now is a great time to get into it because it's so cheap. But is that really true or is it just hype?
That's why I made this episode. It's not a deep dive into crypto but instead, it's meant to give you a lay of the land. So you can decide if it's something that you want to explore further.
In today’s episode, we’ll get into:
- How exactly do cryptocurrencies work
- Decoding crypto terms that are thrown about
- How you can buy, sell, and yes, mine some
I hope you enjoy!
Resources to Understand Crypto
If you're looking to explore crypto and the tech behind it, here are some really helpful resources to learn and stay on top of your money!
- Best Budget and Money Apps: Personal Capital, Tiller, Mint
- Jumpstart Your Marriage and Your Money
- Crypto Series <– sign up and get updates on a video series I'm preparing about crypto
- Line Goes Up – The Problem With NFTs
- How Does Bitcoin Mining Work?
- Blockchain-based systems are not what they say they are
- How Crypto will Change the World (or Not)
- Crypto Crash Widens a Divide: ‘Those With Money Will End Up Being Fine’
- The Future is Not Only Useless, It’s Expensive
- Planet Money Summer School 6: Crypto & Commencement
- The promise and peril of crypto for Black investors
If you’d like to chat more about your money system, please join us in our private and free Facebook group – Thriving Families.
We’re families looking to support and help one another out.
Hope to see you there!
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How Does Crypto Currency Work?
Before we get into the different cryptocurrencies and how to buy, sell, or mine them, let’s go over how they work.
Since we’re using this word currency, I’ll start there.
With crypto, it’s not owned by an individual or a particular company. No bank or government is issuing it. It’s decentralized, hence the term DeFi.
Its value of it is determined by the community, supply, and demand. There’s no gold or government backing it up.
Some key components and technology with cryptocurrencies are blockchain.
Think of the blockchain as a public record or ledger where every transaction is recorded. The community all has a copy.
It’s append-only, meaning you undo a transaction. Instead, you would document the transfer and then the ‘refund’.
It’s designed so two strangers can exchange without getting approval from a bank or a merchant like Paypal or Venmo.
Wallet and Key
Just like you probably have a wallet with your cards and cash, you have one with crypto. Because there’s no central power regulating it, it’s even more important for you to keep your wallet secure.
You can have your wallet online, called a hot wallet or you can have an offline or cold wallet.
There are two keys for your wallet, a public and a private one. Your public key is kind of like your bank account. That’s what’s included in the edger when you make a transaction.
Your private is then like a password/PIN so you can access your wallet. You want to keep your private key in a safe spot because if you don’t, you can’t get that money.
More Than Bitcoin
Even though bitcoin has the biggest market cap and is one of the most well-known currencies, the crypto market space has vast options. If you go to CoinMarketCap you’d find just under 10,000 coins being tracked.
Some other big ones include Ethereum, Tether, Cardano, Solana, and dogecoin.
Decoding Crypto Terms
All right, so we covered a high level review of how crypto works. As you can see even going over the essentials and fundamentals. There's a lot of terms that are used that are very specific to this space. Right now, I want to hone in a bit on the coins and how they work.
We mentioned this briefly when we were talking about high energy usage. With coins, you can lump them into two groups based on the method on how they validate those transactions that are made.
Remember, everything is on that blockchain it's on that ledger, but how do you validate it since we don't have a central unit verifying things?
The verification is done through the community and the two main systems coins use are proof of work and proof of stake.
With proof of work, this is what the older coins like Bitcoin, Ethereum, the. 1.0 and dogecoin use.
A miner or a person with a computer and the hardware runs algorithms to validate that transaction and in return, they can earn more coins. It is secure, but it uses a lot of energy and it is slower.
With proof of stake system, the validators actually would put in a token. Kind of like collateral and they would validate those transactions.
And as a reward. They would get more of that coin. Coins using proof of stake include Ethereum 2.0, car Dano and BNB.
Wait a minute. I just mentioned token and I just met, mentioned coin. So, let me just break that down a little bit further.
With that proof of stake system, the coin is the actual, let's just say the actual currency, the one that has the value is being exchanged.
In this case, the token, it gives you that right to validate the transaction. So that is not a part of the blockchain. It's kind of a system that's built on top of that.
Hopefully, I didn't lose you there.
Finally, I want to talk about stablecoins. These are cryptocurrencies that are actually kind of almost like a hybrid because they're cryptocurrencies, but they're tied to an asset. One popular one is the us dollar. And the idea behind it is to minimize the volatility.
Many platforms actually also offer competitive interest rates if you invest in hold stable coins. Now this doesn't mean that it's completely safe. We've seen recently with Tara. That there is risk involved and you may lose your money with that.
Now, hopefully that gives you a better idea of the different types of coins that are out there and how they work.
There are so many topics that we can get into because they're connected to crypto. But I'm not going to cover them because they're outside the scope of what we're talking about.
But I definitely want to recommend that you research into, web 3.0 and NFTs. They deserve their own episodes because it can get really complicated, very fast. And there's a lot of people that are hyping it up but not really explaining the technology.
How to Buy, Sell, and Mine Crypto
Let's say you're interested in learning more about crypto and you're thinking about doing your own money experiment. Where do you start? How do you buy trade in mind the crypto?
Well, I have some good news for you. It is much easier to get into the crypto space, try things out and learn a lot more.
Buying, Trading, and Selling Crypto
Let's start off with buying trading and selling. You can work directly with each coin, but now there are different exchanges like:
They almost make it as easy as logging into your bank or logging into your investment company.
The bad news is you definitely have to be informed before you do, because there is a lot of hype out there.
Whatever platform you decide to use, though, you definitely wanna do your homework because this is not centrally regulated. You're kind of on your own.
Please don't put a significant amount of money in until you educate yourself about the risk. Read those reviews carefully and talk with their customers to see which one would be the best fit for you.
For this money experiment, I went with Coinbase. It was a combination of things. I liked that they had access to more than 150 cryptocurrencies. It was fairly easy to set up and use. Plus you can actually earn some crypto for free by watching video lessons and taking quizzes.
I signed up verified by the identification and also linked my bank account. Because this was an experiment I focused on just two coins. I went with Ethereum and Solana, but I did take advantage of their learn and earn opportunity.
I have about a dozen cryptocurrencies that I'm currently in, but most of them with the learn and earn aren't significant amounts, but just enough to understand the different technologies that are there.
While I do like having something like Coinbase, I find it ironic that for many people, that's the easiest way to enter because it's introducing a middle man.
One of the things with the cryptocurrency space is it's trying to be more direct. I think we're still in the early stages and there's a lot of issues that have to get worked out. But if you are considering getting a little bit into cryptocurrencies and learning more using a platform like this is probably the most convenient way to go.
Now with mining you can actually earn some cryptocurrencies with your computer and, there are three key components to this.
You have your wallet, which we've mentioned before, your hardware, which is your computer and then your mining software.
With mining cryptocurrencies, you have to have a software program. Honestly, I thought this would be one of the easier parts of the process, but it turned out to be quite hard.
The reason was I was trying to find a software I was comfortable with and really you're downloading a program that unless you're a programmer or have experience with software, you don't know what you're putting on your computer.
There are different options out there. I was looking at reviews. Some of the popular ones I saw were multi, minor CG, minor, easy, minor BFG minor.
The one I ended up with for my experiment was nice hash. I did like that they owned every piece of the software and they had a good reputation and it was very simple to use.
The last part of that was the hardware for crypto. I think many people think, oh, because I'm mining it, it's free, but there's two costs that are associated with that.
You need to consider one the electrical use, but then to the hardware itself for the computer.
If you're mining, Bitcoin, your computer needs to be able to perform intensive equations. And that means that you're probably gonna have to buy specialized hardware unless you have top of the model series.
Mine is an Nvidia RTX 30, 70 T. T I, which is retailing now between 600 to around $900. It's not cheap.
So is mining profitable? Can you make some money off of it? Well, right now I would say no. That's because the value of the crypto market has dropped considerably. So if you're looking for a quick win, this is not the way to go. But if you do believe that the value will go back up, you can mine it now and hopefully see that as investment for the future.
All right. So that is the basics of buying, selling, and mining. You probably have some more questions about it. If you're a newsletter subscriber hit reply and send your questions in, or go to our free Facebook group called thriving families, where we talk about that intersection of family finances.
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