Crypto 101: The Basics of Blockchain and Cryptocurrency
As the topic of cryptocurrency gains more and more traction, it’s becoming harder and harder to ignore — a fact that may feel unsettling to those who don’t understand it, and with good reason. Thanks to technical jargon and unfamiliar processes, there’s more than a slight learning curve when it comes to this new form of exchange. As US Senator Thomas Carper put it: “Virtual currencies, perhaps most notably Bitcoin, have captured the imagination of some, struck fear among others, and confused the heck out of the rest of us.”It’s not as confusing as we might assume, though. Or at least it doesn’t have to be. Before writing this article I didn’t know the first thing about Bitcoin, blockchain tech, or wallets. As in, zip, zilch, nada. Things only started to click for me once I met with Kelley Weaver (aka: @CryptoKelley), founder of leading cryptocurrency and blockchain communications agency Melrose PR and host of the Crypto Token Talk podcast. As someone who loves crypto and talks about it all day as part of their work, Weaver is great at simplifying a complicated topic and putting it in easy-to-understand terms. So, in the spirit of enlightening others as well, here are a few things I learned from her:
What are cryptocurrencies?
Cryptocurrencies, such as Bitcoin, Ether, Litecoin, and hundreds of others, are virtual currencies that use cryptography (the conversion of information using complex math equations) to secure and verify their transactions. Unlike traditional currencies, cryptocurrencies are completely decentralized, meaning they are neither issued by the government nor controlled by a central banking system. Cryptocurrencies are also unique in that their transactions can be irreversible, anonymous, globally accessible, and extremely secure.
How do cryptocurrencies work?
In order to use any cryptocurrency, a person will first need a cryptocurrency wallet, which is a secure digital wallet used to store, send, and receive cryptocurrency. Once a person sets up their wallet and acquires cryptocurrency through an online trading platform called an exchange (like Coinbase), they’ll then be assigned an address (called a “public key”), and a password (called a “private key”). The address is a unique string of characters used to receive funds (just like a person’s email address in Venmo), and the password allows them to send funds from their address.
What is cryptocurrency useful for?
According to Weaver, cryptocurrency is simply an investment for most people. “You can use Bitcoin on Overstock, Expedia, and other sites, but because the price is so volatile it’s not the best thing to use on transactions and purchases.” Because of such volatility (prices sometimes gain or lose hundreds or even thousands of dollars over the course of a day), it is wise not to invest more than you can afford to lose, and to invest in it over a period of time to minimize the risk. It’s also important to keep in mind that cryptocurrencies are taxed like property, so you’ll probably want to keep it for at least a year because every time you transact with it you have to pay capital gains on it.
What about the blockchain?
Blockchains are the technology that enable cryptocurrencies and make them so unique. Every cryptocurrency has its own blockchain, which is a type of database that essentially functions as a public ledger of every transaction that has ever been made. As new transactions happen, they’re grouped into “blocks,” which, once cryptographically verified, are then linked to the blocks before it -- thereby forming a “chain” of information. “Instead of one big ledger that’s only shared within a bank, the blockchain is shared across hundreds of thousands of computers that all run a software that encrypts and timestamps each transaction,” Weaver explains. “After it’s recorded, that transaction can never be changed, making it possible to keep track of every person’s account based on the history of the chain.”
Where can I learn more?
Admittedly, the information in this article just skims the surface of crypto and blockchain tech. To go more in-depth and learn more, Weaver’s podcast, Crypto Token Talk, is a great resource. She also recommends the Unchained podcast and the book Digital Gold by Nathaniel Popper about the history of Bitcoin and cryptocurrency. Amy Cummins is a writer and marketing professional based in Los Angeles. She is passionate about creating meaningful dialogue and empowering others through her writing, which has been featured on The Huffington Post, Darling Magazine, and POPSUGAR, amongst other blogs and websites. You can connect with her on Instagram and her website.
