Best beginner’s guide to understanding cryptography and the crypto market.

It was possible to travel for days, or even weeks, without ever hearing about cryptocurrency, except in San Francisco.

Now, suddenly, it’s inescapable. One way you’ll see Larry David and Matt Damon advertising crypto start-ups. You can swivel your head, and you’ll see that it’s the mayors from Miami and New York City arguing about who loves Bitcoin less. Two N.B.A. Two N.B.A. arenas have been named after crypto companies. It seems like every corporate marketing team in America has jumped onto the NFT (or nonfungible token) bandwagon. (Can I get you one of the new Pepsi “Mic Drop” NFTs? Perhaps something from Applebee’s “Metaverse Meals” NFT collection inspired by its “iconic” menu items?

Crypto! It seemed like a temporary tech trend that most people could ignore for years. Its power, both cultural and economic, is too great to ignore. According to a recent Morning Consult poll, 26% of Americans and 36% of millennials own cryptocurrency. Coinbase, a crypto trading app, has been on the App Store’s top charts at minimum twice over the past year. The crypto market today is worth approximately $1.75 trillion, roughly equal to Google. In Silicon Valley, executives and engineers are running from their comfortable jobs to join the crypto goldrush.

The rise of crypto has sparked a polarized discussion. While its most loyal fans believe it is saving the world, the biggest skeptics think it’s a fraud. It’s a speculative bubble that will destroy the environment and be sold to greedy dupes.

Since almost a decade now, I have been writing about crypto. During that time my views have oscilled between extreme skepticism or cautious optimism. Although I may admit it, my crypto moderation is what I describe myself these days.

I agree with the skeptics about the fact that a lot of crypto market assets are overvalued, hyped, and possibly fraudulent. I also disagree with pro-crypto zealots’ utopian claims (such as Jack Dorsey’s claim that Bitcoin will bring world peace).

As I have experimented with crypto more, including accidentally selling an NFT for over $500,000 at a charity auction last December, I have come to realize that it’s not all about cynical money-grabs and that there are actually things of substance being built. In my work as a tech journalist, I have learned that when money, talent, and energy flow toward a new idea, it is generally a good idea for me to pay attention, regardless what your opinions are.

Crypto is not terribly explained, however, this is my strongest belief.

I spent months researching crypto over the past few months. However, I was disappointed to find that the majority of beginner’s guides were based on mediocre podcasts, poorly researched YouTube videos, and blogs written by naive investors. However, many anti-crypto views were undermined by outdated arguments and inaccuracies. For example, the claim that crypto is good to criminals despite the growing evidence that it’s a poor choice for illicit activities.

What I could not find was a clear, objective explanation of crypto — its purpose, how it works, and who it is for — as well as answers to many of the most frequently asked questions.

This guide, a mega-F.A.Q. really, is an attempt at fixing that. It will explain the basics as clearly as possible, and answer any questions that a curious, but open-minded, skeptic may have.

While crypto boosters may disagree with my explanations and dug-in supporters might find them too generous, they will most likely agree with me. It’s okay. I don’t want to convince you crypto is bad or good, that it should not be celebrated or outlawed, or that investing is going to make you rich. This is just to help you understand things. Each section also includes a list with reading suggestions that will help you get deeper into the subject.

It is crucial to understand crypto, especially if you are naturally skeptical.

First, crypto wealth and ideologie will be a transformative force for our society in the future.

You may have heard of the Lamborghini-driving Bitcoin bros and Dogecoin millionaires. It’s only half of the story. The cryptocurrency boom has created vast new fortunes at an unprecedented rate — the closest analogy is probably the discovery and production of oil in the Middle East. It has made its biggest winners some of the most wealthy people in the world almost overnight. While some riches may disappear if the market crashes or collapses, enough has been cashed out so that crypto’s influence will last for many decades.

The meme-crazed, crypto-crazed online culture can make cryptocurrency seem shallow and trite. It’s not. It’s not. Bitcoin was born out of the 2008 financial crisis. It gained popularity among anti-establishment activists and libertarians who saw it the foundation of a new, uncorruptible monetary system. Other crypto realms have pursued similar lofty goals since then, such as building a decentralized and unregulated version on the blockchain of Wall Street.

Already, we are beginning to see crypto money moving toward the U.S. political systems. Crypto entrepreneurs are giving millions of dollars to candidates, causes, and lobbying companies have spread across the nation to support pro-crypto legislation. Crypto moguls will finance the campaigns of crypto-friendly candidates or run for office in the future. Others will continue to sell influence by funding think tanks and forming super-PACs. Others will attempt to avoid partisan gridlock entirely. (Crypto millionaires have already bought up land in South Pacific to create their own blockchain utopias.

The rise of crypto is likely to make it one of the most important wedge issues in history, forcing politicians around the globe to choose sides. Some countries like El Salvador, whose crypto-loving president Nayib Bukele recently announcedthe construction of a “Bitcoin City”, at the base a volcano, will embrace full crypto. Others may decide crypto is a threat and crack down on it, just like China did last year when it banned cryptocurrency trading. The gap between pro-crypto and non-crypto zones around the world could be at least as wide as that between the American and Chinese internets, or even greater.

We have seen in America how crypto can disrupt the traditional partisan allegiances. Ex-President Donald J. Trump and Senator Elizabeth Warren (Democrat from Massachusetts) are united in crypto skepticism. Senator Ted Cruz, a Republican from Texas is in the bullish camp with Senator Ron Wyden, a Democrat from Oregon. We’ve also seen what happens when the crypto community feels politically endangered, such as last summer when crypto groups rallied against a crypto-related provision of President Biden’s infrastructure bill.

I am implying that crypto, despite its snarky appearance, is more than just an internet phenomenon. It is an organized technological movement with powerful tools and wealthy true believers whose goal it is to achieve a total economic revolution and political revolution.


A second reason to be attentive to crypto is to understand it now and prevent it from becoming a destructive force in the future.

The most common criticism of social media apps such as Twitter and Facebook in the early 2010s was that they wouldn’t work well as businesses. Pundits predicted that social media users would soon tire of vacation photos from their friends, that advertisers would leave and that the entire industry of social media would fall apart. It wasn’t that social media was bad or dangerous, but that it was boring and corny. The idea was a hype-driven fad which would fade as fast as it arrived.

There were questions that nobody asked back then, at least not loudly: What if social networks are truly insanely successful? In a world where Twitter and Facebook are the most popular communication platforms, what kind of regulations should there be? How can tech companies that have billions of users balance safety and free speech? What product features can prevent online hate and misinformation causing offline violence?

It was too late by the middle of the decade when these were obvious urgent questions. It was already well-established that platform mechanics and ad based business models were in place. Skeptics, who could have guided these apps in a better direction if they had taken them more seriously, were left trying to limit the damage.

Is it possible that we are making the same mistakes with crypto today. It’s possible. It’s possible. However, no one knows for sure whether or not crypto will “work” in the grandest sense. Anyone who claims to know is selling something. There is money and energy there, and many tech veterans that I have spoken to say that the crypto scene today feels like 2010. Tech disrupting money instead of media.

They’re right if they’re not. If they are wrong, even partially, it is best to pay attention now before the paths are set.

A third reason to get into crypto is the fact that it can be really fun to learn about.

Yes, there are some dumb, shady, or self-deprecating things in this world. If you are able to look beyond the jargon and ignore the jokes, there will be a vast array of interesting, thought-provoking and strange projects. It is multidisciplinary and covers many areas of economics, engineering and philosophy. This makes it easy for beginners to get started. You want to discuss the impact of Austrian economics on Bitcoin development? You can probably find a Discord server to do that. You can join a DAO which invests in NFTs or you can play a videogame that pays in crypto tokens. Dive right in.


However, I’m not suggesting that crypto is diverse in terms of demographics. Surveys suggest that wealthy white men are a significant proportion of crypto-owners, while libertarians who own dog-eared “Atlas Shrugged,” are likely to be overrepresented among crypto millionaires. It’s not a single intellectual entity. Right-wing Bitcoin Maximalists believe crypto will free them from government tyranny. Left-wing Ethereum Fans want to overthrow big banks. Speculators who have no ideological attachments and just want to make a profit are also present. Many have very different opinions about crypto and these communities are constantly at odds. This makes it fascinating, especially when you have some emotional distance.

You might be surprised at the possibilities if you learn some crypto basics. It will be easy to understand why Steph Curry and Jimmy Fallon have switched their Twitter avatars into cartoon apes and why Elon Musk spent so much of the last year tweeting about a digital cryptocurrency named after a dog. Strange terms and phrases that you see on the internet — flippenings and rug pulls — will soon become commonplace. headlines such as “NFT Collector Sells People’s Fursonas For $100K in Right-Click Mindset Wars” won’t leave you wondering if your grasp on reality is losing its grip.

A kind of generational key, crypto can be used to help you gain cultural awareness and understand the actions and beliefs of today’s youth. Knowing a bit about New Age mysticism or psychedelics can help someone who is trying to understand 1960s youth culture, and knowing some crypto basics can help someone who is confused by new attitudes toward money and power feel more grounded.

Again, it doesn’t matter if you come out of these explainers a true believer or a dedicated skeptic. You can participate or not! I am only interested in understanding, and maybe some relief from the question that has consumed most of my professional and social life over the past few years.

“So … can I ask you a question about crypto?”

Let’s begin at the beginning: What exactly is crypto?

The word was used as shorthand to describe cryptography a decade ago. In recent years, the word has been associated more closely with cryptocurrency. Crypto is a term that refers to all technologies that use blockchains. These distributed ledger systems power digital currencies such as Bitcoin and also serve as the foundation layer of technology for NFTs, web3 apps, and DeFi trading protocol.

Yes, blockchains. Without getting into technical details, can you please remind me what they are?

Blockchains are simple shared databases that store and verify information cryptographically in a secure manner.

A blockchain can be compared to a Google spreadsheet. However, instead of being hosted by Google’s servers the blockchain is maintained by a global network of computers. These computers, sometimes called miners or validaters, are responsible for maintaining their own copies of the database and adding, verifying, and protecting the database from hackers.

Blockchains are… fancy Google spreadsheets?

It’s kind of! There are, however, three key conceptual differences.

A blockchain is first decentralized. It doesn’t require a company like Google to oversee it. The network’s computers do all the work using what’s known as a consensus mechanism. This is essentially a complex algorithm that allows them and others to agree on what should be in a database. Proponents claim that blockchains are more secure than traditional record-keeping systems because no one person or company can access the blockchain or alter its contents. Anyone trying to hack into the ledger or modify it would have to do so simultaneously.

A second important feature of blockchains are that they are usually open-source and public. This means that anyone can view the code of a public blockchain or see any transactions. Private blockchains are less important than public ones.

Third, Blockchains are usually permanent and append-only. This means that unlike a Google spreadsheet, data added to a blockchain can’t be deleted after it’s created.

It’s there. Blockchains are permanent, public databases that no one owns.

You’re getting it!

Remind me, how are blockchains related with cryptocurrencies?

Blockchains weren’t even invented until 2009 when Satoshi Nakamoto, a pseudonymous programmer, published technical documentation for Bitcoin. This was the first ever cryptocurrency.

To keep track of transactions, Bitcoin used a blockchain. It was significant because it allowed people to send money and receive money online without the need for a central authority such as a bank, an app like PayPal, or Venmo.

According to CoinMarketCap, there are approximately 10,000 different cryptocurrencies that can be used for cryptocurrency transactions. Many blockchains can also be used to store information of other types, including NFTs and self-executing code, known as smart contracts, without the need of a central authority.

Okay, can we go back a second? Weren’t tech experts telling us years ago that crypto was an exciting new form of money? Yet, no one I know buys their groceries or pays rent in Bitcoin. These people were… wrong.

Good question. You’re right. Today, almost no one pays for items in cryptocurrency. It’s partly because many merchants don’t accept cryptocurrency payments and high transaction fees can make it difficult to spend small amounts on everyday living expenses. It is also because Ether and Bitcoin have risen in value, making it more risky to use them offline. The counterexamples are often cited with pity. For example, the guywho bought two Papa John’s pizzas with Bitcoin in 2010. It was only $40 at that time but it would now be worth approximately $400 million.

It is also true that cryptocurrencies have seen a tremendous increase in value since their early days. However, they are not the main source of daily spending money for most people.

Speculation is a key factor in this growth. People are buying crypto assets with the intention of later selling them for more. It is partly because blockchains like Ethereum and Solana have broadened the possibilities of this technology.

Some crypto enthusiasts believe that Bitcoin’s prices will stabilize eventually, making them more valuable as a payment method.

What is the real purpose of crypto?

Many of the most successful applications of crypto technology right now are in finance and finance-adjacent areas. People use crypto to send money across borders to their family members, and Wall Street banks use blockchains for foreign transactions.

There have been many other experiments in crypto since the boom. There are cryptocurrency social clubs and crypto videogames, digital restaurants, and even -powered wireless networks.

These uses outside of financial are very limited. Crypto enthusiasts often argue that the technology is still very young and that it took decades for the internet to become what it is today. Because they believe that blockchains will one day be used for everything, investors are investing billions in crypto start-ups. The crypto ecosystem is attracting tons of developers , which is a good sign for any new technology.

I have heard crypto called a Ponzi scheme or a pyramid scheme. What does this mean?

Some critics believe that crypto markets are fundamentally fraudulent. This could be because early investors make a lot of money at the expense late investors (a pyramid scheme) or because crypto projects lure unsuspecting investors with promises for safe returns and then fall once more money stops coming in.

There are many examples of Ponzi and pyramid schemes in crypto. OneCoin is a fraudulent cryptocurrency operation that stole $4Billion from investors between 2014 and 2019. Virgil Sigma Fund was a $90M crypto hedge fund managed by a 24-year old investor who pleaded guilty to securities fraud . He was sentenced to seven years and a half in prison.

These cases are not usually what critics are referring to. They argue that crypto is an exploitative scheme with no real-world value.

Are they right?

Let’s now try to understand their case.

Contrary to buying stock in Apple, which theoretically reflects the belief that Apple’s underlying businesses are healthy, buying cryptocurrency is more like betting that an idea will succeed, they claim. Bitcoin prices rise if people believe in Bitcoin. People who stop believing in Bitcoin sell and Bitcoin prices fall.

The rational incentive for crypto owners to convince others to buy is therefore clear. If you don’t believe that cryptocurrency technology has intrinsic value, you may conclude that the whole thing is a pyramid scheme in which you make your money mainly by recruiting other people to join.

I feel a “but!” coming on.

But! Despite the fact that there are many scams and frauds in crypto and that crypto investors love to recruit others to buy in to it, many investors will tell their clients that they have no idea what is going on.

They believe crypto technology is intrinsically valuable and that it will appeal to all types of businesses and individuals in the future. They’d tell you that they are betting on crypto technology, not crypto idea. This isn’t much different than buying Apple stock, which is a way to predict the popularity of the next iPhone.

Matt Huang, a well-known investor, spoke on behalf of many crypto enthusiasts when he stated that Crypto may appear like a speculative gambling house from the outside. Many are distracted from the truth that the casino is a Trojan horse with a hidden financial system.

This position can be argued or disputed. Crypto investors believe it is worth something.

Crypto is regulated?

It is only slightly. Only slightly. Some countries have more stringent regulations while others, such as China, have prohibited cryptocurrency trade entirely.

Crypto is much more relaxed than the traditional financial system. Crypto assets such as “stablecoins”, which are coins whose value is tied to government-backed currencies, have few regulations. The Internal Revenue Service does not provide clear guidance on how crypto investments should be taxed. Some areas of crypto are not regulated at all, such as DeFi (decentralized financing).

It’s partly because it’s still in its early stages and new rules take time. It’s also a property blockchain technology, which is often difficult for governments to control.

This question is from the (apparently cryptocurious) rapper Cari B : Will crypto replace the dollar?

Sorry, Cardi. Cardi, it’s not possible to dislodge the dollar, which is the world’s reserve currency. To give an example of the magnitude of the task, every financial contract that was denominated by dollars would need to be re-denominated using Bitcoin or Ether or another cryptocurrency.

If crypto is to ever replace government-issued currency, there are technical hurdles that it must overcome. The most popular blockchains, Ethereum and Bitcoin, are slow and inefficient when compared to traditional payment networks. The Ethereum blockchain can only process 15 transactions per minute, while Visa claims it can process thousands.

To replace the dollar with a cryptocurrency like Bitcoin, you would need to convince billions to use it. A currency that fluctuates in value, isn’t backed government-wide, and can often be lost if stolen, would be difficult.

Which kind of people invest in crypto? It all sounds too good to be true, as a quote from a recent episode of “Curb Your Enthusiasm”, “nerds & Nazis strong>”

It is difficult to determine who is investing in crypto because a lot of the activity happens anonymously or under pseudonyms. However, some surveys and studies suggest that crypto is still dominated affluent white men.

Gemini, a cryptocurrency exchange estimated that only 26 percent crypto investors were women in a recently released report. According to the group, the average crypto owner was a 38-year old man earning approximately $111,000 per year.

However, crypto ownership appears to be diversifying. Pew Research Center’s 2021 survey showed that more Asian, Black, and Latino adults had used crypto than white adults. Some studies suggest that crypto adoption is increasing in other countries than the United States.

Tressie McMillan, my colleague, has made it clear that crypto, because it relies upon permanent, irrefutable records ownership of digital goods or currencies, is especially attractive to people from marginalized communities, who may have lost their property in the past.

She wrote that “if I lived in a community where police use eminent domain for my private property, and I can do nothing about it,” the feeling of everyday powerlessness would make blockchain seem pretty appealing.

However, recent studies also showed that only a small percentage of crypto wealth is owned by people — it’s not an egalitarian paradise.

What about extremists? What about extremists?

Some people are. You can use your name and have a cryptocurrency account to buy or sell. This made crypto a natural choice for those who wanted to avoid traditional financial systems. These included tax evaders, criminals, and those who buy and sell illicit goods. They also included political dissidents or extremists who were sometimes kicked off mainstream payment services such as PayPal and Patreon.

Some extremists have made a fortune from their timely entry to the crypto market. An investigationby Southern Poverty Law Center revealed that prominent white supremacists made millions or hundreds of thousands of dollars investing in crypto.

There are millions of crypto users, but most of them aren’t white supremacists. And the same properties of anonymity and censorship-resistance that make crypto useful to white supremacists might also make it attractive to, say, Afghan citizens fleeing the Taliban. It would be a mistake to call the entire crypto movement an extremist organization. It’s clear that crypto is attractive to many people who don’t want to deal with traditional banks or can’t legally do so.

Another criticism that I have heard is that crypto is bad news for the environment. Is this true?

This can of worms is one of the most common objections to crypto.

Let’s begin with what we do know. Blockchains are the most popular method of crypto transactions today. They require huge amounts of energy to store and verify transactions. These networks employ a “proof of work” consensus mechanism. This is a process that can be compared to a global game where computers compete to solve cryptographic puzzles and receive a reward. These puzzles require powerful computers that in turn consume lots of energy.

According to Digiconomist, which tracks crypto energy usage, the Bitcoin blockchain consumes approximately 200 terawatt-hours per year. This is comparable to Thailand’s annual energy consumption. The associated carbon emissions from Bitcoin have been calculated at approximately 100 megatons per annum, which is similar to the Czech Republic’s carbon footprint.

Holy moly! How can crypto enthusiasts justify such an environmental impact?

These statistics are often disputed by crypto advocates. They also claim that:

* The existing financial system uses a lot more energy than we think. This includes powering the millions of banks, A.T.M.s, idle bank branches, and gold mines.

* A lot of crypto-mining computers use renewable energy or energy that would otherwise go to waste.

* Newer blockchains use consensus mechanisms that consume less energy than proof of work. Ethereum is set to change to proof-of-stake, a new type consensus mechanism that could cut down on its energy consumption by up to 99.5 percent.

Are those arguments valid?

It’s convenient to distract attention from Bitcoin, which remains the most valuable cryptocurrency worldwide. Bitcoin’s energy requirements are not expected to drop significantly in the near future. Even if all Bitcoin miners used renewable energy, which is not the case, there would still be an environment cost associated with maintaining the Blockchain.

It’s evident that crypto, as we know, has a significant impact on the environment, although it’s difficult to quantify exactly how much. Industry groups often cite statistics, but it is difficult to find reliable, independent data or analysis.

Few crypto enthusiasts would argue that blockchains consume significantly more energy than traditional, central databases. It is similar to how 100 refrigerators use more electricity than one. They simply argue that crypto’s environmental impacts will decrease over time and that decentralization has many benefits.

It’s there. These benefits are again…

Many crypto advocates will tell you that decentralization has the greatest benefit. You can create apps, currencies and virtual economies that are immune to censorship or top-down control. They’ll tell you to imagine a Facebook version in which Mark Zuckerberg wouldn’t decide to expel people.

Others will argue that decentralization has the greatest perk because it allows creators and artists to direct their economic destiny. They have the option to use NFTs or other crypto assets to bypass platforms like YouTube and Spotify and to sell their unique digital works directly directly to their followers.

Others will argue that crypto is best for people who do not live in stable currencies or dissident groups under authoritarian regimes.

Decentralization and crypto could bring many other benefits, some of them real and some not.

What is the best way to use crypto? It’s like sending money over Venmo or Paypal.

It is possible. It is possible to start using cryptocurrency quickly by opening an account at a crypto exchange such as Coinbase. This account can be linked to your bank account, and allows you to convert U.S. Dollars (or any other government-issued currency), into cryptocurrency.

Many crypto users prefer to set up their own “wallets”, which are safe places to store their cryptographic keys, which unlock their digital assets.

Once you have crypto in your wallet, it’s easy to transfer the funds. Just enter the recipient’s address and pay the transaction fee if applicable.

While other types of crypto transactions like NFT buying and selling can be more complex, the simple act of sending payment to someone takes just a few seconds.

I am ready to dig into your explanations. First, let me ask you a final question about crypto’s cultural background: Why is it so bizarre and isolated?

This is probably the most common question I am asked about crypto. People often see their family members, friends, and coworkers fall down the crypto rabbit hole, and emerge days or weeks later with new obsessions, new internet friends and a lot of new jargon, and a seeming inability talk about any other topic. This is known as “cryptopilled” or believing in crypto. People who believe in crypto can seem more like evangelists of a new religion to the outside world than they are fans of the technology.

I once worked as a reporter for religion, so the analogy is not completely off-base. It’s not necessarily a bad thing. Many people find meaning, community, and intellectual stimulation in religion. People like Joe Weisenthal, a Bloomberg journalist, have noted that crypto shares many elements with emerging religions, including an unknown founder (the still-anonymous Satoshi Nakamoto), sacred texts (the Bitcoin paper), and rituals and rituals to identify yourself as a believer. These include tweeting “gm”, which is crypto speak for “good day”) to fellow believers or photoshop laser eye onto your profile pic.

It’s great to have a good time laughing at the (often grotesque) ways that crypto enthusiasts try to inspire and entertain each other. However, focusing too much attention on their behaviour and habits could lead to missing the truly innovative and dangerous aspects of the technology. When my friends ask me how I can talk to cryptopilled family members, I tell them to first try to understand why they are so excited.

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