We have said it many times before: neither of us is in this for the financial aspect of it. Said and I are not interested in cryptocurrencies primarily because it can make us rich, but for the philosophy that led to their inception: decentralization, censorship and corruption resistance, resilience, distribution of power. These are things that the world seems to desperately need, and that cryptocurrencies and the technologies they are based on have the power to realize at incredible scales. And yes, when an invention creates something the world needs, this invention tends to increase in value and make some people rich, but merely as a side effect.
Note that something that increases very fast in value does not necessarily implement something the world needs, it only has to promise it does, and there are a bunch of “parasite” technologies that pretend to be “like Bitcoin” but really are not. And there’s also a bunch of vicious people who try to sell you on those promises for the mere sake of making you (and themselves) very rich, without caring that much about all the other benefits I mentioned above. And finally there are people who would prefer to keep this opportunity for themselves, as if it was a zero-sum game: the more the merrier, but the less the richer.
That’s why we wanted to write this post, to serve as a quick introduction to cryptocurrencies and Bitcoin, to try and give honest information to those who would see some light right now, with 1 bitcoin just going over $30k, and would want to get in on the fun. Take it as it is, another opinion piece from two guys who learnt a lot about this space in the past few years, and simply want to have a link they can share with their friends and family coming up with that question: “How can I buy Bitcoin?”
This post is long but I tried to include the minimum information you need in order to know what you are doing when you get into this space. If you don’t know what you are doing, you can lose money very quickly, so please read it all. But here are the most important points detailed below:
– Bitcoin and other cryptocurrencies are a whole new kind of currencies
– they work without relying on traditional trust third parties like governments, banks and Central Banks
– they add a few very interesting properties on top of what fiat currencies offer: censorship and corruption resistance, resilience, transparency
– there are around 2000 cryptocurrencies to choose from, mostly based on the same principles but with different flavors
– some of those are not really cryptocurrencies, they are just scams
– to get into cryptocurrencies you need to use a wallet
– there are different types of wallets: online, software, hardware, cold storage
– wallet types vary in security and practicality level, the most secure is the least practical and vice versa
– each wallet type comes with a set of security measures to mitigate its risks
– the rate of cryptocurrencies in fiat currencies is essentially determined through speculation on marketplaces right now
– you can obtain cryptocurrencies either by participating in the consensus algorithm (mining or validating), getting paid in cryptocurrencies or by buying some on marketplaces or otherwise
– once you have cryptocurrency, you can either keep it, swap it, send it or sell it
– only bet what you can afford to lose and don’t play the short-term trader’s game, unless you really know what you are doing
– you can use blockchain explorers, news websites and a lot of other sources to keep informed
– have a look at other educational resources such as Andreas Antonopoulos’ Youtube channel or our own ebook to learn more
– be super careful about scams, phishing and social engineering
What is Bitcoin?
Bitcoin is a cryptocurrency, in other words, a new sort of currency. It offers most of the features of what is defined as a currency, but it does it in a completely different way than most currencies you might be familiar with.
What is a currency?
Through time and history, many different “things” have been used as currencies, that is as ways to formalize and coordinate exchanges of value amongst human communities. From Rai Stones to Cowry shells, from precious metals forged into coins to bank notes, and the numbers we have now gotten used to on bank accounts and credit card statements. Those are simply more and more sophisticated abstractions we have come to accept as ways to represent value, whatever that means. And since 2008, there is now a new kid on this block (pun intended): cryptocurrencies.
To make a long story short, to be considered as a currency, any “thing” should offer a maximum of features among the following:
- Scarcity: it should be rare, meaning that its creation (also referred to as minting) must be somehow controlled and regulated, and it shouldn’t be possible to create currency out of thin air, either willingly or by accident or mistake. If anybody can create currency units (aka money), either voluntarily or through faults in the system, then existing units will decrease in value and prices of goods and services will go up (inflation) in such a way that this currency can lose all of its value as an instrument.
- Fungibility/Uniformity: which is just a fancy term for strict equivalence. Any unit of currency should be strictly equal in value to any other unit of… well… equal value. Any one dollar bill should be accepted to have the exact same value as any other one dollar bill, any kilogram of pure gold should have the same value than any other kilogram of gold. Which highlight the importance of measuring both value and quantity of value, hence the next point…
- Divisibility: you should be able to combine several units of currency, or break any unit of currency into sub-units in such a way that if you receive a certain amount, you should be able to somehow convert it into or exchange it against any equivalent amount. You can change a 20-dollar note for 20 1-dollar bills. You can melt a 1-kilogram gold bar into 10 100-gram smaller bars, and ideally no value should be destroyed or lost in the process.
- Durability: whatever “thing” you are using as a currency to represent value, it should “stick” around long enough to enable at least one exchange, which makes precious metals much better than… say… ice for example. Or a gold bar better than the equivalent of paper notes in that regard. But not in others such as…
- Portability: if you are going to use something as currency, to facilitate exchanges and movement of value, it should be easily movable, which is one of the reasons why Rai stones were less popular than Cowry shells, or why bank notes became more popular than coins or gold bars.
- Acceptability: whatever you use as currency, the more people recognize its value, the better. So whoever accepts a certain object or “thing” as currency, trusts that they can later obtain what it’s worth in something else, be it goods, services, or an equivalent amount of this currency or another one. This is in part influenced by all the properties mentioned above, but also by more subjective or complicated ones like the law, desirability, perceived scarcity (sometimes different from actual scarcity), etc.
And throughout history, we have found better and better “things” to use as currency, but have often combined several of them at the same time, using one or the other preferably for one function or the other:
- As a medium of exchange
- As store of value (more long term), aka savings
- As a unit of account
- For keeping track of debts, aka credit and borrowing
But whatever currency you are using, you are trusting a set of conventions, tools and processes to create, maintain and guarantee the properties mentioned above, knowing that it is hard to protect all of them at the same time, and that maintaining them costs money in and of itself.
How does a currency work?
Up until pretty recently, the best way (and some would like you to think it is the only way) those properties could be guaranteed was through:
- The government and its Central Bank, who regulate those who are allowed to create and coordinate the exchange of money in the system
- Laws and regulations produced, maintained and enforced by governments and their branches
- The banks, who are the main operational corporations entrusted with carrying out that role
- A mix of coins, paper money, checks, computerized ledgers, payment cards and other financial instruments (e.g. shares, bonds, obligations, etc.) that are used to move currency around in different forms along different channels.
And as we said earlier, that’s where Bitcoin comes in: in 2008, after decades of research and experiments, some computer scientists figured out a way to create a new form of digital-only currency (no coins, no notes, no precious metal of any kind) that could be minted (aka created), moved around and stored without requiring any law, government, bank or Central Bank, but only based on mathematics (aka cryptography), software code and computers.
And it did a pretty good job at creating the properties of a currency:
- Scarcity: in Bitcoin, money is not minted according to a fluid monetary policy, but following an algorithm that determines when new units are circulated and how much. In the case of Bitcoin, every 10 minutes right now, 6.25 new bitcoins are created, and this amount is divided by 2 every 4 years or so until somewhere around year 2140 when the last bitcoin will be minted. Also, when you transfer fiat money between banks, they have to make sure that money credited on one side is effectively debited on the other side so that no money is created in the process, and this “double spending” avoidance system can be pretty complex and expensive to maintain. In Bitcoin, algorithms automate the entire process.
- Fungibility: Bitcoin is a digital currency, it doesn’t have any physical representation, so no way to lose value or degrade because of physical properties. Also, theoretically, the pseudonymous nature of accounts in Bitcoin, i.e. the fact that you cannot identify account holders guarantees that whoever holds a bitcoin or sends it across, that bitcoin has the same value. In practice though, some criminals have their Bitcoin accounts identified and since tracing transactions is so easy in Bitcoin, this dirty money is less desirable and cannot be as easily laundered as piles of dollar bills. Now before you tell me money laundering is a bad thing, that money should decrease in value if it comes from dirty hands, ask yourself how you would react if you received money from someone only to realize after the fact that a part of this sum is worthless because 6 months ago it belonged to Pablo Escobar.
- Divisibility: contrary to popular belief, you don’t have to buy entire bitcoins (right now, the value of one Bitcoin is over $30,000). Bitcoins are divisible up to 8 decimals. So in practice, 1 Bitcoin = 100 million satoshis (the smallest unit in Bitcoin), and you can buy, hold and exchange any number of satoshis you want.
- Durability: Bitcoins are created and tracked in a giant digital ledger that’s replicated and synchronized across thousands of machines throughout the entire world. So even if an entire country was wiped out or disconnected from the Internet, no bitcoin would disappear or be affected. The only weird thing that can happen is that, while still existing, an amount in Bitcoin can become out-of-reach if the private key (more on that later) that protects the account that holds it is lost. In that case, we say those Bitcoins have been burnt. They are still here, but they just cannot circulate anymore, so they are dead. But apart from that, again, due to Bitcoin’s distributed nature, so long as there is one computer holding and maintaining the ledger, all the bitcoins in the world are there. Hard to make something more durable.
- Portability: do I really need to explain that one? Completely digital currency, no physical representation make it super easy to move bitcoins around. In fact, you could even argue that bitcoins don’t move around at all, they just change owner in the ledger, just like the first bank notes denoted their value in gold stored somewhere in a bank vault. But in digital form.
- Acceptability: that is still the Achilles heel of Bitcoin, the last power of our governments and institutions. Right now, accepting Bitcoin as payment for goods or services is still very complicated for businesses in most jurisdictions. Because governments don’t accept them for payment of taxes, because banks don’t accept them directly (and have a tendency to bully anyone dealing in cryptocurrencies, I wonder why? ?). It’s pretty easy for individuals to accept payments in cryptocurrencies, but companies or corporations, due to their regulatory constraints, cannot do that without going through expensive and complicated intermediaries in weird jurisdictions where they can transform cryptocurrencies in fiat currencies and back. But yes, that’s a big problem, and not an easy one to solve because of the fundamental philosophical mismatch between centralized power-hungry institutions and decentralized networks.
And not only does it offer (almost) all of the properties mentioned above, but it adds a few very interesting ones to the mix:
- Censorship resistance: in the legacy system, one of the way that rules of the system are enforced is by unambiguously identifying everyone of its participants, at least in theory. In the banking world, this is known as Know-Your-Customer (KYC) regulations. But in practice, it is also used as a way to exclude from banking all sorts of people, who are not able to identify themselves or satisfy KYC requirements (ever tried to open a bank account in a country you are not a permanent resident of?), or whom the government doesn’t deem worthy of inclusion. This kind of censorship doesn’t exist in Bitcoin since anyone with a computer and an internet connection can create a Bitcoin account without having to identify themselves, which doesn’t prevent any of the guarantees mentioned above to be enforced.
- Corruption resistance: big institutions like banks and governments who act as gatekeepers in the legacy systems are also huge weaknesses in the system since they can be corrupted by those who have the power (and money) to influence laws, including those regarding who can create money, how much of it they are allowed to create, etc. This is more than a theoretical risk since over history, including the years that led to the subprimes crisis in 2008 (remember, same year as the inception of Bitcoin, how bizarre…), those big institutions have been identified as clear culprits in huge crises and downturns that have affected the entire system. Since, in theory, Bitcoin doesn’t need any of those gatekeeping institutions to functions, it also lacks most of the points of attack of the traditional system.
- Transparency: how many scandals, how many “Panama Papers”, “Luxembourg Papers” and others can we tolerate? Every single one reveals the total opacity of parts of the system. And even though such opacity is required (banking secrecy) to protect financial actors, sometimes it is also used to manipulate the system in such a way that it clearly endangers the properties that make it a currency system. In Bitcoin, all transactions are transparent, all movements can be traced from one account to another. The system is pseudonymous, meaning Bitcoin itself doesn’t contain any notion of human identity, only account numbers and transacted amounts, but all those transactions are there for everyone to see and verify that they respect all the rules of the system. Plus, the software code that Bitcoin runs on is totally open source, meaning that anyone with the ability to read that code can check what it does and even participate in its evolution, with a very low barrier to entry.
- Resilience: a lot of people still believe that our current financial systems are backed by gold or some other form of highly durable value. But the reality is that they haven’t been for a long time now. Basically since the seventies, all our financial systems are based on fragile rules and conventions. And those systems have known weak points that could be exploited or just collapse the whole structure that rests on them. Bitcoin being completely distributed across a network of thousands upon thousands of computers, so long as there is electricity and a few of those computers running, the currency, all its accounts and the value stored in them are completely safe.
So I know, it’s a bit of a long description, but there you have it: Bitcoin is a new form of currency, that maintains (almost) all the traditional properties of a currency, does it better in some regards, and adds a couple of very desirable properties on top.
Are there other cryptocurrencies?
Since the official launch of Bitcoin in January 2009 (the code for it was published in November 2008), and given the open source nature of its code, many clones of Bitcoin have been created. Some of those clones were basically identical to Bitcoin, others changed the code here and there to modify certain parameters of the system, like how fast new units could be minted, and so on. Others added even more features, properties, bells and whistles on top of what Bitcoin offered. To this day, there are a few thousand cryptocurrencies out there, but only a few of them gather most of the value in the space.
Each of those cryptocurrencies has their characteristics and properties, based on their code. Some of them are as open source as Bitcoin, some are completely proprietary (so not very transparent). Some are as decentralized as Bitcoin, some even more, and some much less so. The most interesting ones can usually be exchanged for legacy currencies (also called “fiat currencies”) like euros and dollars on various platforms called marketplaces or in the physical world (over-the-counter exchanges).
But a lot of them share characteristics that make it pretty easy to create as many accounts as you want for each one of them, and to move money around without asking for permission of any kind. So if you want, you can create yourself a bunch of accounts in a bunch of different cryptocurrencies to store them, send them to other accounts, exchange them and so on.
So how do I open a cryptocurrency account?
Cryptocurrencies rely on a key system called a “wallet”. This wallet can be used to:
- Create as many accounts as you want
- Keep track of the balances of your accounts
- Receive or send currency transfers with other accounts, either yours or someone else’s
- Sometimes they can also participate in storing and verifying transactions from the entire network
There are several sorts of wallets that offer some or all of the features above, with more or less security, and varying levels of practicality.
But they are all based on the same principles. Key among them (you’ll see what I did there) is the concept of address. The address is the account number of an account, kind of like the IBAN number for European bank accounts for example. It is the number that you can give to anyone and where people can send money to you. It can be public, there’s no risk in that, because it can only be used to send you money. But it is a long string of letters and numbers, that is almost impossible to remember or type. So you will usually copy/paste it around, or share a QR-Code that encodes it and can easily be scanned by a smartphone for example. When you create an account, it generates a random address that is closely related to another very important element called a private key.
Now, as its name suggests, a private key is meant to stay private. Anyone who has access to your private key can use it to send transactions from your account, so they can empty it. And this this is a decentralized system, without any bank to turn to when anything goes wrong, you are essentially your own bank, which comes with great power and great responsibility. The private key is closely related to the address in the sense that, for all intents and purposes, an address corresponds to one unique private key, one private key corresponds to one unique address, but it is impossible to guess the private key based on the address (except by trying so many possibilities it would take ages, even with the best computers of today). So the general idea is simple:
- when you create an account, you essentially generate 2 things, an address and a private key
- the address is used to send money to your account
- the private key is necessary to send money from your account
- a wallet can contain any number of those pairs
- most wallets will use a password, a pin code, or a series of secret words (aka a seed phrase or mnemonic) to protect your secret keys
- somebody or an institution who has your private keys can do whatever they want with your money, including making it disappear from your account
It is very important to understand that a cryptocurrency wallet does not contain your cryptocurrency, it only contains the private key that allows you to use that money, just as the key to a bank vault gives you access to that bank vault but does not mean you have its contents on you at all times. In the case of cryptocurrencies, the bank vault is just a big digitized ledger, stating how much money each address gives access to through its associated private key. So this ledger contains addresses, not private keys. But that also means that if you wish to keep one of your accounts anonymous, you should not publicly associate its address with your identity, like publishing it on your Twitter or Facebook for example. That information will be important soon.
So where can I get myself a wallet?
As I said before, there is a whole range of wallet types, from the least secure and most practical to the most secure and least practical. Let’s go over them before you do anything rash.
They are the easiest to create, manage and recover. You usually create them online (duh) on a marketplace like Coinbase or Binance for example. You simply create an account, usually with a login and password, and the whole way it works is very similar to all the online platforms you are already familiar with, like your social media or your online banking app for example.
Most of those online wallets support several cryptocurrencies and they also give you the possibility to exchange between different cryptocurrencies themselves as well as between cryptocurrencies and fiat currencies. So for example, you can use them directly to buy bitcoins with euros, to sell Ether (the second most popular cryptocurrency) and get dollars, or even to exchange bitcoins for ether directly. And of course, most of these transactions, especially the ones that get fiat currencies into and out of your marketplace account, come with hefty transaction fees that are the bread and butter of these marketplaces. But we’ll come back to that when we talk about how you can get cryptocurrency and what you can do with it.
When I said that those online wallets were the easiest ones to use, that ease of use comes at a price of course. Transaction fees, but also a security price. When you use those marketplaces to create an account, you are effectively delegating your power to them to create addresses and store associated private keys. So they play the role of the bank. So much so in fact that they operate as regulated companies, with a lot of the same KYC requirements, associating your cryptocurrency addresses with your real identity. But the biggest security risk is that, if they get hacked, if somebody gets access to their computers, they can also get access to your private keys and steal your money, which has happened quite a few times already. Not to mention the possibility for the managers of those platforms to do some pretty shady things with your money without you even knowing about it.
So again, practical, but not secure. Hence a few recommendations are in order:
- If you create an account on such a marketplace, enable 2-factor authentication (2FA) and use a 2FA app like Google Authenticator or Authy as a second factor, not your phone number, because SMS text messages are not safe (especially in the US, ever heard of SIM swapping?)
- Make sure the email address associated with your marketplace account is very secure too, with 2FA enabled and all that, otherwise somebody who gets access to your email account can trigger a reset password process on the marketplace and steal all your money away
- When you buy cryptocurrency on these marketplaces, use your accounts there only as transitional accounts, meaning transfer your cryptocurrency from the marketplace account to another account managed by one of the other kinds of wallets we will talk about later, where you will have full control of the private keys. This transfer will only take a few seconds to a few minutes, and cost you a few cents, but your money will be much safer.
- And then when you want to sell cryptocurrency on these marketplaces, to get back dollars or euros for example, do a transfer in the other direction just before selling.
- Only use marketplaces that are popular and have a lot of volume in transactions. Smaller marketplaces are easier targets for hacks and have less of a reputation to defend.
These security measures are far from being exaggerated. A lot of people have lost a lot of money like that. And of course those marketplaces will rarely tell you about this because the more cryptocurrency you leave in your online account, the more they can play with it.
One point of note though: most of these marketplaces have some form of insurance in place, so if you lose some of your cryptocurrency because the marketplace got hacked, they can refund part or all of the lost money. But if the mistake comes from you, it is your problem.
You can find a pretty complete list of marketplaces on CryptoCompare.
Software wallets (aka hot wallets)
A software wallet is an application that you can install on your computer or on your mobile device. As such, they are only connected to the internet to let you interact with the network, to receive or send money, and to let you keep track of the balances of your accounts. But their primary responsibility is to store your private keys as securely as possible, and to prevent anyone else to access your accounts… theoretically.
Because whatever happens, your private keys are still stored on a device that is directly connected to the internet, so if your computer or your smartphone is infested with a computer malware, or somebody gets access to your devices somehow, they can suck money out of your accounts. And remember: great power, great responsibility. So if you get money stolen that way, there is no one to turn to, you are on your own.
Some software wallets are multi-currency, like for example Exodus or Coinbase Wallet (not to be confused with Coinbase, the marketplace, even though they are both offered by the same company, they are not the same thing). Other wallets are offered by the open source community of each cryptocurrency and they are the most secure and decentralized option possible, but they can only deal with their own cryptocurrency, and they can take up more space on your hard drive on in your phone storage because they also store a partial or full copy of the cryptocurrency ledger.
So a few security recommendations about software wallets:
- Make sure you only download them from the official source, because if you download and install a corrupted copy, you could end up losing your money.
- Keep them up-to-date.
- Only install them on devices you trust the security of, protected with security measures like hard drive encryption, a solid password or biometric entry (FaceID, TouchID, that sort of thing), and all the antivirus software that makes sense.
- When you install a software wallet, you usually have to go through a security procedure where it asks you to write down a series of words (seed phrase) or to create a password or a PIN code. Don’t skip those procedures, they are your only safeguard in case your laptop is broken or your phone gets lost or stolen. So generate complicated passwords and PIN codes, and save all of that in a password manager (more on that later) or in a very safe place (no post it note on your screen or any of those shenanigans).
- When you type your password or your PIN code to unlock one of your accounts to make a transfer, always have a look around you, be careful about security cameras if you are in a public place and things like that. And again, biometric unlocks are best, nothing to type, hard to steal or copy.
Here is a (non-comprehensive) list of some software wallets:
|Exodus||More than a 100 cryptocurrencies and tokens||Windows, Mac, Linux, Android, iOS (links on the website)|
|Electrum||Bitcoin||Mac, Windows, Linux, Android (links on the website)|
|Coinbase Wallet||Bitcoin, Bitcoin Cash, Ethereum, Ethereum Classic, Tezos, LiteCoin and a lot more||Android, iOS|
|Argent||Ethereum and associated tokens||Android, iOS|
|Trust||A lot of cryptocurrencies and other assets||Android, iOS|
|Metamask||Ethereum and associated tokens||Android, iOS, Firefox, Chrome, Edge, Brave (links on the website)|
|Huobi||A lot of cryptocurrencies||Android, iOS|
For Bitcoin specifically, you can find a bunch of wallets there.
Hardware wallets (aka cold wallets)
Hardware wallets are physical devices that keep your private keys isolated from the Internet. The way private keys are used in cryptocurrencies is to digitally sign transactions going out of your account. In other words, when you send money from one of your accounts, your need to create a transaction and sign it digitally using your private key to certify that you authorized that transaction. And that’s why private keys are so critical because anybody who has access to your private key can “forge your signature” so to speak. In a hot wallet, private keys are stored on your computer or smartphone that is directly connected to the internet, making your private keys more vulnerable. In cold wallets, private keys are stored on a physical device that is connected to your computer or smartphone, but not directly to the entire internet, which makes it easier to secure.
With a cold wallet, when you need to send money out of your account, here is what generally happens:
- The transaction is created on your smartphone or computer but not signed yet, inside of a special application that can communicate with your hardware wallet.
- You connect your hardware wallet to your computer or smartphone, either through USB or Bluetooth.
- The application mentioned above sends the unsigned transaction to the hardware wallet over a very secure channel.
- You can see and verify the details of the transaction on your hardware wallet if it has a screen of some sort. If you want to sign the transaction, you can press a button on the hardware wallet.
- The transaction is signed on the hardware wallet and sent back to the application on your computer or smartphone.
- The application broadcasts your signed transaction to the rest of the network through the internet without having seen any private key directly.
As you can see, the process of sending money from your cryptocurrency accounts is a little more involved, but it is by far the best security/practicality compromise once you start to have a few thousand dollars worth of cryptocurrency in your accounts.
Those hardware wallets are designed to make it super hard to tamper with physically, but they are not perfect, so here are a few security measures to mitigate those risks:
- NEVER buy a hardware wallet second hand, only from the official store of the manufacturer. Because each hardware wallet comes with a unique hard-coded seed phrase (aka mnemonic) that makes it possible for anyone who knows it to create a copy of your wallet and steal money you store in it (look up supply chain attacks).
- When you receive your hardware wallet, make sure the box is still blistered and that every tamper proof element on the packaging is still intact.
- Most hardware wallets use a PIN code to further secure your private keys: don’t use 1234, or anything too easy to guess as your PIN code, otherwise it sort of defeats the purpose.
- When you install the companion application to your hardware wallet, make sure you get it directly from the source: just like in the case of hot wallets, a corrupted version of this software can steal your money without you even knowing. For example, there’s been a lot of phishing attacks lately surrounding Ledger hardware wallets, because their marketing databases were hacked, so hackers have been able to send targeted emails to Ledger customers asking them to download a corrupted update of the Ledger Live application. It doesn’t break the security of the Ledger hardware wallet itself, but it can steal your money by asking you for your seed phrase if your are not careful. Never input or your hardware wallet’s seed phrase anywhere else than in the hardware wallet itself, and never share it with anybody.
- When you set up your hardware wallet, it also takes you through a security procedure, asking you to write down your seed phrase in order to be able to recover your funds if you lose your wallet. Don’t skip that part and make sure you store your seed phrase in a safe place (I personally store my seed phrase in my password manager, but some people write it down on a piece of paper and keep that piece of paper in a bank vault for example… how ironic…). Some people lost a lot of money by forgetting their seed phrase.
- When you enter your PIN code on your hardware wallet, make sure nobody can see you, and don’t leave your wallet lying around unattended.
Here are a couple of popular hardware wallets to look into:
Cold storage wallets
Probably the most extreme form of cryptocurrency storage, the most secure but also the least practical, is what we call cold storage. I know it’s confusing with cold wallets, but that’s because the principle is the same: you keep your private keeps away from any device directly connected to the internet. However in the case of cold storage wallet, the idea is that the private key is not stored on any digital device at all, which makes it impossible to use it to send money out of the associated account without “reheating it” first. In a sense, we should call those wallets “frozen wallets”, but I just coined the term (pun intended) so don’t @ me on it.
In essence, a cold storage wallet is like a drop box: very easy to send money to, but very hard to send money out of. To create such a wallet, it is best to use a computer or a device that can generate a private key without storing it permanently and without any connection to the internet. You then write down or print out this private key, or any representation of it (seed phrase, QR-Code, etc.) to a physical element like a piece of paper that you can laminate, a block of steel or anything that can withstand the elements and time, and then you make sure to clear the memory of the computer and any device the key went through (like the memory of your printer if you printed it out). And finally, you store that physical memory of your private key somewhere really safe.
This way, somebody who wants to steal money stored on that account needs to gain physical access to your unique copy of the private key, reheat it by typing it into a connected wallet (any of the 3 types above) and it’s your job to make it as hard as possible.
Of course, this type of wallet is only adapted for long term storage of larger quantities of cryptocurrencies, and you won’t use that for daily trading or even simple day-to-day transactions.
Here are some security measures to take into account:
- Make sure your physical support can withstand fire, humidity and other elements. If you use paper, laminate it. If you carve it in metal, use very durable metal with a high fusion temperature like steel (rather than aluminum for example).
- If possible use a tamper-proof device with a seal that lets you detect if somebody accessed your private key without your knowledge.
- Store it in a place that’s protected from the elements.
- Make it hard to find.
- You can also divide your private key into several chunks stored on physical devices in several places if you really want to go overboard.
Here are a few interesting devices you can use to create “frozen wallets”:
How is the rate of cryptocurrencies determined?
First of all, it’s important to keep in mind that there is no single official rate for cryptocurrencies. Rates are specific to marketplaces where exchanges between cryptocurrencies and fiat currencies happen. In general, they tend to be pretty close to each other, because they depend only on offer and demand, and if a marketplace has enough volume, its rates tend to align closely with others. Usually data sources that track rates try to average several marketplace rates to give you a general idea, but there is nothing absolute about it.
Second of all, you have to understand that in the fiat currency world and in the cryptocurrency world alike, there is no physical backing anymore. Nothing has its value based on precious metals, except the value or precious metals themselves.
But in both worlds, how many currency units are in circulation tends to have an impact on the value of currencies. So when the American Fed starts printing trillions of dollars and as people become more and more aware of it, it makes them fear that individual dollars are going to be worth less and less, so they exchange their dollars for something else, something more rare for example, and by doing that all at the same time, the price of dollars drops, thus fulfilling the prophecy they made in the first place. The fact of the matter is that we know precisely how many Bitcoins have ever been created, and we have a vague idea of how many of them have been burnt, so we have at least an upper bound for the total number of Bitcoins (about 18.5 million as of December 17th 2020) and how many will ever be produced (21 million or so). There is no such upper bound for dollars or euros for example. It all depends on policies, governments and central banks.
Another factor that plays a role is the price of stuff. As long as you can buy a lot of different products and services with a currency, the price of these things creates reference points that add inertia to the whole system. Prices can go up and down through inflation and deflation, but that’s another factor. In the case of Bitcoin and other cryptocurrencies though, since their acceptability is sill pretty low, there is no such dampening effect of prices on the value of currencies, which is part of the reason why cryptocurrencies tend to be more volatile.
Then there is the flip side effect of low transaction costs. In the fiat world, when you want to sell or buy a share or deal in a lot of other financial instruments, it usually requires you to go through intermediaries who charge commissions, regulatory hoops that take time, and so on. In cryptocurrencies, there are fewer and smaller obstacles on the way of transactions, which partly explains how movements in rates can be so erratic and sudden at times.
Of course, speculation is probably one of the biggest factors in a lot of cryptocurrencies then: people bet on what other people will do. You have all sorts of “psychic” traders who try to convince you they found a mathematical system to predict where the rates are going to go on any given day, but there is so little inertia, and let’s face it, so little physical anchoring, that those short term predictions are rarely more than wishful thinking. It is possible to observe long term large scale trends over several months and years, but that’s pretty much it.
About physical anchoring, it is still important to remember that most cryptocurrencies still rely on a process called mining (or Proof-of-Work) to secure their ledger, and that process is designed to be energy and hardware intensive. So the price of hardware and the price of electricity tend to influence the value of cryptocurrency a bit too. But some cryptocurrencies, including the second highest market cap one (Ether), are moving to another security process called staking (or Proof-of-Stake) that take the price of hardware and energy completely out of the equation. So a lot of changes are to be expected on that front.
When you learn about a cryptocurrency in particular, try to figure out if it has any intrinsic usage. For example, internally, Bitcoin is being used to reward miners for the hardware and electricity they invest into the system, but that’s basically it. In contrast, in Ethereum (the network where Ether cryptocurrency is created and exchanged), Ether is used to reward miners too (soon stakers), but it is also used to pay for the execution of a special kind of software called smart contracts. And as these smart contracts do more and more useful things, so does their value and the desirability of the currency used to run them.
Finally, always keep an eye on technology and innovation. Cryptocurrencies are not static things, and even though some networks (like Bitcoin) are way more conservative than others (like Ethereum), their technology still evolves on a regular basis, improving performance, offering entirely new features to their cryptocurrency, making them more desirable. Very few speculators actually understand the subtlety of this evolution, and those technologies are still relatively young so it will take time before technology really differentiates them from one another. But it is an important factor to take into account, especially if you are in it for the long run.
So in summary, the price of cryptocurrencies is mostly denominated in terms of fiat currencies, because that’s the main reference people have in mind and there are big easy checkpoints with enough transaction volume to get numbers.
How can I get cryptocurrency?
There are mostly 3 ways to obtain cryptocurrencies: through participation in the ledger security process (mining/staking), by getting paid in cryptocurrencies and of course by buying it.
In the legacy banking system, it’s the job of the banks to make sure that all transactions are consistent and that no money is created by mistake. Different banks in different countries implement complex measures and rely on intermediaries (clearing houses and so on) to guarantee the integrity of the system. It’s expensive and it is slow.
In cryptocurrencies, this role is played by an algorithm called the consensus algorithm. This algorithm uses a set of mathematical rules to resolve inconsistencies and make sure for example that no amount of money is sent simultaneously to two different addresses (double spending). Given that this algorithm is automated and runs on computers belonging to unidentified entities around the world (trustless), to avoid any manipulation, the people running this algorithm on their computers are asked to make a substantial security deposit of sorts that they can lose if they don’t follow the rules of the algorithm. And since they don’t want to lose more money than they would gain by trying to cheat the system, they play by the rules (crypto-economics, game theory).
In Bitcoin and in most cryptocurrencies, this consensus algorithm is of type Proof of Work, which implies the investments that miners (that’s the name of the people running the algorithm on their computers) make is in the form of energy and hardware. It takes powerful computers and a lot of electricity (NB: not more than what is needed by banks and central banks around the world to run their systems) to do this. And each time a miner adds a bunch of valid transactions to the global ledger (aka a block), they get automatically rewarded with a brand new quantity of cryptocurrency (which is the only way cryptocurrency is created or minted by the way).
In other networks such as Tezos for example (and soon Ethereum), the consensus algorithm is of type Proof of Stake. In such a system, the investment in hardware and energy is replaced by an investment in cryptocurrency. In that case, people running the algorithm are called validators, stakers (or bakers in the case of Tezos).
So in both cases, it’s possible for anyone to participate in the consensus algorithm by investing either hardware and energy or cryptocurrency, and get cryptocurrency in exchange. For example, on Tezos, you can typically earn around 4 to 5% per year by staking. On Proof of Work networks like Bitcoin, it usually takes a bigger upfront investment because it is very competitive, and then your profits depend a lot on the cost of energy, hardware and even the temperature of the place where your computers run. One big advantage of the cryptocurrency you get that way: given that it is brand new cryptocurrency that is created, it hasn’t circulated before, so it’s not linked to a marketplace account with your name on it.
People often forget that avenue, but cryptocurrency being a currency, you can also use it for real exchanges. You can sell products or services and get paid in cryptocurrencies. In most jurisdictions, it’s hard to do that as a business/company because of the acceptability issues we mentioned before. But as an individual, you can always decide to accept cryptocurrency as payment. In general, given the volatility of cryptocurrency/fiat currency rates, most people still denominate the payment in dollars or in euros for example. But whatever you do, it is a possibility and it can be very practical and fast, especially for international payments where fees and delays on traditional wire transfers can be huge.
Last but not least, probably the most popular and easiest way to get cryptocurrency is to buy it.
To do that, you can create an account on a marketplace, secure it as best as possible (very complex password, app-based 2-factor authentication, etc.), answer a bunch of identity verification questions and you are good to go. Then you can deposit fiat money into your account using wire transfers or a credit card, and buy cryptocurrency at the current market rates. When you do that, don’t forget to not leave your cryptocurrency in your marketplace online wallet. If you don’t own the keys, you don’t really own the money.
Another way is to buy cryptocurrency through a special kind of ATM. Usually those are limited to a couple of currencies though, like Bitcoin, and there are not a lot of them because setting them up is pretty complex.
Once I got cryptocurrency, what can I do with it?
I personally use cryptocurrencies for my savings. Instead of keeping money in a savings account with a crazy low interest rate, I buy a few hundred dollars worth of a couple of cryptocurrencies every month and market evolution and a little bit of staking (Proof-of-Stake validation) do the rest. It’s money I don’t need anyway since I set it aside, and the yield has been really good so far. The hardest part is not to be tempted by “what if” and crazy market evolution, so I just hold myself to this discipline: whatever the evolution of the market, I set aside the exact same amount every month.
And then I don’t sell when it’s high in the fear that it might fall. I only sell when I need some cash to pay for a surprise expense. But for the most part, I just HODL, and I have a little look at my portfolio every once in a while.
But again, important warning: if you keep cryptocurrency, don’t keep it in an online wallet. Get yourself a software wallet, or even better a hardware wallet (I personally use a Ledger Nano X) and keep your keys to yourself.
Send it around, pay for stuff
All wallets have a send functionality that allows you send cryptocurrency from your account to another account. All you need to provide is:
- The address you want to send money to.
- The amount you want to send.
- How much transactions fees you are willing to add on top.
The last part, the transaction fees, is the most counter-intuitive aspect. In cryptocurrencies, there is no such thing as a free transaction. You need to pay for a transaction to be processed, and those transactions fees are paid to the miner or validator who will process your transaction into a block. The general rule of thumb is that the higher transaction fees are, the faster the transaction will be processed. So if you are in no rush, your transaction fees can be minimal. If you really want your transaction to be processed quickly, add more fees. Usually wallets help you determine what is the minimum you should add, converting into fiat currencies and so on. For example, here is what it looks like in Metamask:
Note that cryptocurrency transactions are usually a lot less expensive than their fiat currency counterparts, but if the network becomes saturated, as is the case right now on Ethereum, transaction fees tend to climb. Usually, they are around a few cents to a few tens of cents. And important point: they don’t depend on the amount of the transaction, they are not a percentage of it.
In terms of security, be extra careful about the recipient address. Don’t type it. Instead, copy/paste it, or scan a QR code, and then double check that the address you pasted corresponds to the one you copied. A bunch of attacks are based on middleman software that modifies addresses in your clipboard and have you send your money somewhere else.
Once you have hit the “Send” button, the wallet usually gives you a blockchain explorer link so that you can see the transaction on the network, identified by what is called a transaction hash. For example, here is a random ongoing Ethereum transaction on EtherScan:
One important concept is the notion of confirmations: transactions are processed into the ledger in blocks, and the system works in such a way that every block added to the ledger after the one where a transaction has been included makes it harder to change or revert that transaction, up to the point where is becomes mathematically and virtually impossible. In Bitcoin, we say that after 6 block confirmations, so after 1 hour (1 block is added every 10 minutes or so), your transaction is safe forever. In Ethereum, it is 12 blocks, but blocks are added faster (every 10 to 20 seconds or so). Of course this is after your transaction has been included, which might be delayed if you added low transaction fees.
And that’s all there is to know to send cryptocurrency between your own wallets or from your wallet to someone else’s.
More and more wallets (and most online wallets) offer you the possibility to exchange one cryptocurrency for another. In general, such a transaction goes through fiat currencies in the background, so transaction fees can be pretty high.
At the end of the day, if you want to “cash out” on your investment, in other words, turn some of your cryptocurrency into fiat currency, you can transfer that cryptocurrency from your own wallet to the marketplace wallet, and then sell your cryptocurrency on the marketplace. To send your cryptocurrency to the marketplace, you can hit the “Receive” button (or equivalent) on the marketplace, to display a recipient address, then “Send” in your software or hardware wallet’s companion app, paste the recipient address from the marketplace and you are good to go. And finally, once the money is in your marketplace account, you can hit “Sell” and follow their procedure there. Once this is done, your dollars or euros will be stored in your marketplace account still, and if you want them on your bank account, you still need to withdraw that money, and pay fees to the marketplace for that operation.
Be aware that some of the most old school traditional banks don’t like money coming from crypto marketplaces, and if the amount is too high, they can go as far as to freeze the transaction or lock/close your account based on anti-money laundering regulations. My advice is to use more modern online banks like Revolut or N26. Those banks are much better anyway.
How much should I buy/invest? How often? Which cryptocurrencies should I buy into?
Now that you know all of that, you should have everything you need to make your first cryptocurrency transaction. But at the risk of disappointing you, I will not answer the questions in the header of this section, because I cannot pretend to give financial advice, especially not in this space.
As I’m sure you’ve got it by now, at the core of cryptocurrencies is the concept of decentralization, the idea that we can and should take back our power to control our money and economic exchanges. But even if it sounds super cliché, with great power comes great responsibility, so it is up to you to keep reading, look up information, follow the news, to understand what you are getting yourself into.
That being said, here are a few general recommendations:
- The most popular the cryptocurrency, the bigger the network, the less risky it is.
- If you are just getting started, do not try to play the game of traders, buying and selling based on the evolution of the market. It is a very complicated game to win, akin to gambling, and it takes a lot of experience, market knowledge and luck to make a profit in that micro-movement way of doing things. If you are just discovering, buy a small amount and keep it, or as we say in the cryptocurrency world, HODL HODL HODL. Watch it grow and resist the temptation to buy when it’s going up and sell when it’s going down. Overall, most cryptocurrencies have only gone up over time.
- It’s also a cliché, but a very useful one: only invest money you are willing to lose, just like with gambling.
- Be super careful with offers that sound to good to be true: they usually are. That’s how you get scammed.
- Once you have decided to add a cryptocurrency to your portfolio, try to keep an eye on the news. I have listed a few crypto news websites below. And you can also set up Google Alerts to be notified when there is new information about your currencies of choice.
- Be aware of pump-and-dump schemes: these are generally trends on social media, where people try to hype up a specific crypto-currency to encourage you to buy some, and then when enough people have bought some and raised the rate, they sell massive amounts, make a bunch of money in the process, and you are left with a shitty currency nobody wants anymore.
- Don’t be a maximalist: especially in the Bitcoin community, there are a lot of peoople who will tell you that Bitcoin is the one and only true cryptocurrency, that you should not have anything else, that all other currencies are useless (aka shitcoins). But don’t forget they have a vested interest in convincing you of that, because it just pumps up the value of it. The truth is that there are a lot of cryptocurrencies, some of them don’t bring any additional value to the table, but others bring innovations that Bitcoin refuses to integrate because the Bitcoin community is very conservative. The whole point of cryptocurrencies is that we are not limited to just one official currency anymore. We can get, store and exchange several of them depending on our needs and the innovation we believe in.
An here is a bird’s eye view of some of my personal favorite cryptocurrencies:
- Bitcoin (BTC): the OG, purely speculative, some technological growth perspective with lightning network (have a look around the linked website, there’s some very valuable information there), but very conservative in its approach, and the community is full of maximalists who will tell you Bitcoin is the only cryptocurrency.
- Ethereum (ETH): same basic principles as Bitcoin, but what we call a second generation cryptocurrency because it is more than that. It implements the concept of smart contracts, which decentralizes computing power to run a new kind of corruption-resistant censorship resistant applications on top of the Ether cryptocurrency itself (Ethereum is the network, Ether is the cryptocurrency that circulates on it). Among those decentralized applications are tokens (roughly speaking, tokens are to cryptocurrencies what shares or obligations are to fiat currencies), loans, insurance contracts, Decentralized Autonomous Organizations (DAO, the equivalent of corporations in a decentralized world), etc. And on an experimental level, it goes as far as trying to reinvent democracy itself. Ethereum is undergoing a massive transition right now to be able to scale up its technology, from Proof-of-Work to Proof-of-Stake, adding things like sharding and much more. Very promising stuff, especially if you are interested in software development.
- Tezos (XTZ): a very interesting competitor to Ethereum, even though much smaller for now. It’s also a second-generation blockchain, with smart contracts and a Proof-of-Stake consensus algorithm, but it adds a few interesting bells and whistles. Smart contracts can be written in a more secure language than on Ethereum, and changes in the algorithms of the network are easier and faster to evolve because of the way they can be introduced and voted on. Plus, I love the fact that since it is a Proof-of-Stake cryptocurrency, it’s super easy to earn 3-4% interest per year by delegating or baking (without including the evolution of the rate of the currency itself).
- zCash (ZEC): strong emphasis on enabling full private transactions through a super elegant crypto technology called zero-knowledge proofs. zCash is a pure first generation cryptocurrency, no smart contract or anything, but some of its technologies are being worked into Ethereum.
For the rest, it’s up to you to look at your budget, and at comparison websites like CryptoCompare and make you own opinion. Welcome to the wonderful world of decentralized economics.
Any other tools I should know about?
Without getting too technical, I already mentioned that cryptocurrencies are based on networks of nodes who collaborate to agree on the content of a big ledger of all the transactions through a consensus algorithm. Because of its technical structure, this ledger is generally called a blockchain. To be exact, there are other, more exotic forms of cryptocurrencies that use something else than a blockchain, but both Bitcoin and other most popular cryptocurrencies use a blockchain, so we’ll stick to that.
So for each network, this blockchain is one big global immutable registry of all the transactions that have ever been recorded on the network since the very beginning. And the system is designed to be trustless, which means that none of the actors involved in the network needs to know anything about any of the other actors in order to assume that the content of the blockchain is correct and unique. This is all guaranteed by maths rather than human trust. And to make that possible, the blockchain is made public so that every participant can verify the content of the blockchain in full transparency.
That’s why there are certain specific websites that present the information from the blockchain in a human-readable format, and those websites are called blockchain explorers.
You can use a blockchain explorer to look up any transaction, any block (a secured batch of transactions), any account (via its address) and much more. Of course, these websites are usually operated by organizations that could lie to you and present a skewed version of the blockchain. But in doubt, you can always cross-reference information presented by several such explorers.
They can be very useful for things like:
- Checking the balance of a given account.
- Verify if a given transaction has already been processed, aka integrated into the blockchain, and if so, how long ago (the older a transaction has been in a blockchain, the more immutable it is).
- List all of the transactions going into or out of a given address, along with their amount, sender and recipient, among other things.
Of course, there is no data in there that identifies human users, unless it’s been added as metadata on top of the blockchain data by the website.
Here are a few blockchain explorers for the most popular cryptocurrencies:
- Bitcoin: blockchain.com,
- Ethereum: EtherScan.io,
- Tezos: TzStats, TezBlock
- Multi-blockchain: BlockChair, CoinMarketCap, TokenView
When in doubt, simply google the name of your cryptocurrency of choice, followed by “blockchain explorer” and you should find at least one, as it is one of the first things any cryptocurrency community builds.
When you play with cryptocurrencies, you manipulate cryptographic keys, protected by passwords and PIN codes, mnemonic (aka seed) phrases, and all sorts of other sensitive data related to actual money. And given that cryptocurrencies are decentralized, they are designed to give you the power to be your own bank and manage your own data. But then it also means it’s up to you to keep track of that information, and store it in a secure way. So avoid post-it notes by your screen, or a notebook in your purse, or anything like that. Instead, it is highly recommended to store most of your security information using a password manager.
A password manager is a piece of software that can keep track of your user account info (usernames and passwords) but also your credit cards and all your other sensitive data, encrypt it so that only the person who knows the master password can access it.
There are several excellent options when it comes to password managers. Here are just some of the most popular:
You can also use the key manager built into your browser or operating system, but these are generally platform specific and are more limited to storing usernames and passwords. The big advantage of all the password managers mentioned above is that they can easily be synchronized between all your devices and integrate very well with mobile apps, browsers and so on. They also come with password generators that you can use to generate unique complicated passwords for each online service and the password managers remembers them for you.
Some of these services ask you to pay for a commercial plan pretty quickly, but consider it as an insurance policy: if you pay for it, if their business model depends on people paying for those tools, it also incentivizes them to keep your information extra safe.
A few additional security recommendations, whichever password manager you choose:
- Choose your master password extra carefully, or protect your password manager access with biometric factors such as face recognition (FaceID) or fingerprints (TouchID). Your master password should be at least 12 characters long, include a diverse mix of lowercase and uppercase letters, digits and special characters. And don’t make it something easy to guess like a birth date or the name of your dog.
- Always synchronize your password manager with at least one other device, or with the provider’s server, so that if you lose your device, you don’t lose access to all the data in it.
- If you have never used a password manager before, now is your opportunity to start using it for all your online accounts, and to secure your most sensitive ones (online banking and email for example) with very complicated passwords AND 2-factor authentication.
Once you start playing with cryptocurrencies, it can be very interesting to keep in touch with what is happening, and not just on the speculation front (bull vs bear markets and all that jazz) but also on the technological and political fronts. There are a lot of factors can influence cryptocurrency markets, and the more you know the better.
Here are a couple of popular cryptocurrency websites to bookmark:
Also, a lot of cryptocurrencies have their own subreddits and are very active on Twitter and Telegram, among other places.
But as always, don’t trust just one source: biased news is also an issue in the cryptocurrency space, and your best protection against it is to cross-reference your sources.
Where can I learn more?
Andreas is probably one of the biggest experts in this field and one of the best educators I know of. I don’t think you can say you fully understand Bitcoin until you have read his Mastering Bitcoin book cover to cover (you can even read it online for free, so no excuse). His Youtube channel is also a treasure trove of amazing resources to understand the most intricate details of cryptocurrencies and blockchains. I especially recommend his “Bitcoin for Beginners” playlist.
She’s been an associate for one of the most influential venture capitalists in this space, she has worked for Coinbase, and she has always had an interesting way to explain and educate on everything crypto. And recently she started a free email course that I am following myself because it is full of very interesting context information.
Our mission with ChainSkills is to educate and raise awareness about the incredible potential of decentralization technologies, far beyond cryptocurrencies and other financial applications. That’s why we publish on this blog, we give talks in conferences everywhere, and we also self-published an ebook (link includes a discount available for first 100 to use it) to teach software developers how to build decentralized applications on top of the Ethereum blockchain.
This all sounds very scary
If you are scared right now, then we have done our job right. The whole purpose of this post is for you to understand both the amazing perspective that cryptocurrencies offer us, and the change in mindset they require.
Institutions like banks, corporations and governments have made us dependent on them, they have taught us that we need them, that we cannot afford to bypass them, and that for all their faults and failures, we have no other choice than to go through them. And for a while, they were right.
But the technologies that made Bitcoin possible, along with the values that gave birth to these technologies offer us a new path. I strongly encourage you to read A Cypherpunk’s Manifesto on that topic, and realize that it was written in 1993.
Now sure, it will take a while for more people to get familiar with these topics and this level of responsibility. And decentralization and blockchains won’t do the job all by themselves. Education will have to change. Information will have to change. Political boundaries will have to change. The very notions of work and democracy will have to be reinvented. But deep down, you have to know it won’t take anything less to solve the issues our world is facing.
And you can take solace in knowing that as societies, we have been through that level of paradigm shift before. The last time was probably the industrial revolution. The printing press gave us a new technology to communicate and democratize ideas and philosophy, and enabled a new form of administration and elections. Mechanization made it possible to have less farmers and send generations to free and mandatory school. Paper also gave us newspapers and scientific journals. All of that took a couple of hundred years, but we made it. So don’t buy into the narrative that says we are stuck where we are, that we can’t change anymore. Because the way I see it, it’s not a matter of “if”, it’s a matter of “when”.
Cryptocurrencies show us the way, and give us some of the tools. And getting involved in them, even just at a small level, is a first step in that direction.
And here are a few final pieces of advice not to get burnt as you get started:
- Some people and organizations will try to take advantage of the fact that you are just getting started, and that you are not completely comfortable yet. So tread lightly, and remember, if something sounds too good to be true, it probably is.
- Your private keys, your PIN codes, your mnemonic/seed phrases are private, keep them to yourself, store them in safe places, back them up, and be super careful when and where you input them.
- There are a lot of phishing attacks in the crypto space, emails that seem to come from reputable sources like hardware wallet manufacturers, and ask you to go to a link that looks like the real deal, to type your mnemonic, to save your money. For example, have a look at this article that describes some of the techniques being used for Ledger phishing attacks.
- Beware of so-called “airdrops“. Free money is often not very valuable, and it rarely changes. If a cryptocurrency really brings something valuable to the table, it rarely comes for free.
- Systematically discard all Tweets, blog posts or Youtube videos that promise to send you cryptocurrency if you send them some money first. Those are pure scams, that does not exist, and if you get scammed, you have no recourse.
- Initial Coin Offerings (ICOs) were a very popular way to raise funds a couple of years ago. Actually, they probably fueled a lot of the 2017 bubble, before most people realized that a lot of projects behind those fundraising initiatives were empty promises with bloated plans based on non-existing technologies. There are not a lot of ICOs left these days, but stay away from them.
- Keep your head cool: the easiest way to get your cryptocurrency from you is to scare you, and social engineers are really good at that. They are all about making you fear your money is in danger, that you need to take urgent measures. They will try to make you believe that they have compromising footage of you they will reveal if you don’t pay a ransom right now. Or that you should move your cryptocurrency to a safe place NOW if you don’t want it to disappear. But if you keep your private keys safe as recommended throughout this article, you have nothing to fear. The safest thing to do is NOT TO DO ANYTHING. Just keep your head cool, read the news, try to understand what is happening, reach out to Reddit or Twitter to see what is going on. But by all means, keep calm, and you will defeat scammers.
This article is not meant to be comprehensive, but hopefully it gave you a few interested pointers to get you started.
Now, whatever happens with the markets over the coming weeks and months, remember that cryptocurrencies are to decentralized technologies what email was to the internet: an impressive proof-of-concept, but there is much more potential behind it.
Organizations, universal basic income, social media, and even democracy itself have the potential to be impacted by the Pandora box that Bitcoin opened 11 years ago, both through inspiration and the technologies that enable it. Beyond financial applications, Bitcoin demonstrated that it was possible to organize huge collective efforts without the need for corruptible trust third-parties and middlemen. Now we just have to involve as many diverse people in this community and improve upon the first implementations to make them better, stronger and more democratic. And that’s up to all of us.