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Simba’s Guide to Cryptocurrencies

a picture of physical representations of cryptocurrencies including bitcoin etherium luna and many more

a picture of physical representations of cryptocurrencies including bitcoin etherium luna and many more

Cryptocurrencies can be confusing, and it’s hard to know where to start. 

You’re not alone if you feel overwhelmed by cryptocurrency. Even the experts find it difficult to keep up with all the changes in this rapidly growing industry.

Simba’s Guide to Cryptocurrency is here to help. With clear, easy-to-follow explanations of everything from wallets to mining, our guide will have you understanding cryptocurrency in no time.iesCrypto refers to digital money that can only be used on the internet. Bitcoin is an example of a type of Crypto.

If you interested in learning about other topics like NFTs, Strategies etc check out Simba’s Guides section.

Back to Cryptocurrencies.

To buy anything on the internet before crypto, you would have to take money out of your bank account and deposit it into your Paypal account, then use a payment service like Paypal to make the purchase.

With crypto, it just happens instantly!

What is a Cryptocurrency?

Cryptocurrencies are money created on the internet (digital tokens) that use sophisticated maths (cryptography) to secure their transactions and to control the creation of new cryptocurrencies.

Cryptocurrencies are decentralized, meaning they are not subject to government or financial institution control.

The most well-known cryptocurrency is Bitcoin, but there are now thousands of cryptocurrencies including Ethereum, Solana, and many more.

This comprehensive guide will teach you everything you need to know about cryptocurrencies!

What is a digital currency?

To understand what crypto is you have to understand what a digital currency is.

A digital currency is any kind of currency that is born digitally. Most cryptocurrencies are born and live on the internet (but it is safer to store them offline, more on this later!) This means that digital currencies, to remain secure and safe to use, have to use sophisticated maths i.e. cryptography. Cryptocurrencies are difficult to counterfeit because of this security feature.

Cryptocurrencies are decentralized systems. This means that there is no one big corporate or country that controls what happens with crypto. The US dollar right now is centralized i.e. the Federal Reserve has the sole power to determine what happens to the value of the dollar! Crypto is different, no one person or computer can control it!

With centralized systems, a bank or a country can check and validate transactions, but what about in a decentralized system, where no one person or computer has control over the entire system?

That is where blockchain technology comes in.

The blockchain is a type of technology that allows information to be stored on a network of computers. Cryptocurrencies are organic, meaning they are not issued by any central authority. This makes them immune to government interference or manipulation.

More on the blockchain later!

What is crypto?

Crypto refers to the various encryption algorithms and cryptographic techniques that safeguard digital transactions, crypto exchanges, and movements of crypto funds.

Cryptography is used to secure the communications between different parties and maintain the privacy of messages. It also helps to prevent fraud and ensure the authenticity of data.

Digital Ledger

A digital ledger is a type of database that stores all the cryptocurrency transactions. The ledger is distributed, meaning it is not stored in one central location. This makes it difficult for anyone to tamper with the data.

The most well-known digital ledger is the blockchain, which we will discuss in more detail later!

Architecture of Crypto currencies

Cryptocurrencies are generated and recorded on a decentralized network of computers (also known as nodes in the crypto community). These machines fulfill specific functions such as validating, which means that the transaction is genuine and can be trusted. Timestamping transactions, on the other hand, involves recoding them when they occur online.

Nodes are run by volunteers from all over the world who contribute their computing power to verifying and validating transactions.

Each node has a copy of the entire blockchain, which contains all the information about every single transaction that has ever been made on the network!

The multi-signature feature is a safeguard to prevent data tampering or the network continuing to operate if one or more nodes go down or are hacked.

Blockchain

The blockchain is a type of digital ledger that stores all the cryptocurrency transactions. A ledger, in its most basic form, is a book that was used to keep track of financial transactions. Accountants generally use ledgers to keep track of business transactions and activities, hence the name bean counters! Accountants would count the beans and enter them into their ledgers!

Back to the blockchain.

The blockchain is a digital ledger that is distributed, meaning it is not stored in one central location. You can find a copy of the blockchain on one computer, but you will also find the same copy on millions of computers.

This makes it difficult for anyone to tamper or mess with the data.

The most well-known digital ledger is the blockchain, which we will discuss in more detail later!

Nodes

As we mentioned before, nodes are run by volunteers from all over the world who contribute their computing power to verifying and validating transactions.

Each node has a copy of the entire blockchain, which contains all the information about every single transaction that has ever been made on the network.

The multi-signature feature is a safeguard to prevent data tampering or the network continuing to operate if one or more nodes go down or are hacked.

Timestamping

When an event is timestamped, we refer to the date and time as a timestamp. A digital camera will capture the time and date of a photograph being taken, while a computer will keep track of the time and date of a document’s creation and modification. A social media post might include a timestamp i.e. when it was created and posted to the newsfeed. These are all occurrences of timestamps.

Timestamping in the crypto world is the process of recording when a crypto transaction occurred. In the cryptocurrency world, this is done by cryptography.

Cryptography is used to secure the communications between different parties and maintain the privacy of messages. It also helps to prevent fraud and ensure the authenticity of data.

Mining

Mining is how new crypto coins are created! Just as Governments print money before people can use to buy and sell, on the internet, there are people, who use computers to create cryptocurrencies.

These people are known as Miners and these miners use their computing power to verify and validate transactions on the network. In return, they are rewarded with a certain number of coins for each block that they successfully mine!

When miners validate a transaction, they are essentially creating a new block on the blockchain.

This block contains all of the information about the transactions that have taken place since the last block was mined!

Once this new block is created, it is added to the blockchain and announced (broadcasted) to all of the nodes on the network.

The miners then compete against each other to see who can mine the next block! The first miner to successfully mine a block is rewarded with coins. This is how mining works!

Crypto Wallet

Where do you keep your money these days? People used to keep money under their beds. But how could you move about with your funds if you went on a trip? Pouches were invented for this purpose. Fast forward to today, when we’re talking about wallets. Cash and credit cards are kept in this accessory.

On the internet, once you’ve got your hands on some cryptocurrencies where would you keep it securely on you (or your computer)?

Let me show you a digital wallet known as a crypto wallet.

A crypto wallet is a digital way to store your cryptocurrencies. Just like you need a physical wallet to store your cash, you need a digital wallet to store your crypto coins!

There are different types of wallets depending on how you want to store your coins.

You can have a software wallet, which is a program that you download onto your computer or phone.

Or you can have a hardware wallet, which is a physical device that stores your coins.

Some people even choose to store their coins on an exchange (we will discuss this later!).

But no matter where you decide to store your coins, the important thing is that you keep them safe and secure in your crypto wallet!

Anonymity in Crypto

One of the great things about crypto is that it offers anonymity! When you make a transaction on the network, your real name or personal information is not attached to it.

When you make a payment using your credit card, the merchant and payment processor (not to mention the Government) are able to learn who you are based on only seeing your transactions.

All that is seen is your public key (which is a long string of numbers and letters) and the amount that you are sending.

This is one of the reasons why crypto is so popular with people who value their privacy!

Crypto Economics

Cryptocurrency’s economics are complicated and ever-changing. Nobody has yet been able to explain how cryptocurrencies function or how they will affect our lives. If you invest in cryptocurrency, all you can do is hope the price keeps going up and up till you sell it at a profit.

Here, we will attempt to provide a brief overview of some key concepts in crypto economics.

Cryptocurrencies have no intrinsic value. This means that they are not backed by anything physical, such as gold or silver.

Instead, the value of cryptocurrencies comes from the number of people who use and adopt them. The more people who use crypto, the more valuable it becomes!

This is how DOGECOIN became popular and turned some people into overnight millionaires!

Notice how whenever a company says they will accept a certain digital currency, the price of that digital currency goes up!

This is what happened with Dogecoin, Tesla announced that they would start accepting Dogecoin for Tesla merch and guess what happened to the price of Dogecoin?

This is similar to how fiat currencies (such as USD or EUR) work.

Fiat currencies are also not backed by anything physical, but instead by the faith and credit of the issuing government.

The more people who use a certain fiat currency, the more valuable it becomes!

At the moment, the US dollar is the most widely accepted currency. You may go anywhere in the world and use USD to buy and sell just about anything.

Good luck trying that with the Zimbabwean Dollar!

Crypto Block Rewards

Another key concept in crypto economics is block rewards.

A block reward is a technique of encouraging people to mine cryptocurrencies.

A block reward is given to miners for successfully mining a block of transactions.

This is how miners are able to make money from mining! The amount of the block reward depends on the protocol of the particular cryptocurrency.

For example, Bitcoin’s protocol currently gives a 12.

This means that every time a miner successfully mines a new block of Bitcoin transactions, they are rewarded with 12 BTC!

At the current prices that is just over $500,000.

Block rewards are one of the main ways that new coins are introduced into the system.

As more and more people mine a certain cryptocurrency, the block rewards become smaller and smaller.

This is because there is a finite supply of coins! For example, there will only ever be 21 million Bitcoin mined.

Currently, there are 18 million BTC in circulation. That leaves just three million left to be mined!

Crypto Transaction fees

Whenever you make a transaction on the network, you have to pay a small fee.

This is how miners are able to make money from processing transactions! The amount of the transaction fee depends on the protocol of the particular cryptocurrency.

For example, Bitcoin’s protocol currently charges a fee of 0.0001 BTC per transaction.

This may not seem like much, but when you consider that there are millions of transactions being made every day, it starts to add up!

The most typical procedure through which miners profit is by means of transaction fees. Transaction fees are becoming increasingly vital as block rewards decrease due to the fact that, for example, when 21 million bitcoins have been mined in Bitcoin, there will no longer be any block rewards. As a consequence, transaction costs will grow in significance.

Crypto Exchanges

We all know that Amazon and eBay are platforms for purchasing and selling products/services, so it’s no surprise that crypto exchanges are required. Exchanges allow you to exchange cryptocurrencies for other currencies or fiat money (money in the bank).

A cryptocurrency exchange is an internet platform where you can buy and sell cryptocurrencies.

The most popular exchanges are Coinbase, Binance, Crypto.com and Kraken.

Exchanges allow you to convert your fiat currency (such as USD or EUR) into digital currency (such as BTC or ETH).

They also allow you to convert one digital currency into another (such as BTC to ETH).

Exchanges typically charge a small fee for each transaction.

Atomic Swaps

An atomic swap is a peer-to-peer exchange of cryptocurrencies from one person to another without the need for a third party (such as an exchange).

This means that you can directly trade one cryptocurrency for another without having to go through an intermediary such as an exchange like Coinbase or Crypto.com

Atomic swaps are still fairly new and not all cryptocurrencies support them yet. However, they are becoming more and more popular as they offer a way to trade directly with someone else without having to pay fees to an exchange.

Crypto ATMs

Cryptocurrency ATMs are machines that allow you to buy or sell digital currencies using fiat money (such as USD or EUR).

Bitcoin ATMs are like standard ATMs, but instead of money, they give digital currency to your crypto wallet. Don’t expect some bitcoins to come out of the ATM anytime soon!

Crypto ATMs typically charge a small fee for each transaction.

Initial Coin Offerings (ICOs)

An ICO is a fundraising method where new projects sell their underlying crypto tokens in exchange for Bitcoin or other cryptocurrencies.

It is similar to an Initial Public Offering (IPO) where investors purchase shares of a company that has gone public i.e. now can sell their shares to the public.

However, in an ICO you are purchasing tokens that are used on the project’s platform.

ICO’s have become a very popular way to raise money for new cryptocurrency projects.

However, they have also been associated with scams and fraud so it is important to be careful when considering investing in an ICO.

Crypto price trends

The price of a cryptocurrency, just like fiat money, is based on supply and demand.

When there is more demand than there is supply, the price goes up. When there is more supply than there is demand, the price goes down.

Supply and demand of cryptocurrencies are influenced by a variety of factors such as news, rumors, speculation and even government regulation.

Notice how prices of cryptocurrencies go down when a government such as China bans all crypto trading?

Cryptocurrencies are also subject to volatility due to their relatively small market size compared to traditional asset classes like stocks or commodities.

Social trends

Cryptocurrency has become increasingly popular over the last few years with more people buying and using digital currencies.

This popularity has been driven by a number of factors such as the rise in price of Bitcoin, the launch of new and innovative projects, and an increase in media coverage.

However, cryptocurrencies are popular because of the incredible earnings made by a few people over the past several years.

Cryptocurrency is still a relatively new phenomenon and it remains to be seen how it will develop over time.

Legality of Crypto

The legal status of cryptocurrency varies from country to country.

In some countries, such as the United States, crypto is legal and regulated while in others, such as China, it is banned.

It is important to check the status of cryptocurrency in your country before buying or using digital currencies.

Advertising Bans

A number of companies have banned advertising for cryptocurrency products and services including Google, Facebook, Twitter and Snapchat.

US Tax Status

The Internal Revenue Service (IRS) in the United States has classified cryptocurrency as property for tax purposes.

If a crypto asset’s value rises, capital gains apply to the increase in value. This implies that any profits or losses incurred by purchasing, selling, or trading digital currency assets are subject to capital gains tax.

A tax or a fee imposed by the government on you when the value of your crypto increases and you make profits. It’s a tax on your cryptocurrency gains.

The legal problems of a global, unrestricted Crypto economy

Cryptococurrencyurrency is largely unregulated and and this has led led to a a number of concerns from governments and financial institutions around the world.

Some worry that crypto could be used to launder money or finance terrorism while others believe that it could destabilize the the global economy if it becomes too popular.

Written by Simba

I teach the world's marketers and entrepreneurs Digital Marketing for FREE at Simba Academy. I am the founder of Simba Academy, I write books about Digital Marketing, I am a Digital Marketing consultant and I speak about Digital Marketing.

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