Bitcoin ($BITCOIN) and Ethereum ($ETH) are the 2 largest cryptocurrencies and both serve a unique purpose. Bitcoin and Ethereum have a combined market cap of about 1.5 trillion. WOW.
What exactly IS a cryptocurrency? Everyone has heard of them, heck even my grandmother was asking some questions about it the other day, but for most people it can be hard to understand the crypto craze. I am going to break it down and keep it simple enough so that you can explain it to YOUR grandma.
There are near infinite crypto currencies in the world, the two largest and post popular are BITCOIN and ETH. Anyone can start one, however, this also means there are lot of them are scams (Not pointing any fingers but… I’m pointing right at you, Tether) because of this you will need to be extra careful when it comes to investing your money in crypto currency.
What exactly are crypto currencies supposed to do?
Bitcoin promises a secure online currency that does not have any governing bodies or regulators. It seeks to be accepted as an alternative currency in which you can use like any other currency.
Ethereum was intended as a platform to facilitate unchangeable, programmatic contracts, and applications (These apps are known as “dApps”) via its own currency.
Ethereum is more adaptable than Bitcoin, but Bitcoin has been more accepted by society. In fact Bitcoin as of this year, has been accepted as official tender of El Salvador! Ethereum has yet to be accepted officially in any country.
The difference? Bitcoin can be used to buy stuff online and exchange with others. Ethereum can can also be used to buy things, but additionally create other cryptocurrencies on the Ethereum network, create apps, and execute a program that runs on the network, amongst other things we have not figured out yet. This crypto thing is still in the first inning.
Should you invest in crypto?
People have a lot of reasons to invest in crypto, whether it is for the massive swings of price changes, the hype quickly or easily becoming a millionaire, buying an alternative to fiat, or add another layer of diversification in your investment portfolio. You can also invest in crypto for staking (“locking” up your coins and earning interest on them. Known as “Proof-of-Stake”). Many are investing in Bitcoin or Ethereum solely for the technology behind crypto and owning a peice of the (possible) future of money. Just know why you are investing. This will establish the building grounds of a strategy that will hopefully help you avoid losing money. Once you figure out why you are investing your money, how do you even get started?
How to invest in crypto?
There are a two mainstream ways to obtain your very own Bitcoin or Ethereum and invest with crypto.
Bitcoin (BITCOIN) and Ethereum (ETH) “miners” use special software to solve math problems and are issued a certain number of bitcoins in exchange, this is called “Proof of work”. This creates an incentive for more people to mine. However mining is not free (or cheap). This is a very energy and GPU intensive endeavor so if you plan to mine crypto, make sure your software or computer has good ventilation. You can learn more about the mining process here. Essentially, miners are the ones creating the coins.
Most people prefer to simply buy coins or crypto currency. This is my personal preference of obtaining crypto. This starts with a crypto broker. Many stockbrokers will now let you purchase BITCOIN and ETH but you can also go to crypto specific brokers in case you wish to deviate from the already established cryptos. Coinbase is the most well known and trusted name to purchase and invest in Bitcoin, Ethereum and many other crypto currencies. Click here to get a FREE $5 when you join Coinbase.
Where do you keep your coins?
Bitcoin and Ethereum are both kept in crypto wallets. Yup, thats a real thing. Crypto wallets allow you to buy, sell, store and manage your transactions, as well as monitor your crypto asset balances. Essentially it is a safe place to put your crypto, just like the wallet you hold your cash in (that is of course, for those who still carry and use cash). Coinbase offers a wallet for you to keep your crypto currency.
What the heck are dApps & contracts?
Now we're getting into the technical nitty gritty of crypto currency.
dApps are similar to regular applications, however because it is on the Ethereum network you have the following properties and more:
No owners. Meaning even if the team building the app abandons it, it will remain available for everyone to use. Have you have ever played a game for a long time and eventually the company stops updating it you feel sad but when the servers go down and you lost the 5000 hours you clocked into the game, you feel defeated. This will mean the game goes on forever, even if the team isn’t updating it.
Free from censorship: You cannot be blocked from using a dApp. Think of social media where you can be blocked or stopped from tweeting, not on the Ethereum network (for better or worse!)
1 anonymous login: Your Ethereum account is your login!
No down time: The only time a dApp will go down is if Ethereum network is down, and due to the massive size of Ethereum network, it is very difficult to attack.
Programmable contracts: Aka “smart contracts”
A "smart contract" is simply a program that runs on the Ethereum blockchain. Think of it like a coding script. Ahem…. “Print (“Hello World!”)” anyone?
A great example I have seen is a vending machine: money + snack selection = snack dispensed.
In reality, this wouldn’t work the way anyone would want, the code would need to be far more advanced but that is not the point right now, the point is- Ethereum allows these contracts to function 24/7, allow payments of Ethereum for the product/service. Most importantly it allows for unique use cases. You are not limited only to a vending machine. It can be close to any sort of product or service you can think of!