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This story originally appeared on LX.com
Cryptocurrency is part of IT and finance, but don’t be intimidated. It’s easy to get started and you don’t have to be an expert.
With a little smart investment and a little luck, you can make money online even in 2021.
Do your research
It is good to know what a blockchain is and how it works, but it is not a necessity. Think about what happens when you buy something online – do you know how an automated clearinghouse works? How well do you understand the system of banks and payment processors that make up traditional finance? Not having this knowledge won’t stop you from using dollars, nor will it stop you from using crypto.
With that said, what you need to know is that a cryptocurrency is built on a blockchain, a special type of digital network. There are different blockchains – like Ethereum, Cardano, and Stellar. They work the same way, but have different characteristics.
Bitcoin [BTC] is the most popular cryptocurrency. BTC transactions are processed and verified by people called minors. When miners process enough transactions using specialized computers, they are rewarded with BTC. Essentially, the act of verifying transactions is what creates more BTC. So, as long as the miners want more cryptocurrency, the blockchain will work.
Blockchains use special applications, called protocols, which put your crypto to work. So in traditional finance you might have a savings account, but in crypto you would use a savings protocol. The language of crypto is rooted in computing.
Get a crypto wallet
You will need a place to store your crypto – a wallet. You can choose a software wallet – as an application, or a hardware wallet – an offline device much like a USB stick.
- Most software wallets can be recovered if you lose your phone
- Most hardware wallets cannot be recovered if you lose them
Since software wallets are online, they are potential targets for hackers. Hardware wallets are offline and cannot be hacked, but they can be lost or stolen like a real wallet.
You can skip this step by downloading an exchange app like Coinbase, eToro, or Gemini and then connecting a debit card or bank account. This is the fastest way to start buying and trading crypto. Your assets will be stored in a wallet managed by the exchange, which adds some risk.
Think about it, if you are a hacker trying to steal millions, you better spend your time hacking large exchanges to gain access to thousands of wallets. Hacking a single software wallet is probably a waste of time. To learn more about crypto wallets, check out this resource from Benzinga.
Put your money to work
If you only want to trade cryptocurrencies, a wallet and exchange is all you need. But there are other ways to use crypto to make money.
Decentralized financing [DeFi] is a peer-to-peer funding tool system that offers options such as interest accounts, loans, and advanced transactions for people with cryptocurrencies. DeFi disrupts traditional finance by cutting out intermediaries [bankers, lawyers, brokers] financial processes. Defenders of DeFi say it makes finance faster, more affordable, more transparent, more democratic, and eliminates discrimination in person.
Getting into DeFi requires more research. You can learn more about the different DeFi protocols on the web by starting with The DeFi List. There the protocols are sorted by function, making it easy to understand what they are doing. Protocol developers share their mission statement by distributing a white paper. Here is the white paper for Compound, a popular protocol, as an example.
To use DeFi protocols you will need decentralized web access [dWeb]. To learn more about DeFi protocols, their history, and how they work, see Finematics on YouTube.
Finally, here are some scenarios to help understand dollars and crypto.
- Holding crypto in a software wallet is like carrying money in your real world wallet. It is at your disposal and waiting to be spent.
- Putting crypto in a savings protocol is like putting money in a savings account. The savings protocol pays you interest for using their service, in the same way that banks pay interest for some savings accounts.
- Depositing crypto in a safe and borrowing from yourself is like putting money in a retirement account and borrowing one.
- Trading tokens on a crypto exchange is like trading stocks on a stock exchange. Tokens represent blockchains and protocols like stocks represent companies.
There are a lot of experts on YouTube and Reddit. To help you get started, here are some free online resources ranging from basic to meta.