This is a LIY (learn it yourself) guide for all you who have lost count on how many times you’ve heard ‘buy the dip!’ but don’t know what to do about it. For those that want to keep up with work colleagues harping on about ‘Blockchain’, ‘Ethereum’ and ‘DeFi’; we got chu too.
We’ve broken down topics relevant to the industry into separate categories, and offered a range of valuable mixed-media resources that will help onboard you. The resources are divided into start (basics), deep dive (more technical) and keep going (subscribe to) modules.
We’ve also included an easy-to-follow guide for those wanting to officially dive into the rabbit hole. This section will cover which crypto exchanges to use, which crypto wallets to store your coins on and which DeFi applications you can participate in to grow your funds.
Blockchain is a new type of database that stores collected information in blocks that are chained together cryptographically. It is like a digital ledger that can potentially store any information; health insurance details, a student’s school grades, property agreements or monetary transactions to name a few.
What makes blockchains a better alternative to traditional databases (think paper filing or centralised databases controlled by one party) is its security, near-immutability (unable to be changed) and transparency. Each block is secured with a cryptographic hash and time-stamped. In its purest form a blockchain is completely decentralised too so no single person or group has control over it.
There are many applications of this digital ledger technology including cryptocurrency (payments), finance, tokenisation of real-world assets like stocks and real estate as well as digital art, video games and collectibles.
Privacy-respecting and crypto-rewarding browser Brave is a cool example of using blockchain technology to disrupt the way things are done on the internet; it pays users in crypto tokens (BAT) for opting into ads. Read Why is Brave the best new browser? to find out more, make the switch and get a taste of life on the blockchain.
One of the most important problems that any digital payment network has to solve is double-spending; a fraudulent technique of spending the same amount twice. The traditional solution was a trusted third party - a central server - that kept records of the balances and transactions. However, this method always entailed an authority basically in control of your funds and with all your personal details on hand.
Cryptocurrency or ‘crypto’ is a digital currency that can be traded for goods and services or invested. It is the first currency that circumvents the involvement of third party financial institutions. Instead, it uses blockchain technology and cryptography to record and verify transactions between a network of peer-to-peer computers.
Satoshi Nakamoto developed Bitcoin in 2008; the first form of cryptocurrency that was built on blockchain. Similar to gold or precious stones, it is a scarce resource with only 21, 000, 000 Bitcoins existing. They are produced by high-powered computers solving complex mathematical algorithms (known as ‘mining’).
Launched in 2015 by Vitalik Buterin, Ethereum is much more than just a simple cryptocurrency; it’s an open software platform built on blockchain technology that enables developers to build and deploy decentralised applications (dApps). Within the Ethereum platform, is a cryptocurrency called Ether (eth) that is used as the native currency of the network. Eth is needed to cover the cost of transaction fees charged by the network to use applications built on the Ethereum blockchain.
Ethereum aims to change how the internet works, because, for the first time it allows online computer systems to run without using any third party. Decentralised applications consist of ‘smart contracts’, rules written in computer code which can execute any imaginable logic without requiring trust in a third-party. The most basic application of a smart contract could be a decentralised vending machine. The vending machine would hold token XYZ and instantly send token XYZ to whoever sends Ether into the vending machine smart contract. This could happen automatically without any company being required to mediate between buyer and seller.
Perhaps the most popular application of the Ethereum blockchain is Decentralised Finance (DeFi), a set of financial applications that allow users to trade, borrow, lend and do all sorts of other transactions traditionally associated with banks, without requiring a bank. The Ethereum blockchain, unlike bitcoin's, also allows issuing tokens onto the platform and transacting them over the network.
Step 1. Download a wallet.
For those that simply want to buy and store some crypto and keep it for some time, the simplest way to do so is by downloading a wallet and buying from within the wallet app. Custodial? Non-custodial? What does that even mean? Read below.
For multicoin wallets (e.g. Bitcoin and Ethereum):
For just Ethereum:
These wallets, allow you to load your money onto them and buy straight from the wallet once you have onboarded. Loading funds by credit cards are a quick option, but charge fees. Loading through bank transfers is free, but it will take a few days for the funds to be in your wallet. The downside of purchasing crypto through wallets is that you may not get the best rates.
Step 2. Sign up to an exchange
For big volume trading or those that want the best deals or to day trade or mid-term trade, it is more exciting to do so via an exchange. Otherwise, you can skip this step and buy and store on your wallet alone.
Step 3A. Earn savings on your crypto through a savings account
Crypto savings accounts work in a similar way to normal bank savings accounts. In a nutshell, you lend money to an institution, which lends your assets to borrowers in need of liquidity. However, these loans are relatively secure since the loan providers ask the borrowers to deposit crypto assets themselves, as security for the loan. Most providers ask for a ‘loan-to-value’ ratio of 50% meaning that if a borrower wants $1000 they’ll need to deposit $2000 worth of e.g Bitcoin as security for the loan.
Step 3B. Earn yield on your crypto assets in DeFi
If you want to use the Ethereum Blockchain directly and not use centralised crypto lending platforms or exchanges, you can deposit assets into any of the popular DeFi applications and earn yield on them.
One example of DeFi applications are DeFi lending platforms such as Aave. It is essentially a global decentralised bank that let anyone in the world earn interest on their assets. Users can deposit dollar stablecoins like USDC or other tokens and earn 10-15% annual interest on them.
One step further, users can then borrow a fraction of what the amount they have deposited. For instance, if a user deposits $10,000 of Ether into Aave they can borrow $6 000 dollar and the loan is secured by their deposit. That loan can then be used in real life or remain in the crypto universe (for example to buy more Ether).
By requiring borrowers to put up collateral, DeFi protocols can issue loans without knowing users’ identity or financial history. All the operations of the protocol are executed by smart contracts. The interest rate for each asset is determined by the ratio of supplied to borrowed assets in the pool. For instance, if many users wish to borrow USDC but not many users are lending USDC on Aave, the interest rate will automatically go up in order to incentivize users to deposit more USDC and profit from the high interest rate.
There are many more things you can do such as staking ether in order to earn interest. Staking is similar to mining in that you participate in the validation process of the Ethereum blockchain but instead of spending computing power (a.k.a energy) you are just staking your Ether thereby ensuring that you won’t vote maliciously. In other words you have something “at stake”. There are numerous Ethereum staking platforms that make this process extremely easy and user friendly. You just deposit your Ether and they run the validator node for you.
Boom! They're the basics. We hope you've learnt a lot, and are well on your way to buying, trading, saving and spending your first crypto!
Passionate about crypto, impact and above all, the intersection of both.