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Cryptocurrencies are part of computer science and finance, but don’t let that intimidate you. It’s easy to get started and you don’t have to be an expert. With a small, smart investment and a little luck, you can still make money online in 2021.
Do Your Research
Knowing what a blockchain is and how it works is good to know, but it’s not a necessity. Think about what happens when you buy something online. Do you know how an automated clearing house works? How well do you understand the banking and payment system? Processors that make up traditional finance? The lack of this knowledge doesn’t stop you from using dollars, nor will it stop you from using crypto.
What you need to know, however, is that a cryptocurrency is based on a blockchain, a special type of digital network. There are different blockchains like Ethereum, Cardano and Stellar. They work similarly, but have different properties. The most popular cryptocurrency BTC transactions are processed and verified by people called miners, and when miners with specialized computers process enough transactions, they are rewarded with some BTC. As miners want more cryptocurrencies, the blockchain will work. Blockchains use special applications called protocols that make their crypto work. In traditional finance, you might have a savings account, but with cryptocurrencies, you would use a savings protocol. The language of crypto is rooted in computer science.
Get a Crypto Wallet
You’ll need a place to store your crypto – a wallet. You can choose a software wallet – like an app, or a hardware wallet – an offline device sort of like a flash drive.
- Most software wallets can be recovered if you lose your phone
- Most hardware wallets can’t 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 like a real wallet, they can be lost or stolen. 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 are stored in a managed wallet, which adds some risk to the exchange. If you are a hacker trying to steal millions, it is best to spend your time hacking large exchanges to access thousands of wallets. Hacking a single software wallet is likely a waste of time.
Put Your Money To Work
If you only want to trade in cryptocurrency, all you need is a wallet and an exchange. But there are other ways to use cryptocurrencies to make money. Decentralized finance [DeFi] is a system of peer-to-peer finance tools that provide options like interest accounts, loans, and advanced trading for people with crypto. DeFi disrupts traditional finance by removing middlemen [bankers, lawyers, brokers] from financial processes. DeFi defenders say this makes funding faster, more affordable, more transparent, more democratic, and removes personal discrimination.
Getting started with DeFi requires more research. You can find out about various DeFi protocols on the Internet, starting with the DeFi list. There the logs are organized by function so that it is easy to understand what they are doing. Protocol developers share their mission statement when distributing a white paper, here is Compound, a popular protocol, as an example. To use the DeFi protocols, you need access to the decentralized web [dWeb].
Finally, here are some scenarios to help understand dollars and crypto.
- Holding crypto in a software wallet is like carrying cash in your real world wallet. It’s readily available to you and waiting to be spent.
- Putting crypto in a savings protocol is like putting cash in a savings account. The savings protocol pays you interest for using their service – similar to how banks pay interest for some savings accounts.
- Depositing crypto in a vault and borrowing from yourself is like putting cash in a retirement account and taking a loan from it.
- Trading tokens on a crypto exchange is like trading stocks on a stock exchange. Tokens represent blockchains and protocols like stocks represent corporations.