JustAHitman
Gag Creator
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Firstly I'd like to say that this is aimed towards a general audience that might have a slight understanding on how bitcoin or other cryptocurrencies work. This is not by any means an ''advanced'' guide.
What is a cryptocurrency?
A cryptocurrency is a digital asset created mainly as a decentralized (not under the control of banks or governments) medium of exchange (for purchase or for savings).
There are several types of cryprocurrencies, ranging from currencies without a real use other than for holding them, in hopes that some day they will increase in price, others that are bound on a 1:1 ratio to USD or EURO, others that have specific uses but I won't be going in-depth about those in this guide.
What can I use a cryptocurrency for?
Cryptocurrency (or crypto, from this point forward) has many different uses. It is mainly used as a mean to transfer funds without having to go through government controlled agencies (such as banks) in order to send funds internationally or even within your own country. It makes transactions between individuals risk-free in terms of tax agencies snooping in your earnings. You could receive payments in crypto for any job, and nobody would be able to control (or know) about the payments or who you got the payment from. This means, in essence, that crypto is used as a way to stay out of the mainstream financial system, and as a way to bypass the need to declare earnings that could not be easily justified or declared to tax agencies (such as for instance, freelance jobs that go straight to you without intermediary, or payments you receive for work that has no invoice or receipt whether it's your impossibility or your buyer's).
Crypto is a way to be free from having to justify or explain your earnings to banks, governments, tax agencies, etc. without having the 'risk' of being flagged for tax evasion or risky transactions, or SAR (Suspicious Activity Report) which are reports made by your financial institution, directly to your countries tax agency or government when you receive / send transactions that may not be justifiable by your registered earnings. These reports are often made without your knowledge, and most times just lead to flags on your future transactions but they can get you in big trouble if you continue making those transactions after you were flagged.
How to get crypto? Can I simply just mine it using my PC?
Long story short: No. You can't mine crypto with your PC, unless you don't mind it dying within 5 months and not making anywhere near enough to replace it. Nowadays, crypto mining is only profitable and efficient for large companies located in countries with low pricing for electricity such as china, or venezuela. Some countries also restrict and measure your electricity consumption in order to stop people from setting up what's called a crypto mining farm (which essentially is a large empty building filled with hardware that solves equations, and calculates bitcoin algorithms in order to get a % of the reward when a block is mined).
Those facilities need good ventilation, constant safekeeping (because the hardware can die EASILY due to the constant work and also the heat the hardware itself generates)
How does Crypto work? What are "confirmations"?
Crypto is stored in the blockchain, which is basically a large, massive list of records, that holds the historical information of whatever cryptocurrency it was developed for. The main blockchain I will talk about is the bitcoin blockchain. Please do not confuse the blockchain, which is the list of records, with ''blockchain.com'' which is a company that offers cryptocurrency services. Those are 2 completely different things.
The blockchain constantly uses what is called blocks to fit numbers of transactions (including bitcoins inside) together in a way that is impossible to violate, adulterate, or modify what was also verified on previous blocks. Once a block is mined, the data mined, will be a part of the blockchain and will be confirmed AGAIN on each new block that is mined. Every time a block is mined, since the genesis block (first ever mined block) a new confirmation is given to each previous block. For instance, if a confirmation happens now, and 10 minutes later a new block is mined, that will add a ''confirmation'' to my transaction making the count "2". If another block is mined 5 minutes later, a 3rd confirmation will appear (meaning the block is CONFIRMED by the peers as irrevocably part of the blockchain and as such, it cannot be modified, or taken away from the blockchain).
For a transaction to be confirmed, it has to be accepted on the blockchain first. If the fee is good enough, it will be seen by the peers (miners) and then will be added to a block, which will be added to the blockchain, and it will get its first confirmation when that block is added up, and mined. All future blocks will add 1 confirmation to that transaction after it's been accepted and mined by the peers.
Where can I store my Crypto?
Crypto is stored in the blockchain, this means, you will need a mean to VIEW the crypto available to you, on your private key. Wallets are exactly that, they allow you to physically SEE the cryptocurrency allocated in your addresses. Wallets DON'T store bitcoins, they are used to see the bitcoin stored in the blockchain and allocated in your address.
There are different types of wallets:
1) Custodial wallets (WORST ONES, DO NOT USE):
These should not be used unless necessary as they are extremely risky if you are holding more than a few hundred dollars, they can sporadically close your account, make you verify your identity, impose restrictions to your coins, and they can take your money and run away if they choose to exit scam.
These wallets are owned by companies, which hold your Crypto for you, and you can easily use the funds by requesting a withdrawal or sending funds to a pre-determined address of theirs. Normally, these wallets also allow you to purchase Crypto from within the exchange itself, using a credit card or other payment methods.
All exchanges are custodial, for instance, Binance, Kraken, Coinbase, Blockchain.com, localbitcoins.
Pro:
Easy to use for newcomers.
Cons:
They own your bitcoin, because they own the private keys of your ''wallet'' and if they disappear, they take your coins with them. They are prone to hacks. The funds stored within an exchange, are NOT safe from hacks. If the exchange is hacked by external parties, and they can't assume the responsibility of the funds stolen, they will dissappear. (Ex: Mt.Gox). Slow support.
2) Non-Custodial wallets:
These are the best choice for a 90% of the Crypto users. These are secure, to an extent, and unless specific things happen, the funds will be safe. The coins, in these wallets, are responsibility of the user and not the website or company unlike with custodial wallets. You are responsible for the safety of your funds. This means that as long as you take proper security measures, and you are smart when creating the wallet (will explain this in the next paragraph) you will never get hacked and the funds will remain available for you for life.
How to create a non-custodial wallet:
1) Depending on your device, you must download the app or wallet from the official website or store.
Android users: Mycelium, Coinomi.
iOS users: Coinomi, Bitpay.
Laptop/Desktop users: Electrum.
2) Download the app, the process is the same on all wallets as they work in the same way and most of them are compatible with each other.
3) Follow the steps to create your wallet. This often includes writing down your SEED which is a string of 12 to 24 words, which must be written with perfect grammar, and in the language they are given to you. Please WRITE THESE WORDS ON A PIECE OF PAPER AND KEEP IT SAFE as this will enable you to recover your wallet AT ANY TIME if the wallet is discontinued or stops working on your device.
4) Once you have written your seed down, you will be prompted to enter the seed on your device again, in order to verify you have written the seed correctly. If all was written properly, you will be granted access to your wallet, and if not, you will be given the seed once again so you can correct your mistakes.
5) That's it. Enjoy your wallet, your funds, your coins, available to you at any time, without restrictions, without having to request withdrawals, or without having to give explanations to anyone about the funds that you are holding.
Pros:
Very secure. Very easy to use once the set up is done. Very easy to understand. You own the coins inside and nobody has access to them aside from you and whoever has the seed.
Cons:
Some wallets could calculate the fee incorrectly, but most if not all, will allow you to manually customize the fee according to your needs (if you are in a rush, you can add more fee, and if you are not in a rush you can use a lower fee).
3) Hardware wallets (NON-CUSTODIAL):
These are the best choice for Crypto adepts! They are incredibly easy to set up, and customize, and manage. They have apps on mobile phones and computers as well, and they are easy to access. Also secure.
These wallets are physical, unlike app wallets, these have to be handled physically and they can actually be held in your hand (for the ones that are skeptical about new technology).
Currently, the best hardware wallets are:
You purchase one, and when it arrives, you plug it into your computer of choice, and complete the set up within 5 minutes. You are given a seed, and you are also asked to add a pin code to your device and your computer app.
The best thing about the hardware wallets is that even if somebody manages to obtain your seed, somehow, let's say you accidentally gave it to a stranger without knowing, they will NOT be able to use the seed to get your funds, because they will need to have the physical device that allows you to send / receive funds on your wallet in order to do that. You would have to accidentally give them a flash-drive-like device as well as your pin code, and seed, in order to allow them to take your funds. This is almost impossible even if you are extremely naive and trust a stranger with your funds.
When you wish to use your funds, you will have to plug the device to a computer, enter the pin on both hardware wallet and app, and then you will have to confirm the address you pasted on the app, on the device itself. Giving you a sort of 2nd factor authentication. Once you confirm from the wallet itself, the funds are sent. As simple as that.
Pros: Everything. Security, usability, features, stability, app looks nice.
Cons: Pricey, depending on how much you wish to hold, if you have under 100$ in crypto I suggest you stick to normal non-custodial wallets rather than spending 50-60$ on a hardware wallet.
Now that you have a wallet set up, I want you to learn more about transactions and fees.
To begin with, fees are not taken by the wallet you use. This is a common misconception. The wallet (talking exclusively about non-custodial, as exchanges are completely different) have NO fee and the wallet itself sees NO benefit from the fee you pay when sending a payment.
Whenever you want to use the funds you have stored in your wallet, you will be shown a small message that states the current price of the fee. This is what is called a miners fee or transaction fee. This is the reward you are offering to the peers who choose to mine your transaction and include it in a block, for that work. They will see all transactions and choose which one they wish to include in the next block based on how high of a fee you added. You could potentially use no fee at all, and depending on the blockchain status and the weight of your transaction, it could be confirmed at some point.
One thing needs to be cleared up because I see a lot of misinformation and misconceptions being spread on forums and internet overall. The miners fee is NOT reliant on the amount of dollars you are sending. Payments have a fee based on the SIZE (weight in BYTES) of the transaction. And not reliant WHATSOEVER on the amount of money that is being sent.
Let's take this transaction as an example:
I sent 99.9$ and I paid 0.19$ in fees.
However, on this transaction:
I sent 3000+$ and I paid 0.86$ in fees.
Why does this work this way?
Simple. The fee is based on the size of the transaction rather than the value. On the first transaction, the size was 670 bytes, and paying 2.6 satoshi / byte made me pay 0.19$ in fees. On the other hand, the second transaction was only 225 bytes, and paying 36 satoshi / byte made me pay 0.86$ in fees.
How does this work?
Also very simple. Transactions don't care about the price in USD. They only care about the inputs you are using to send a transaction. On the first one, you can see 4 transactions are being consumed in order to send out the payment: https://gyazo.com/ce8d3d1528e23e9ea6ec9625194b4fca this means 4 transactions are being weighed in order to calculate the fee.
On the second payment however, I only consumed 1 input: https://gyazo.com/599a2948f1044eb6ab3d535de2450ac5 which meant the transaction would be much lighter in terms of size then the first, even if the second was 30 times larger in terms of USD. This shows that the price of the bitcoin being transferred is completely irrelevant to the price of the fee.
What is input/output?
Input is the transaction you receive on your wallet. When you receive a transaction a new input is created on your wallet. Imagine inputs as coins. If you are paid 1$ 10 times, you will have 10 coins worth 1$ each. This means you will have to carry 10 coins wherever you go. If you wish to spend those coins, you will have to pay (consume them) and get a 'change' based on what you are paying for.
Output is the consumption of an input, in order to send a new transaction.
If you wish to consume 10 inputs of 1$ in order to send out 10$, you will be consuming the 10 inputs and creating a new output. This output will weight a specific amount based on the size of all previous 10 transactions that make up that 10$. By sending 10$ after receiving 10 payments of 1$, you are essentially exchanging your 10 coins worth 1$ each, for a 10$ bill, and therefore the new transactions you make after that, will weigh much less than the initial transaction of 10$ you sent out.
This happens because the 10$ bill weighs much less than 10 coins worth 1$ each and therefore will cost much less to move it around. Even a 1000$ transaction could potentially cost less than a 10$ transaction, depending on how many inputs (payments received) your wallet contains.
To be continued...
What is a cryptocurrency?
A cryptocurrency is a digital asset created mainly as a decentralized (not under the control of banks or governments) medium of exchange (for purchase or for savings).
There are several types of cryprocurrencies, ranging from currencies without a real use other than for holding them, in hopes that some day they will increase in price, others that are bound on a 1:1 ratio to USD or EURO, others that have specific uses but I won't be going in-depth about those in this guide.
What can I use a cryptocurrency for?
Cryptocurrency (or crypto, from this point forward) has many different uses. It is mainly used as a mean to transfer funds without having to go through government controlled agencies (such as banks) in order to send funds internationally or even within your own country. It makes transactions between individuals risk-free in terms of tax agencies snooping in your earnings. You could receive payments in crypto for any job, and nobody would be able to control (or know) about the payments or who you got the payment from. This means, in essence, that crypto is used as a way to stay out of the mainstream financial system, and as a way to bypass the need to declare earnings that could not be easily justified or declared to tax agencies (such as for instance, freelance jobs that go straight to you without intermediary, or payments you receive for work that has no invoice or receipt whether it's your impossibility or your buyer's).
Crypto is a way to be free from having to justify or explain your earnings to banks, governments, tax agencies, etc. without having the 'risk' of being flagged for tax evasion or risky transactions, or SAR (Suspicious Activity Report) which are reports made by your financial institution, directly to your countries tax agency or government when you receive / send transactions that may not be justifiable by your registered earnings. These reports are often made without your knowledge, and most times just lead to flags on your future transactions but they can get you in big trouble if you continue making those transactions after you were flagged.
How to get crypto? Can I simply just mine it using my PC?
Long story short: No. You can't mine crypto with your PC, unless you don't mind it dying within 5 months and not making anywhere near enough to replace it. Nowadays, crypto mining is only profitable and efficient for large companies located in countries with low pricing for electricity such as china, or venezuela. Some countries also restrict and measure your electricity consumption in order to stop people from setting up what's called a crypto mining farm (which essentially is a large empty building filled with hardware that solves equations, and calculates bitcoin algorithms in order to get a % of the reward when a block is mined).
Those facilities need good ventilation, constant safekeeping (because the hardware can die EASILY due to the constant work and also the heat the hardware itself generates)
How does Crypto work? What are "confirmations"?
Crypto is stored in the blockchain, which is basically a large, massive list of records, that holds the historical information of whatever cryptocurrency it was developed for. The main blockchain I will talk about is the bitcoin blockchain. Please do not confuse the blockchain, which is the list of records, with ''blockchain.com'' which is a company that offers cryptocurrency services. Those are 2 completely different things.
The blockchain constantly uses what is called blocks to fit numbers of transactions (including bitcoins inside) together in a way that is impossible to violate, adulterate, or modify what was also verified on previous blocks. Once a block is mined, the data mined, will be a part of the blockchain and will be confirmed AGAIN on each new block that is mined. Every time a block is mined, since the genesis block (first ever mined block) a new confirmation is given to each previous block. For instance, if a confirmation happens now, and 10 minutes later a new block is mined, that will add a ''confirmation'' to my transaction making the count "2". If another block is mined 5 minutes later, a 3rd confirmation will appear (meaning the block is CONFIRMED by the peers as irrevocably part of the blockchain and as such, it cannot be modified, or taken away from the blockchain).
For a transaction to be confirmed, it has to be accepted on the blockchain first. If the fee is good enough, it will be seen by the peers (miners) and then will be added to a block, which will be added to the blockchain, and it will get its first confirmation when that block is added up, and mined. All future blocks will add 1 confirmation to that transaction after it's been accepted and mined by the peers.
Where can I store my Crypto?
Crypto is stored in the blockchain, this means, you will need a mean to VIEW the crypto available to you, on your private key. Wallets are exactly that, they allow you to physically SEE the cryptocurrency allocated in your addresses. Wallets DON'T store bitcoins, they are used to see the bitcoin stored in the blockchain and allocated in your address.
There are different types of wallets:
1) Custodial wallets (WORST ONES, DO NOT USE):
These should not be used unless necessary as they are extremely risky if you are holding more than a few hundred dollars, they can sporadically close your account, make you verify your identity, impose restrictions to your coins, and they can take your money and run away if they choose to exit scam.
These wallets are owned by companies, which hold your Crypto for you, and you can easily use the funds by requesting a withdrawal or sending funds to a pre-determined address of theirs. Normally, these wallets also allow you to purchase Crypto from within the exchange itself, using a credit card or other payment methods.
All exchanges are custodial, for instance, Binance, Kraken, Coinbase, Blockchain.com, localbitcoins.
Pro:
Easy to use for newcomers.
Cons:
They own your bitcoin, because they own the private keys of your ''wallet'' and if they disappear, they take your coins with them. They are prone to hacks. The funds stored within an exchange, are NOT safe from hacks. If the exchange is hacked by external parties, and they can't assume the responsibility of the funds stolen, they will dissappear. (Ex: Mt.Gox). Slow support.
2) Non-Custodial wallets:
These are the best choice for a 90% of the Crypto users. These are secure, to an extent, and unless specific things happen, the funds will be safe. The coins, in these wallets, are responsibility of the user and not the website or company unlike with custodial wallets. You are responsible for the safety of your funds. This means that as long as you take proper security measures, and you are smart when creating the wallet (will explain this in the next paragraph) you will never get hacked and the funds will remain available for you for life.
How to create a non-custodial wallet:
1) Depending on your device, you must download the app or wallet from the official website or store.
Android users: Mycelium, Coinomi.
iOS users: Coinomi, Bitpay.
Laptop/Desktop users: Electrum.
2) Download the app, the process is the same on all wallets as they work in the same way and most of them are compatible with each other.
3) Follow the steps to create your wallet. This often includes writing down your SEED which is a string of 12 to 24 words, which must be written with perfect grammar, and in the language they are given to you. Please WRITE THESE WORDS ON A PIECE OF PAPER AND KEEP IT SAFE as this will enable you to recover your wallet AT ANY TIME if the wallet is discontinued or stops working on your device.
4) Once you have written your seed down, you will be prompted to enter the seed on your device again, in order to verify you have written the seed correctly. If all was written properly, you will be granted access to your wallet, and if not, you will be given the seed once again so you can correct your mistakes.
5) That's it. Enjoy your wallet, your funds, your coins, available to you at any time, without restrictions, without having to request withdrawals, or without having to give explanations to anyone about the funds that you are holding.
Pros:
Very secure. Very easy to use once the set up is done. Very easy to understand. You own the coins inside and nobody has access to them aside from you and whoever has the seed.
Cons:
Some wallets could calculate the fee incorrectly, but most if not all, will allow you to manually customize the fee according to your needs (if you are in a rush, you can add more fee, and if you are not in a rush you can use a lower fee).
3) Hardware wallets (NON-CUSTODIAL):
These are the best choice for Crypto adepts! They are incredibly easy to set up, and customize, and manage. They have apps on mobile phones and computers as well, and they are easy to access. Also secure.
These wallets are physical, unlike app wallets, these have to be handled physically and they can actually be held in your hand (for the ones that are skeptical about new technology).
Currently, the best hardware wallets are:
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www.ledger.com
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trezor.io
You purchase one, and when it arrives, you plug it into your computer of choice, and complete the set up within 5 minutes. You are given a seed, and you are also asked to add a pin code to your device and your computer app.
The best thing about the hardware wallets is that even if somebody manages to obtain your seed, somehow, let's say you accidentally gave it to a stranger without knowing, they will NOT be able to use the seed to get your funds, because they will need to have the physical device that allows you to send / receive funds on your wallet in order to do that. You would have to accidentally give them a flash-drive-like device as well as your pin code, and seed, in order to allow them to take your funds. This is almost impossible even if you are extremely naive and trust a stranger with your funds.
When you wish to use your funds, you will have to plug the device to a computer, enter the pin on both hardware wallet and app, and then you will have to confirm the address you pasted on the app, on the device itself. Giving you a sort of 2nd factor authentication. Once you confirm from the wallet itself, the funds are sent. As simple as that.
Pros: Everything. Security, usability, features, stability, app looks nice.
Cons: Pricey, depending on how much you wish to hold, if you have under 100$ in crypto I suggest you stick to normal non-custodial wallets rather than spending 50-60$ on a hardware wallet.
Now that you have a wallet set up, I want you to learn more about transactions and fees.
To begin with, fees are not taken by the wallet you use. This is a common misconception. The wallet (talking exclusively about non-custodial, as exchanges are completely different) have NO fee and the wallet itself sees NO benefit from the fee you pay when sending a payment.
Whenever you want to use the funds you have stored in your wallet, you will be shown a small message that states the current price of the fee. This is what is called a miners fee or transaction fee. This is the reward you are offering to the peers who choose to mine your transaction and include it in a block, for that work. They will see all transactions and choose which one they wish to include in the next block based on how high of a fee you added. You could potentially use no fee at all, and depending on the blockchain status and the weight of your transaction, it could be confirmed at some point.
One thing needs to be cleared up because I see a lot of misinformation and misconceptions being spread on forums and internet overall. The miners fee is NOT reliant on the amount of dollars you are sending. Payments have a fee based on the SIZE (weight in BYTES) of the transaction. And not reliant WHATSOEVER on the amount of money that is being sent.
Let's take this transaction as an example:
I sent 99.9$ and I paid 0.19$ in fees.
However, on this transaction:
I sent 3000+$ and I paid 0.86$ in fees.
Why does this work this way?
Simple. The fee is based on the size of the transaction rather than the value. On the first transaction, the size was 670 bytes, and paying 2.6 satoshi / byte made me pay 0.19$ in fees. On the other hand, the second transaction was only 225 bytes, and paying 36 satoshi / byte made me pay 0.86$ in fees.
How does this work?
Also very simple. Transactions don't care about the price in USD. They only care about the inputs you are using to send a transaction. On the first one, you can see 4 transactions are being consumed in order to send out the payment: https://gyazo.com/ce8d3d1528e23e9ea6ec9625194b4fca this means 4 transactions are being weighed in order to calculate the fee.
On the second payment however, I only consumed 1 input: https://gyazo.com/599a2948f1044eb6ab3d535de2450ac5 which meant the transaction would be much lighter in terms of size then the first, even if the second was 30 times larger in terms of USD. This shows that the price of the bitcoin being transferred is completely irrelevant to the price of the fee.
What is input/output?
Input is the transaction you receive on your wallet. When you receive a transaction a new input is created on your wallet. Imagine inputs as coins. If you are paid 1$ 10 times, you will have 10 coins worth 1$ each. This means you will have to carry 10 coins wherever you go. If you wish to spend those coins, you will have to pay (consume them) and get a 'change' based on what you are paying for.
Output is the consumption of an input, in order to send a new transaction.
If you wish to consume 10 inputs of 1$ in order to send out 10$, you will be consuming the 10 inputs and creating a new output. This output will weight a specific amount based on the size of all previous 10 transactions that make up that 10$. By sending 10$ after receiving 10 payments of 1$, you are essentially exchanging your 10 coins worth 1$ each, for a 10$ bill, and therefore the new transactions you make after that, will weigh much less than the initial transaction of 10$ you sent out.
This happens because the 10$ bill weighs much less than 10 coins worth 1$ each and therefore will cost much less to move it around. Even a 1000$ transaction could potentially cost less than a 10$ transaction, depending on how many inputs (payments received) your wallet contains.
To be continued...