Beginner Crypto Advice:
What You Need to Know as You’re Getting Started

Navigating the cryptocurrency landscape with confidence


If you're a newbie eager to explore the world of cryptocurrencies, this guide offers essential crypto advice, from grasping the basics to strategic portfolio diversification, to help you navigate this intricate landscape and make well-informed decisions.

Getting the basics of cryptocurrency

Before diving into crypto advice, it's always good to review some foundational concepts. Cryptocurrencies are decentralized digital assets that use cryptography for secure financial transactions. Unlike traditional currencies issued by governments and central banks, cryptocurrencies operate on blockchain technology, a distributed ledger that records all transactions across a network of computers. 

Let’s start by exploring how blockchain works, including the process of mining, and understanding the significance of public and private keys in securing your digital assets.

blockhain technology spiral

Blockchain, mining, and security

For beginners, the starting point is often Bitcoin, the most well-known cryptocurrency. Bitcoin serves as a fundamental introduction to digital assets and lays the groundwork for understanding other cryptocurrencies. Bitcoin is the godfather of crypto and has consistently commanded about 50% of the total market cap of all cryptos.

Cryptocurrencies like Bitcoin operate on a decentralized and secure system known as blockchain. This revolutionary technology is the backbone of the entire digital asset ecosystem, providing transparency, security, and immutability to transactions.

As Bitcoin creator Satoshi Nakamoto said:

“The main idea of the system is the generation of a hash-based proof of work to create self-evident proof of the majority consensus. Users get new coins by contributing proof of work to the chain.” (Jan 2009)

How blockchain works

At its core, a public blockchain is a distributed ledger that records transactions across a network of computers in a transparent and tamper-resistant manner. Not all blockchains are the same and Bitcoin’s value proposition is the “gold standard” for all blockchain security. The question to ask is how does the cryptographic security of Bitcoin compare to another blockchain?


Key Takeaway

Blockchains have dozens of attributes and your job is understand the differences among those blockchains to understand their value proposition. The token or coin, the asset you invest in, is a reflection of the accrued value based on the combination of all the attributes of a respective chain.



Picture it as a chain of blocks, where each block contains a list of transactions. New blocks are added to a blockchain at regular intervals depending on the blockchain. There could be sub-second blocks like Solana or 10-minute blocks like Bitcoin. Miners or validators depending on the type of blockchain consensus add new blocks based on a set of rules. The next most important question to ask is, how decentralized is a particular blockchain network? Bitcoin, for example, it very decentralized with thousands of nodes and its 10-minute blocks are rather clunky in crypto, but it offers the best security of all blockchains. 

When a transaction occurs, it is broadcasted to a network of nodes (computers) for validation. These nodes use consensus algorithms to agree on the validity of the transaction before it is added to a block. Once confirmed, the block is linked with a hash of the previous block thus chaining the blocks together. This process ensures that no single entity has control over the entire blockchain, making it resistant to fraud and censorship. Blocks are “mathematically fused” together with reference hashes which are the outputs of algorithms. The hash or string of characters can’t be reverse engineered creating the mathematical strength.

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The process of mining and staking

Mining is an integral part of how transactions are verified and added to the blockchain. Miners, who are participants in the network, use powerful computers to solve complex mathematical puzzles. These puzzles serve as a proof-of-work, demonstrating that the miner has invested computational effort.

The first miner to solve the puzzle broadcasts the solution to the network for validation. Once confirmed, the new block is added to the blockchain, and the miner is rewarded with newly minted cryptocurrency (in the case of Bitcoin, this is called the block reward) and transaction fees. This process, known as mining, not only secures the network but also introduces new coins into circulation.

Mining is competitive, and as more miners join the network, the puzzles become more challenging to solve. This dynamic ensures a consistent rate of block creation and regulates the supply of cryptocurrencies, making mining a fundamental aspect of the decentralized nature of blockchain. There are numerous other proof of work blockchains like Horizen and Kadena. 

Proof of stake blockchains typically have validators who are chosen by the protocol to validate and add blocks at a rate based on their proportionate amount of stake of a particular blockchains native token. This is like the old cliche, “You’ve got to have skin in the game.” A validator puts skin in the game by staking tokens with the risk of losing some if they don’t behave properly. 

Avalanche Network states:

“When a new block is proposed, the protocol selects a validator from the available pool to verify the transaction. Selection is performed in a pseudorandom manner: The odds that a particular node will be chosen to act as a validator depends on the proportionate number of tokens it has staked. Once the new block has been successfully validated (according to established rules), the selected staking node receives a reward for its participation.”

motherboard with fan suggestive of bitcoin mining

The significance of public and private keys

Central to the security of cryptocurrencies are public and private keys from asymmetric encryption. These cryptographic keys play a crucial role in facilitating secure transactions and ensuring the integrity of digital assets.

Public key

Think of the public key as your digital address, visible to everyone on the blockchain. It's derived from complex mathematical algorithms and serves as an identifier for receiving funds. Sharing your public key is similar to providing someone with your bank account number for transactions.

Private key

On the other hand, the private key is your secret code, known only to you. It acts as a digital signature, allowing you to access and control your digital assets. Losing your private key means losing control over your funds permanently. It's essential to keep your private key secure and never share it with anyone. Guard your private key with your life.

When you initiate a transaction, your private key signs the transaction, providing mathematical proof that it originated from you. The recipient can verify this signature using your public key, ensuring the authenticity of the transaction. The user doesn't type in a private every time they send crypto because the software handles this part under the hood, rather the user typically clicks a send button.

Understanding the role of public and private keys in securing digital assets is paramount for anyone involved in the world of cryptocurrencies. It's a delicate balance between accessibility and security, emphasizing the importance of safeguarding your private key to prevent unauthorized access.

As Andreas Antonopoulos says: "Not your keys, not your coins.” 

This simple statement helps you answer whether you are using a centralized app that owns and controls your asset or whether you own and control your assets.


Key Takeaway

The importance of managing private keys or seed phrases can’t be overemphasized or repeated too many times. The essence of crypto as first demonstrated by Bitcoin puts the power and control of financial assets back in the hands of users. Nonetheless, in crypto you get to choose how to control your assets.


Crypto advice: Diversify your portfolio strategically


Once you've grasped the basics, the next crucial piece of crypto advice for beginners is to diversify your portfolio strategically. While Bitcoin is the flagship cryptocurrency, the market boasts thousands of altcoins (alternative cryptocurrencies). Diversifying your investments across multiple assets can help mitigate risks and maximize potential returns.

When considering various cryptocurrencies, evaluate factors such as the project's purpose, technology, team, and community support. Conduct thorough research to understand the use case of each cryptocurrency and its potential for long-term growth. Remember that the crypto market can be highly volatile, so diversification acts as a risk management strategy. Review this deeper dive on crypto portfolio strategy.

Benjamin Graham the godfather of value investing said:

"The essence of investment management is the management of risks NOT the management of returns.”


Key Takeaway

Most people are focused on returns, especially in crypto, with multiple daily headlines touting the next 10X or 100X crypto gem. There’s a new realm of risk in crypto and Benjamin Graham’s quote is spot on for the crypto space. Very few educators and influencers focus on the risk in crypto. Risk is a primary focus in the Crypto Bullseye Zone™.



Stay informed and engage in crypto communities

In the fast-paced world of cryptocurrencies, staying informed is paramount. The more you are informed the more you reduce your risk. Actively seek out reputable sources of information, including cryptocurrency news websites, forums, podcasts and social media channels. Engaging with the crypto community can provide valuable insights, tips, and real-world experiences from seasoned investors.

Warren Buffet spends his morning hours reading the news and so should you. The more you read, listen and watch, the easier it is to gauge the authenticity of the people and projects in crypto. There is a self-validating social construct where both good and bad actors are “identified” by the collective crypto community. This is the thing you need to tap into, and you can only get it by rolling up your sleeves and doing the work.

 


Key Takeaway

Be sure to exercise caution and critically evaluate information, as the crypto space can sometimes be filled with hype and misinformation. The more you self-educate, the easier it gets. Crypto is a participation sport.


Security first: Safeguarding your investments 


Beginners in the crypto space should also understand the importance of security. The decentralized and pseudonymous nature of cryptocurrencies makes them attractive targets for cyber threats. Implementing robust security measures is crucial to safeguarding your digital assets. Managing security and risk is one of your primary jobs. Security and risk are directly to related to how much control you want to have with your crypto assets.


Key Takeaway

Regardless how you choose to manage your crypto, albeit with centralized exchanges or not, some risk gets eliminated while new risks get inherited. Essentially, you are shifting risk from one kind of risk to a different risk. Your job is to understand those risks, which is where crypto education comes in.


 

Secure your private keys

Your private keys and secret phrases are the gateway to your cryptocurrency holdings. Keep them secure by using hardware wallets or secure software wallets. NEVER share your private keys. Scammers are all over Discord and when you ask for help they pretend to be like support moderators and ask for private keys. (No legitimate Discord channel or project will ask for private keys.)

Enable two-factor authentication (2FA)

Adding an extra layer of security through 2FA enhances the protection of your accounts. Whether it's your cryptocurrency exchange account or wallet, enabling 2FA adds an additional authentication step, making it more challenging for unauthorized individuals to access your funds. Also use password managers to more efficiently manage all your accounts inside and outside of crypto. Password managers significantly reduce your risk in handling login credentials.


Key Takeaway

Password managers are your friend but NEVER store private keys or seed phrases in your password manager. They should originate offline on paper or steel and never get stored online in any way.


 

Beware of phishing scams

Phishing scams are prevalent in the crypto space. Be cautious of unsolicited emails, messages, or links asking for your private keys or personal information. Always double-check the authenticity of websites and communication channels to avoid falling victim to phishing attempts.

Investment strategies: A deeper dive

Beyond the basics, understanding different investment strategies can empower beginners to make more informed decisions. Dollar-cost averaging (DCA), for instance, involves regularly investing a fixed amount over time, regardless of market fluctuations. This strategy helps mitigate the impact of short-term volatility and allows investors to accumulate assets at the lowest average cost per unit. DCA is effective and requires much less time to make investment decisions.

Another strategy to consider is fundamental analysis. This involves evaluating the underlying factors that may affect the value of a cryptocurrency, such as its technology, team, partnerships, and overall market demand. While technical analysis focuses on historical price movements, fundamental analysis looks at the broader factors influencing a cryptocurrency's value. All investors should have at least a basic understanding of these concepts even if they don’t want to deep dive into them.

Emotional resilience in the crypto market

The cryptocurrency market is known for its price volatility, which can trigger emotional responses among investors. It's crucial for beginners to develop emotional resilience and a long-term perspective. Avoid making impulsive decisions based on short-term market fluctuations, and instead, focus on the fundamentals of the projects in which you invest. Whichever type of investor you are before you get into crypto is likely the kind of investor you’ll be when you get into crypto.

The typical retail investor gets motivated to invest when assets get hyped in the news and have already gone way up in price. The massive price increases trigger the news to cover those assets and the cycle repeats. For some reason when assets are on sale (crypto assets or otherwise), typical retail investors are nowhere to found. Break this cycle and you’ve cracked the code.

As Warren Buffett famously said, “Be fearful when others are greedy and greedy when others are fearful.”

Final thoughts on getting started in the crypto space

Embarking on your crypto journey as a beginner can be both exhilarating and challenging. By understanding the basics, diversifying your portfolio, staying informed, prioritizing security, and exploring different investment strategies, you can navigate the cryptocurrency landscape with confidence. 

If you want to maximize the value from crypto you’ve got to understand what you’re investing in. Always act with risk in mind. The more you are willing to invest time and be an active participant the higher your returns. If you take a more passive approach in crypto you will miss opportunities. Neither one is necessarily good or bad, it just depends on how much time and effort you’re willing to invest. There is major upside potential over the next 10 years and there will be many more up and down cycles. Even if you’re a newbie today, you’re still early in the game. Happy investing!

As always your goal is to get a Crypto Bullseye™.

 



Content Insight

This content has been created through a collaborative effort, combining the capabilities of artificial intelligence (AI) technology and the expertise of a seasoned professional with extensive experience in the crypto space. While AI played a role in generating portions of this material, it has been carefully reviewed, researched, and refined by a human expert to ensure accuracy, relevance, and a nuanced understanding of the subject matter. The information presented herein reflects a synthesis of AI-generated insights and the real-world knowledge contributed by the human expert, aiming to provide a comprehensive and well-informed perspective on the topic. Users are encouraged to verify details independently and seek advice from qualified professionals before making any financial or investment decisions.

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