- Lesson 1: What is Cryptocurrency?
- Lesson 2:Where did crypto come from?
- Lesson 3:What problems do crypto solve? Trust.
- Lesson 4:What problems do crypto solve? Permission.
- Lesson 5:What can you do with crypto?
- Lesson 6:How does cryptocurrency get its price?
- Lesson 7:What is marketcap?
- Lesson 8:How to keep your crypto safe?
- Lesson 9:What are the benefits of crypto?
- Lesson 10:How do you get cryptocurrency?
- Lesson 11: How to use a crypto wallet?
- Lesson 12: Backing Up Crypto Wallets
- Lesson 13: What are exchanges and how are they used?
- Lesson 14: How not to get scammed
- Lesson 15: What is Dash?
- Lesson 16: What are Hardware Wallets?
- Lesson 17: Cryptocurrency in the real world
- Lesson 18: Cryptocurrency mistakes to avoid
- Lesson 19: Where is the best place to buy crypto in Armenia in 2020
- Lesson 20: Understanding transaction fees
Lesson 1: What is Cryptocurrency?
Cryptocurrency is a class of digital assets anyone can own and trade through the internet on their phone or computers. These digital assets can be used as money, gold, proof of ownership, and even as contracts, as well as a host of other things. We will be covering these different use-cases for cryptocurrency in future lessons. The first ever cryptocurrency is Bitcoin, I’m sure many of you are familiar with it. There are now thousands of different cryptocurrencies all attempting to do different things and honestly many of them are scams or are very misguided and should be avoided. There are good cryptocurrencies out there however. Through this series I will help you differentiate between the good and the bad. To start, generally there are a few things that all real cryptocurrencies share.
One: Cryptocurrencies are comprised of its network and its digital asset called a token. Token is the base asset or fundamental thing, that moves through the network. For instance Bitcoin is the token in the Bitcoin network, Dash is the token in the Dash network, because Bitcoin and Dash are the things that move through the network. The Token can be owned and transferred. The network is comprised of computers running specially created code specific to each cryptocurrency that provides all the attributes of the network such as how many tokens exist in the network and by what mechanism they are secured, as well as many more things.
For example the Central Bank of Armenia is like the network and the Dram is like the token. Now this is very important, if the network is flawed it doesn’t matter how attractive the token is because the cryptocurrency will ultimately fail. It is useful to think of the network as a car engine. If set up properly the engine will propel the car forward. If there is something wrong with the engine and it is broken or designed improperly it will fail to produce energy and break down.
Even though most of us don’t understand exactly how our engine works we trust it to take us where we need to go. The same is true for cryptocurrency. For the vast majority of us, myself included, we don’t have the technological expertise to look into the code of a cryptocurrency network to verify that it is set up properly. Fortunately, these networks are open-sourced, meaning experts not associated with the projects are able to look under the hood and make sure everything is set up properly. The longer a cryptocurrency has existed, the more opportunity for experts to evaluate these networks and find problems. So in a lot of ways researching about cryptocurrency is like buying a car, you’re not expected to know the detailed engineering of every car, but if you do your research you can learn what experts say about the cryptocurrency network before buying it to make sure it is in fact set up properly.
Two: Unlike digital music or digital files, ownership of cryptocurrency tokens cannot be copied. This is important because it creates scarcity which is a very important attribute of money. Without scarcity anyone could just copy their cryptocurrency tokens causing them to be worthless.
Three: Cryptocurrency is trustless. Cryptocurrencies do not require the holders of the crypto tokens to trust an entity in order to use, transfer, or own cryptocurrency. If someone claims to have 100 BTC you don’t need to trust them, you can verify it by looking on the Blockchain, which is the backend database that runs Bitcoin and other similar cryptocurrencies. If someone says they just sent a payment to you, you don’t need to trust that they aren’t lying. The evidence will appear in your cryptocurrency wallet and on the blockchain providing proof that the statement is true. With cryptocurrencies you don’t need to rely or trust on anyone else but yourself and the validity of the network. For this reason a very popular expression in the cryptocurrency world is “Don’t Trust. Verify”
Four: Cryptocurrency is permissionless. One of the most incredible things about cryptocurrency is that at no point do you need to require permission to become a participant in a cryptocurrency network. Literally all that is needed is an internet connection, a downloaded crypto wallet needed to accept and send cryptocurrency, and an interested person willing to send you cryptocurrency for your goods, services, or other assets. There is no entity that requires the collection of your name and information. No one is prevented from participating in the cryptocurrency economy.
Five: Lastly, all good cryptocurrency networks are robust and secure meaning they are impervious to thieves and hostile agents who aim to disrupt, manipulate or take down the network. Bitcoin for instance is designed in such a way that even the most powerful supercomputers in the world are unable to fabricate data in its network. The most powerful nations in the world, try as they might, are unable to turn off the Bitcoin network. It is designed in such a way that even if only one computer remains in the network the network survives. It’s truly incredible when you think about what a handful of people were able to create.
Lesson 2: History of Cryptocurrency “Where did it come from?”
As you now know from our first class, Bitcoin was the first ever cryptocurrency. Bitcoin’s network became operational in January of 2009 after the mining of the first block of the blockchain called the Genesis block. It has been continuously up and running since then.
Before this milestone could have been achieved, it first needed to start with an idea. The idea of a digital currency has been around since the early 90’s and was a popular idea among techno-libertarians such as the cypherpunks as well as free-market economists like Milton Friedman. These ideas took many years to develop and led to a number of false starts throughout the years.
Then a mysterious person or persons joined the scene and published a white paper in 2008 called “Bitcoin: A Peer-to-Peer Electronic Cash System”. This paper would ultimately bring to the world the first cryptocurrency. The writer of the Bitcoin white paper called himself Satoshi Nakamoto, which in Japanese is the equivalent to a generic name like John Smith. It is speculated that Satoshi Nakamoto used a pseudonym to protect himself in the eventuality that he would be targeted by a government or thief for attempting to create a free-market for money. It is likely given the extreme complexity of the topic that the writer was not a single individual but instead was a group of visionaries working together to create the idea.
It is very common in the technology field to begin projects by first publishing a document called a white paper. White papers promote a new idea and explain how such an idea would be implemented. The Bitcoin white paper does just this and outlines in incredible detail the vision of Bitcoin and the Bitcoin Blockchain. After publishing the white paper and sharing it on several email mailing list, it did not take long for Satoshi to create a movement around the idea. Developers and eventually economists from around the world began debating the merit of such a system. Not long after, they began building the network. This was done in an open-source manner which we will discuss more in a future lesson.
The timing of the white paper could not have been at a more needed time. The global recession was in full swing and a generation of thinkers were learning of the shortfalls of the current financial and monetary systems and were looking for alternatives that better reflected their values. Such an environment was ripe for the idea of cryptocurrency to take hold. Before long the cryptocurrency economy began to take shape.
It wasn’t until 2 year later, on May 22, 2010, that the first real-world Bitcoin purchase occurred. A programmer purchased two large Papa John’s pizzas for 10,000 bitcoins. This day is affectionately known as Bitcoin Pizza Day in the cryptocurrency community.
While Bitcoin was the first cryptocurrency, many have since been created, each with a unique history and story to tell. The other cryptocurrencies are generally referred to as “altcoins” because they are an alternative to bitcoin. The most well known of these are Ethereum, Litecoin, Monero and Dash to name a few.
Here is the most important learning from today’s lesson. When you are interested in a new cryptocurrency, it is vitally important that you spend the time to learn about it and see what people are saying. There are many bad actors in the cryptocurrency space who will attempt to deceive you and you will need to use your best judgement to determine what is legitimate and what is not. For this reason, it is highly recommended that you begin your research starting with a cryptocurrency’s white paper. From there you can highlight the things you don’t understand and begin searching through online forums for the answers to your questions. Chances are if you have a question about how something works, someone has asked the same question somewhere online and received numerous answers.
Lesson 3: What problems do cryptocurrencies solve? Solving the trust problem.
To understand what makes cryptocurrency valuable and interesting to so many around the world, it is first necessary to understand the issues of the existing global monetary system. This requires deep knowledge of economics. In today’s lesson we’ll touch upon some of the main problems cryptocurrency attempts to solve and provide the foundational economic ideas that underpin the cryptocurrency revolution. So if you’re ready, let’s get this lesson started.
Cryptocurrency competes with Central Banks’ FIAT currency such as the US Dollar, the EURO and the Armenian DRAM. In Latin, FIAT means “by decree”. In a lot of ways this concept, that money is controlled by people who are able to command what happens to it is the root of the problems that cryptocurrency aims to solve. FIAT monetary systems rely on the power of the state to dictate how much money exists, how it gets used and who gets the easiest access to money. None of these things are inherently bad but they do create a situation in which corruption and abuse become commonplace.
As you will recall in our first lesson “What is Cryptocurrency”, two key attributes of cryptocurrencies are that they are trustless and permissionless. This is drastically different than the fiat monetary system which requires permission for access, and trust that the system is being administered properly and fairly. Cryptocurrency was born from the ashes of the 2008 global financial crisis. This was a period in time when many of the shortcomings of the financial system became plainly evident, thus compromising the public’s trust in these institutions.
In centralized monetary systems unaccountable elites get to make decisions that impact millions of people. Citizens are left with no choice other than to trust the centralized entity to be honest, accountable, and competent. This is a rather scary proposition when you think about it. Central banks are incredibly powerful. For instance a central bank can create lots of new money often without any input from the public or democratically elected officials. In the process of creating new money they create inflation, debasing the money, which minimizes the purchasing power of the existing money. This discourages savings and promotes the use of banks. Newly created money when without strong safeguards, transparency and accountability can be given to insiders and friends of the central entity. Picking who gets newly created money over others is corrupt and unfair, distorting the marketplace. These improprieties have lasting downstream macroeconomic effects because they artificially direct capital leading to bubbles and financial crises, such as was seen during the 2008 global financial crisis or at its worst during hyperinflationary periods such as during the Weimar Republic in Germany or the Maduro regime in Venezuela. Perhaps worst of all, FIAT monetary systems give countries the power to print money and go to endless war, as the cost of war gets hidden to the taxpayers and money holders. For these reasons many in the cryptocurrency world don’t view FIAT money as real money at all because they are backed by nothing but trust that the technocrats won’t totally destroy the currency. Quite a stark contrast to the days in which currency was backed by gold, a finite resource that politicians and bankers couldn’t create out of thin air.
Cryptocurrency does away with the problem of centralized trust. The networks are comprised of multiple different players who have a say in decision making. As a result, power is limited because no single entity can exert undue influence. Between node operators, miners (who run a specialized node on the network for securing data), developers, foundations, masternode owners (as is the case of Dash), and finally the end user, no one entity is able to unilaterally impose its will on the network. Rather consensus must be reached, without which a networks development and growth will stall. When uncompromisable disputes arise, as they inevitably do, projects break off, called forking in open-source terminology, and form two separate projects for each faction of the dispute. The most famous example of this is the highly dramatic fork that created the two separate cryptocurrencies Bitcoin and BitcoinCash. Some coins like Dash have implemented complex and innovative governance systems through Masternodes that make it easy for the community to come to agreement on how to direct their efforts so as to mitigate conflict. Ultimately the end user, the holder of the cryptocurrency, is the most powerful of all the stakeholders, because it is their faith in the network and their economic activity that they bring with them, that confers onto the network value. In cryptocurrency, one can freely choose which networks to be a part of. Switching between one network and the other is incredibly easy, cheap and fast. This free movement of users and inherent safeguards to prevent corruption by limiting the accumulation of power in the hands of too few means much less trust is needed for the networks to work as compared to the top-down driven FIAT system.
Lesson 4: What does Permissionless mean? How Crypto is different than Paypal.
Again, to understand what makes cryptocurrency so innovative, it is imperative to understand the existing monetary system and its shortcomings. The top-down, centralized monetary systems require gatekeepers to grant permission. Permission to open an account, permission to send money, permission to withdraw money, permission to keep your money without funds being frozen. For some, this permission is simply an annoyance. For those who don’t have the prerequisite requirements to receive this permission it essentially prevents them from participating in the economy.
I’d like us to do a thought provoking experiment that usually clears thing up for my students. I would like you to imagine that you want to send money to your friend using a popular money transfer platform like paypal. Ask yourself, what are the various levels of permission that need to be navigated in order to send the payment to your friend?
- Create account with payment network
- Provide basic information
- Provide telephone number
- Which if you don’t have you will need one
- Provide bank information
- Open up bank account
- Obtain proof of address
- Obtain multiple state issued identifications
- Open up bank account
- Deposit Funds
- Friend creates account with payment network
- Friend provides basic information
- Friend gets telephone number
- Friend provides bank information
- Friend opens up bank account
- Friend obtains proof of residency
- Friend obtain multiple state issued identifications
- Friend opens up bank account
- Friend shares his information needed for you to send him a payment
- You provide information of friend to the payment network to send money to friend
- Friend withdraws funds
There are roughly 19 separate steps that need to be taken in order to successfully send payment from one person to another. Each one of the steps require permission. Without this permission the payment would stall. The payment network can say your phone number isn’t good, the bank can not approve your proof of residency, your friend could be accessing the payment network from a country that doesn’t support users from where he lives. There are thousands of reasons for permission to be denied. It can be really difficult for some to satisfy all the requirements necessary to receive permission to send a payment. It is really no wonder that over 25% of the world’s population is unbanked.
Now let’s do the thought experiment one more time, but this time we will be sending the payment using Dash.
- Download a suitable Dash wallet on your cell phone or laptop for free from a reputable marketplace vendor
- Deposit Dash to your Dash wallet
- Friend downloads a Dash wallet
- Friend shares his public address with you via email or text
- You send a payment from your wallet to your friend. He receives it within 2.5 minutes
That is 5 total steps and at no point do you or your friend require permission. Drastically different isn’t it?
Let’s do one more thought experiment. I think this will resonate strongly with Armenians. This is an extreme example but unfortunately, from time to time, real life gets extreme.
Imagine you live in state that turns on the minority population of which you and your family are one. Your community has been disarmed, your social and political leaders imprisoned or killed, and there is concern that you will be taken next. At this point in the nightmare scenario, your family has decided it is no longer safe to remain in your home and you choose to seek refuge outside the state.
In scenario one, your wealth is stored in gold, the real-estate property of your home, and fiat currency savings in the bank. You’re leaving your home, perhaps never to see it again. The majority of your fiat funds and gold stored by you and your closest allies sit in the bank frozen. The only wealth available to you is the fiat money and gold which you have on-hand stored in your home. Having left, you have managed to safely reach the border of the neighboring state at which point you are robbed by corrupt border guards or dishonest human traffickers and your gold and the rest of your fiat is taken from you. You have nothing but your lives and the clothes on your backs.
In scenario two, some of your wealth is also stored in digital gold like Bitcoin. Before leaving your house for the last time you send yourself an encrypted email that contains the private key of your Bitcoin. Just in case you also memorize the backup seed phrase which is a list of words which store all the information needed to recover a Bitcoin wallet. As in scenario 1, you successfully make it to a safe haven but along the way you’ve been robbed of all your earthly possessions but the clothes on your back and the bitcoin you have stored in your brain. With this wealth you are able to quickly rebuild your life and seek prosperity. Even the strength of the state turned against you, was unable to rob you. The freedom of owning your cryptocurrency is entirely independent of whether you receive state permission.
Being unbanked during the pre-cryptocurrency era is undeniably a bad thing. It limits your access to credit, payment platforms and the white market. Things are changing however. Over the next 50 years the word ‘unbanked’ is going to lose its negative connotations. An unbanked person will be known as an independent, free person and it will become the norm.
There are many problems cryptocurrency solves and even some problems that cryptocurrency cause, we chose to focus our lesson on Trust and Permission because they are two of the biggest problems with the current monetary system. After watching these two video lessons you should hopefully have a better grasp on what makes cryptocurrency unique from the legacy banking and payment systems and are beginning to understand the value that cryptocurrencies serve.
Lesson 5: What can you do with Cryptocurrency?
At its core, cryptocurrency is a way of digitally transferring value in a secure, open and decentralized way. Transfering value sounds pretty straight forward but it actually comes in many different flavors.
As you’ve learned already from our what is cryptocurrency lesson, there are so many different cryptocurrencies out there, one person couldn’t hope to keep track of them all. Fortunately, the majority of cryptocurrencies fall into one or more different classes of cryptocurrencies based on the intended use of the cryptocurrency. These classes of crypto are useful in furthering your understanding of cryptocurrency because it creates more manageable pieces of the crypto-space for you to study and understand. Today we will be reviewing the three biggest classifications based on their respective marketcaps as of the recording of this video. There are many more classifications that we will not be touching on in this video.
Cryptocurrency as a store of value
The first classification of cryptocurrencies which we will be learning about are cryptocurrencies that aim to be a store of value. These cryptocurrencies can be thought of as Gold or Silver. These cryptocurrencies include Bitcoin, Litecoin and a subclass known as stablecoins. Stablecoins attempt to have their price made stable through various, often times poorly thought out, mechanisms.
When thinking about what you can do with this class of crypto, it is useful to think about what can be done with gold. Gold can be used vaulted away as a ‘store of value’ until it is needed in the future, it can be used to settle accounts through transferring ownership, it can be used as collateral, and it can be used as proof of wealth. With Bitcoin and similar coins, you can do exactly the same but often times with lower associated costs and less intermediaries involved. For instance you can easily validate the wealth of an individual by looking at the Bitcoin stored in a particular public address on the blockchain.
Cryptocurrency as Cash
The second class of cryptocurrencies are cryptocurrencies that are used as currency or digital cash. These are cryptocurrencies like Dash and Bitcoin Cash (a fork of Bitcoin and different cryptocurrency that should not be confused with Bitcoin). These cryptocurrencies focus on speed of their transactions and aim to be able to scale to handle the large number of transactions that would be generated if adopted as a day to day currency. Digital cash cryptocurrencies are used to make payments both with online retailers, brick and mortar businesses, laborers and contractors. Basically they are used to buy all the same things one could hope to buy with cash. Again, most often with much less associated costs.
Within the digital cash classification is the privacy coin subclass. Privacy coins are designed to be like cash in that they can be spent anonymously and are fungible meaning each token looks exactly the same as the next. The most popular privacy coins are Dash, Monero, and ZCash. All three use different mechanisms and strategies to keep transactions private. We will dedicate a future lesson to study more specifically the pros and cons of each. It’s important to note however, that not all privacy coins are private for every transaction and often have opt-in or opt-out privacy settings, so keep that in mind when privacy is required. People usually assume privacy is only desirable for criminals doing bad things, let me explain why this is untrue. There are times when it’s valuable seeing how much money someone has, for instance if you are thinking of doing business with a company you may want to see that they have capital reserves. There are other times when this is totally unnecessary and can even be dangerous. For instance when renting an apartment, you wouldn’t want the landlord to be able to look up your payment to find out your crypto net worth. He might decide that you could afford a raise in rent, or absolute worst case scenario he decides that you have so much crypto that it would be worth the risk to stage a robbery. It is a silly notion that to make a simple transaction with someone that they should also see your entire financial history. Clearly privacy coins have a place in the legitimate digital cash market activities.
Cryptocurrency as Legal Contracts
Last but not least, the third classification of cryptocurrency are those that are used to form contracts. People often don’t think about cryptocurrency when it comes to law and contracts but the same attributes that make crypto predictable and incorruptible as digital money or digital gold, are also favorable for contracts. Cryptocurrencies in this class include Ethereum, EOS, Neo, and many others. As of this lesson, the legal contract cryptocurrencies are in their infancy but are posed to revolutionize the way disputes are handled, identity is proven, land and other assets are titled, and generally how we do business amongst ourselves. In particular this class of technology is making possible a concept known as smart contracts which are contracts that can execute themselves without the need of human intervention. Essentially these are contracts run by robots and programmed by humans. Don’t worry, we will be dedicating a separate lesson to smart contracts in the future.
Lesson 6: How does Crypto get its price? Price Discovery.
Quite simply, cryptocurrency is worth as much as someone is willing to give up for it in an exchange. This simple principle is the same concept that creates prices for everything in a free market. The process by which this price is determined is called Price Discovery.
Let’s start with a tangible example that people can easily wrap their mind around like gold. How does Gold get its price? For Gold’s price to be discovered there needs to be buyers and sellers of gold. Sellers currently own gold that they mined, found, stole or bought and they are willing to trade that gold if the price is right. Buyers on the other hand, want gold to use as a store of value or to make jewelry or advanced electronics. Around the world there are many holders, buyers and sellers of gold and they all have different ideas about how much gold is worth. So how on earth do all these people agree on a price? The answer is they don’t.
There is a common saying that “everyone has a price.” What this means is that at some price you can be convinced to sell something you would ordinarily not be keen on selling. This concept holds true in our example of gold as well. If a gold holder thinks the asking price is higher than it should be they are more likely to sell their gold. For gold buyers the inverse is true, everyone wants something for free or cheap. When a gold buyer thinks the price is too high they don’t buy gold and instead find a good substitute, like silver, or wait until the price lowers. The price is largely determined by only the minority of people who own gold and are presently transacting at a given price and not the majority who are waiting to transact at a more desirable price.
So that is all well and good but it still doesn’t answer how does the price of gold get discovered in the first place? To understand this we must think of the price as the point at which sellers and buyers agree to make a transaction. So it can be said that the current price of gold is the price at which at least one person is willing to sell and the price at which at least one person is willing to buy. On aggregate, over all the marketplaces around the world the transactions produce an average price for gold.
Prices change when aggregate supply or demand for gold changes for whatever reason. When the supply of gold on the market increases or demand decreases, meaning when there are more people who want to sell gold than there are people who want to buy it, the price will go down to attract more buyers. When the supply of gold on the market decreases or demand increase, meaning there are more people that want to buy gold than want to sell it, the price of gold increases to attract people to sell their gold.
Prices for oil, grain, salaries, clothing, and rent all are governed by this same principle of price discovery, cryptocurrency is no different. On the internet there are websites called exchanges where people buy and sell cryptocurrencies for FIAT money, physical assets like gold, or other cryptocurrencies. The average sale price across these exchanges is reported globally as the current price. This price can be denominated in any currency. Sometimes the price may vary between exchanges but these variations usually do not last long as there is a financial incentive for traders to buy on markets with a cheap price and sell on markets with a higher price. This process is known as arbitrage.
Lesson 7: How valuable is a cryptocurrency network (What is marketcap?)
In our last lesson, we learned how cryptocurrencies tokens are assigned a price. Following the price of a particular cryptocurrency can tell you a great deal about it. When the price changes rapidly, steadily or erratically it can mean many different things. I always recommend that before anyone invests in a cryptocurrency they spend time tracking the price so they get a sense of what is normal for the market. The price can be thought of as a single number containing countless amount of information.
Knowing how the price changes is a great measure to determine whether news articles you read are accurate. The media is generally terrible at reporting truthfully or competently when covering crypto. At a high level, comparing what the price is telling you with what an article is telling you, can help you quickly filter out dishonest or deceptive news pieces. Price can tell us a lot, but one thing it doesn’t allow us to do is to know the value of the cryptocurrency network nor does the token price help us compare value between cryptocurrencies.
For instance let’s say you want to invest 100 USD into cryptocurrency and you are deciding between Cryptocurrency A with a token price of $100 and Cryptocurrency B with a token price of $10. If you choose to buy Crypto A you’ll receive 1 token, if you chose crypto B you’ll receive 10 tokens. Very often beginners to cryptocurrency will incorrectly come to the conclusion that Crypto B is “cheaper” than Crypto A because they will get 10 tokens instead of 1 token for the same 100 USD. 10 is more than 1, so it is a better deal they think. I beg you my students not to fall into this way of thinking. In this example you would have $100 worth of Crypto A or $100 worth of Crypto B, neither is cheaper. To you they would represent the same value which is the $100 you put in. If the price goes up 10% you will still have made only $10 regardless if the valuation is rising on 1 or 10 tokens. Having more tokens does not necessarily mean you have more wealth. This seems a bit counter intuitive but I hope to make it more clear shortly.
Let’s look at what we know about cryptocurrency A and B. Which is the more valuable network?
The answer is we don’t know because there is a critical piece of information that is missing; the supply, or amount of total tokens available in each network. All cryptocurrencies have a different amount of tokens within their networks. This information can be used, along with the price, to generate the marketcap which is the price multiply by the supply. Marketcap, because it takes into consideration the price and the supply, is able to give a fuller picture of the value of the network that neither the price nor supply could provide alone. If we learn that Crypto A has 100,000 tokens and Crypto B has 1,000,000 tokens and we calculate their marketcaps we will see that both have a marketcap worth $10,000,000. 1 token of A is worth the same as 10 tokens of B.
Websites like coinmarketcap.com and coingeko.com do these calculations for you and rank the cryptocurrencies according to marketcap. You can easily see which cryptocurrencies have more expensive networks and which are cheaper. You can use this information to determine yourself if the current price is a deal or too expensive.
Word of warning here, there are a number of coins that use misleading supply amounts to artificially raise the value of their marketcap. This is done by creating an insanely large number of coins but only allowing a relatively small amount available in circulation, ripple is one such coin.
Just like FIAT currencies, tokens are divisible into smaller units. For instance the base unit in Dash is 1 Dash, a milliDash is 1/1000th Dash, and microDash is 1/1millionth Dash. One repeated word of warning my dear students. It is a common trick amongst cryptocurrencies to take advantage of the inexperienced by creating networks with enormous supplies. They do this not for any technical reasons but because they are attempting to take advantage of human psychology to want to own whole numbers instead of fractional numbers. By creating a huge supply, their tokens will be very inexpensive and for a relatively small amount of money people will be able to acquire whole amounts of the token. They know that for $10 people would rather have 1,000 tokens instead of 1/10th of a token even if it is exactly the same value. As we’ve already discussed having 1000 tokens vs 0.1 tokens of another cryptocurrency doesn’t tell you which is worth more if you don’t know the price. What matters is how much they are worth, their current value which is the number of tokens you own times the token price, not how big the number is that you hold.
Lesson 8: How to Keep Your Crypto Safe!
Everything has a cost. The cost of freedom is responsibility. Cryptocurrency allows anyone to be their own bank, problem is, if things go wrong, you’re your own bank and you really don’t have anyone to turn to for help. Worry not my dear students, there are a few key rules to keeping your crypto safe. If you follow them, you can sleep well at night knowing your cryptocurrency is stored responsibly.
Don’t let others hold your private key (Own your own crypto!)
The first rule is don’t let others hold your private key for you, which is a technical way of saying, don’t let anyone hold your crypto for you. If you don’t have exclusive access to your private key, you don’t really own the crypto. You are trusting a 3rd party like an exchange or web-wallet to hold your cryptocurrency. This introduces counterparty risk because they might get hacked, spy on you, freeze your funds, or even rob you by running away with all the money stored on the site called an ‘exit scam’. If this happens the chances of you getting your funds back are effectively 0. These issues are far too common in the crypto space because new people in the space continue to think and act like they are using fiat. They have been indoctrinated into the concept that it is ok for others to have access to their funds and trust is given up much too freely. It might feel safer to trust ‘experts’ to store your crypto for you, but unless they are fully insured and 100% reputable you are far better off learning how to secure your crypto yourself. As you will soon see, it really isn’t that difficult.
Just like there are many cryptocurrencies there are also many wallets available for each currency. Crypto wallets are special software that allow you to receive, store and send crypto. Because cryptocurrency is open-sourced literally anyone can create wallets. For this reason, you should not trust just any wallet to store your money. Doing so is very, very risky. Instead you must do your research to learn which are the best wallets for the currency you want to use. You must find a reputable wallet to use in order to keep your crypto safe. These wallets will have slightly different features but what makes them trustworthy will be that they are open-source, meaning their code can be reviewed by experts. You must research which open-sourced wallets have received the most thorough reviews and which are buggy or even worse, scams. This may sound hard, but the question has been asked many times all over the internet and finding an answer you feel confident with should not be difficult. If you are still unsure, it is recommended that you ask cryptocurrencies community directly which are the most trustworthy wallets for their cryptocurrency and a community member is likely to give you a number of options.
So let’s say you’ve found a trusted wallet to store your crypto on in your phone or computer. What if your phone breaks or you lose it? You don’t want to lose your crypto. Fortunately developers have come up with a solution called backing up your wallet that allows you to restore the funds on a new device. A backup of the wallet allows you to store your private key in a number of different but relatively safe ways for storage. For instance a common backup strategy is to provide the user a list of words called a seed phrase to write down on a piece of paper. This paper is to be secured in a private place and used in the event that the wallet is no longer accessible. When needed, you simply enter the seed phrase into the wallet on a new device and you are able to recover the previously inaccessible funds.
Backups are a great feature for minimizing your fears in the event that you lose access to your wallet but it also creates a new concern, that you may lose your backup. If someone finds your backup and they know what to do with it, they can get access to your wallet and clear it of funds. For this reason, it is critically important that you store your backups in the most secure way possible that makes sense in your living situation. You must hide or secure your backup and you must make sure no one ever sees it. Similarly you must password protect your wallets and protect the password.
Here is a scary truth. You can do everything right, like backing up your wallet, using safe software and being diligent with securing your backup and passwords and theoretically you can still be robbed. The reason for this is your computers and phones, may be compromised – meaning hackers have some level of access to them. In fact, it is highly likely that some of you have phones compromised to some degree. I know some of you are probably squirming a bit in your seats, but don’t worry! I promise there is a solution for this risk as well. There are devices called hardware wallets which are purpose built to protect your private key while at the same time allowing you to use your phone or computer to send transactions. Like with software wallets on your phone or computer, it is very important that you select a hardware wallet that is thoroughly vetted by the community and shown to be safe and trusted. In the description of this video below you will find links to popular and trusted hardware wallets. Hardware wallets are incredible because even if your computer is under the control of a hacker, they can’t steal funds from you. Good hardware wallets are a bit pricey but if you are storing a sizable amount of Crypto, they are definitely worth it. The level of security they provide are unrivaled.
The only way your funds can be stolen from you when using a hardware wallet is from a traditional robbery. The thief would need to hold you under duress and force you to release the funds from the hardware wallet. For this reason, the last way to keep your crypto safe is to be very careful who you tell about your crypto. Don’t let people know you have large amounts of crypto, especially if you don’t have the physical protection to prevent a theft.
Hopefully you haven’t been scared off! Securing your crypto is totally doable. You just need the discipline to set up your security properly. Once you have, and you follow basic precautions from scammers and thiefs, you won’t have anything to worry about. Especially if you have a hardware wallet.
Lesson 9: What are the Benefits of Cryptocurrency?
Lessons 3 and 4 focus on the two biggest problems crypto solves: Trust and Permission. This is a good place to start for the benefits crypto provides too.
Normally when you make a payment with your credit or debit card, you have to trust the merchant to take from your account only as much money as you have agreed to. You also have to trust them to securely store your personal information which is required to enact the transaction. Cryptocurrency flips this on its head. Instead of letting someone take money from you, you are giving them money. They can’t later choose to take more. Practically what this means is that you don’t need to worry about a dishonest merchant taking money out of your account and then deal with the consequences such as lost funds, frozen accounts, or negotiating with the bank’s fraud protection. Additionally, with Crypto the merchant never stores your sensitive financial information, so you don’t have to worry if the merchant gets hacked. The hackers won’t be able to steal anything from you, because the merchant never had the power in the first place to withdraw from you.
By not having to trust the merchant with your sensitive information, you make yourself immune to theft and fraud. Of course that supposes the merchant holds up their end of the deal and sends you their goods as promised. Cryptocurrency has no chargebacks. Unlike with credit cards you can’t reverse a transaction. This is great for merchants, who, depending on the industry, lose a lot of money from thieving customers. Irreversible transactions can cause issues for consumers who get scammed by a dishonest merchant however. To mitigate this concern, it is common in the crypto economy for 3rd party escrow services to hold the funds until proof is provided that the package is delivered. Coupled with reputation systems, escrow providers allow for greater confidence when doing business with vendors in the cryptospace.
We discussed in detail during lesson 4 the benefits of having permissionless systems. To briefly recap, no one is prevented from participating in the crypto economy. This means you can send any amount of money to anyone in the world regardless of where you or the recipient lives. Want to send money to a family member living in a country with strict capital controls like Venezuela? No problem, send Dash to their wallet and be confident that they will receive. Compared to restrictions on how much and where you can send money in the traditional banking system this is a great benefit of crypto.
The transaction characteristics also highlight two of the big benefits of cryptocurrency. Digital Cash like Dash is very cheap to transact with and very fast. Using a popular money transmitting service like western union can take up to 5 days and costs on average 5-7% of the amount being sent. With Dash, the transaction will arrive on average within 2 and half minutes and only costs 1/10th of a cent, or the transaction can be sent instantly for a higher cost of about a cent. These prices fluctuate and may have changed since the recording of this lesson.
Another great benefit of using cryptocurrency is that the network never closes. It is up and running 24/7, 365 days a year. Instead of using your money on a banks or money transfer services schedule, you can use it whenever you want.
Lesson 10: How to get Cryptocurrency like Bitcoin and Dash
So you’re thinking maybe the time is right for you to get crypto. You’ve done your research and picked a cryptocurrency that reflects your values. Now what? How should you actually get it? Well for starters, if this is your first time interacting with cryptocurrency, it is highly, highly recommended that you start by dipping your toe first. It is easy to get excited when first getting into cryptocurrency and feeling a sense of urgency to act now is normal. But please take it from me. Your first time interacting with cryptocurrency is frightening enough even without there being big money at stake. It is much better to begin with a small amount that won’t be devastating if you lose it accidentally by making a beginner mistake.
With that word of warning out of the way, there are two main ways of getting cryptocurrency, earn it or purchase it.
Of the two, earning cryptocurrency is the most exciting in my opinion. One way to earn cryptocurrency is by providing value to a network. For example miners provide value by securing the network through the use of their computers. For doing so, they get paid directly by the network. We will discuss in a future episode exactly what mining is, don’t fret. Taking the previous example one evolutionary step forward, Dash and similar cryptocurrencies have treasuries to which anyone can submit proposals. Proposals are then voted on by Masternode owners to receive funding. For most, earning cryptocurrency directly from a network is unlikely. There are limited funds to go around, lots of competition, and often times require technical specialties and large amounts of capital.
The second way to earn cryptocurrency is to get paid in cryptocurrency for your services or goods. It is becoming increasingly common for people to receive their salaries partly or wholly in cryptocurrency. If you have a job or do work for someone, ask them if they would be interested in paying you in cryptocurrency. They might say ‘no’ at first, but if they are open minded, the opportunity may present itself at some point in the future. If they are unsure, you should enroll them in the Armenian Crypto School by sharing a link to one of our lessons. There are also websites designed specifically for workers and contractors interested in getting paid in cryptocurrency. Similarly there are marketplaces that facilitate buying and selling goods for cryptocurrency. In future lessons we will review some of these sites and marketplaces.
The second option for getting crypto is to purchase it. There are a few different ways of accomplishing this, the first is to do what is called a peer to peer sale. This is where you find someone in your local area who is interested in selling some of their crypto. You meet them in a public, safe place and make the transaction. Once the payment is confirmed on the blockchain, you leave with the crypto and the seller leaves with whatever you traded for it. There are some inherent risks in this style of purchasing but the main advantage is that the transaction is private and not tied to your identity. There are websites and apps that facilitate meeting people in your local area for this purpose. You can also attend local cryptocurrency related meetups to find people who may be interested in selling some crypto to you.
Another way to buy crypto is through what is a called a crypto ATM. These are devices found in public places that work similarly to regular ATMs. They take your money and give you crypto. Depending on where you live, the ATM may or may not require your identity information, but it is becoming increasingly common that ATMs will require you to provide your identity information in order to make a transaction. ATMs are convenient ways to buy or sell crypto fast but they often have a fairly high fee.
The most convenient way to buy cryptocurrency is through a specialized website called an exchange. Exchanges generally have good prices and low fees for crypto but they do most often require quite a bit of information about you as well as your banking information. They also can take a week or so for your account to be verified and usable.
If you are a big spender, you might be interested in another way of purchasing crypto called ‘Over-the-counter’ purchasing, or OTC. In this method of purchasing crypto, you find an organization or individual who is selling a large amount of cryptocurrency and a trusted 3rd party to provide escrow. This is a popular way of purchasing crypto because it is fairly private and has great rates. The downside is it requires more effort to get set up.
The varying methods of buying crypto comes with their benefits and downsides, where you live also plays heavily into which options are available to you. We will go into the intricacies of these methods in future lessons. For homework, I’d like you to do some research and to comment down below about what you think are the best ways to earn or buy crypto where you live.
Lesson 11: How to Use a Crypto Wallet
Cryptocurrencies are stored in applications called wallets.
All crypto wallets, have the same three basic functionalities. Receive, Send, Transaction History.
The first thing a crypto wallet does is receive payments. It does this by generating what is called a “receiving address” where people can send you cryptocurrency. The address is a long list of numbers and letter like this XrewH8UuvqTpfU7Z3URKFzxm8JXuD3jN4F. The receiving address can also be presented as a QR code. The QR code is the exact same address just represented as an image.
The receive function usually also has an optional feature where one can request the specific amount of Dash they want from the sender. This prepopulates the payment field of the sender when the QR code is scanned. This is useful when you are selling something as a vendor and want an exact amount from your customer without having to trust that their app has the same exchange rate as you.
The best practice is to generate a new receiving address for each payment. This is recommended because it helps secure your privacy. If you continually reuse the same receiving address anyone can easily check to see how much cryptocurrency you are receiving and storing on this address. Normally this isn’t a good thing but sometimes, like for a charity, it is a great thing.
Crypto wallets let you send payments as well. To send a payment you need the receiving address of the person or business you are trying to send cryptocurrency to. You take their receiving address and enter it into the field that asks for the recipient’s address. You need to make sure the address is typed correctly. Even a little mistake will prevent the transaction from happening or even worse, you could accidentally send the crypto to the wrong person. It is like typing in the URL of a website, one letter off and the website won’t load. If you make a mistake, or are tricked and send it to the wrong address you have no way to get it back. It will be lost. So make sure you double check and don’t rush when sending a payment, it needs to be 100% the same address that your recipient shares with you.
You can also scan the QR code of the person you are sending crypto to using the camera on your phone. This populates the send field with the recipient’s address so you don’t need to type it out or copy and paste it yourself.
The last thing every crypto wallet does is show you the history of transactions for the wallet. This gives you all the information you would need about a transaction such as when it was sent or received, how many confirmations it has, and the amount that was sent/received. Because all this data is being pulled from the blockchain it is indisputable. It is an accurate historical record of your crypto dealings. When the wallet says your payment was received by your recipient, it was received, there’s no ambiguity about it.
There are 2 categories of wallets I want to teach you about today- Spending wallets & Storage Wallets.
Spending Wallets should be thought of as the wallet in your pocket or purse. You use it to hold your spending money. With a spending wallet you can pay people with ease.
Most spending wallets are on your phone and are downloaded in the app store or play store. Spending wallets can also be applications on your computer for when buying things online.
Spending wallets inherently don’t have perfect security. The risk of theft is relatively high when you carry your wallet on you, just like a normal wallet or purse. For this reason, a spending wallet should only have a reasonably small amount of cryptocurrency stored on it. The idea is to have as much crypto on you as you will need to spend in an average week or month depending on your risk appetite. Storing your entire crypto on your person in a spending wallet is a bad idea and we recommend against it.
It is useful to think of storage wallets as your safe. You keep your safe some place secure where it is safe from thieves. Storage wallets are to be treated the same and only used when you are topping up your spending wallet or sending larger payments from the privacy of your safe place.
There are numerous ways of setting up storage wallets securely. Some include using virtual machines, others use paper wallets but those for the most part are too advanced for the average user.
For storing a relatively small amount of crypto it is alright to use a software wallet on your computer with a strong password protecting it. If you are storing a larger amount you will want to use a hardware wallet like a Trezor. These hardware wallets are very secure storage solutions. If you follow the instructions provided with the hardware wallet and purchase it from a reputable source such as with the manufacturer, you have very little to worry about.
Lesson 12: Backing Up Crypto Wallets
Technically, crypto wallets store private keys, granting ownership over the cryptocurrency funds. This private key is stored inside the crypto wallet on the device
it is downloaded on. So what happens if your device is stolen, lost, or broken? You would be in big trouble. You would not be able to recover your funds, they would be lost forever. This is why it is so important to always create what is called “a backup” of your wallet.
A backup of a cryptowallet takes the keys and packages them for you to restore them in the future on a new device or new downloaded wallet. Wallets have different ways of creating the backup. It is very important that you pay attention and follow the instructions of your specific cryptowallet application. If it is a good wallet, the instructions should be easy to understand and follow.
There are two common ways wallets are backed up. One is through a digitally encrypted file produced by the wallet. This file is usually password protected, though sometimes not, and it is your responsibility to store it somewhere secure where you can still access it even if you lose your device. This means don’t store your backup on the same device as your wallet because if you lose your phone with the wallet and its backup on it, there’s really nothing you can do to get it back.
You may consider storing a backup of a wallet in a cloud service like Googledrive, but be mindful that if someone gains access to it they can take your backup and attempt to steal your funds. If the backup is not password protected especially then, it is very risky. A good idea is to store the backup file on a separate device in your house or office, or on a CD or USB flashdrive. When it is time to recover a backup wallet onto a new device, or newly downloaded app, you upload the backup file to the app. You should then see your previous crypto balance and transaction history in the new wallet app.
The most common way for wallet developers to provide backups to their wallets are through 12-word recovery phrases. These backups look like 12 random words on your screen but actually is your unique private key transcoded into words. To backup a wallet using a recovery phrase one simply needs to type in their specific 12 words and the wallet loads up their private keys with all the related information.
While the recovery phrase is very convenient, it also creates a few pitfalls that need to be avoided. The first one being that anyone who sees your 12 word phrase can enter the backup wallet into their own device and steal your funds. For this reason you need to be very careful with how you handle the recovery phrase. The first thing I always tell people, is do not take a picture of the backup phrase! It is too easy to lose access to that picture and then someone can steal your money. If you try to store it digitally in a photo you open yourself up to the risk of theft.
When you are doing the backup process with a recovery phrase, you must first be in a very private place. Take a pen and paper and write down the recovery phrase and put it somewhere very safe. Somewhere that you won’t forget where it is. The ideal place would be a fireproof safe or if you trust your bank, a safe deposit box at your bank. Of course make sure every word is spelled correctly and that they are written in the correct order and that there are no missing words.
You also need to try to limit the times that your recovery phrase is displayed on the screen of your device, especially your phone device. This is for 2 reasons, the first reason is that people around you may see the recovery phrase which would put your funds at risk. The other one is that some of you unfortunately have spyware on your devices, meaning a hacker might be able to see your screen. While this is unlikely to happen, it is a potential risk and so I feel compelled to warn you. Fortunately, hardware wallets like Trezor do not pose this same risk as they are not connected to the internet and a hacker cannot hope to view the screen that the backup phrase is displayed on.
Lesson 13: Cryptocurrency Exchanges
Cryptocurrency exchanges are websites that allow customers to trade cryptocurrencies or digital currencies for other assets, such as conventional Fiat money like U.S Dollars or other digital currencies.
What is a trading pair
When trading a cryptocurrency on an exchange, you will see what is called a trading pair. Trading pairs show you which cryptocurrencies are being traded. For example the Dash/BTC pairing means Dash is being bought with or sold for Bitcoin. Dash/USD means that dash is being bought with US dollars or that it is being sold for US dollars. When looking at a trading pair the price that the assets are denominated in is the second asset in the pairing. So for Dash/BTC, the price is displayed as Dash per Bitcoin. To make the math easy, let’s pretend that Dash is worth $100 and Bitcoin is worth $10,000. The Dash/BTC price would be displayed as 0.01, meaning 1 dash is worth 1/100th of a Bitcoin.
If you are ever confused with the price of a trading pair look up the market price for each asset and divide one by the other according to how the pair is presented. This should give you the same, or similar number that is being presented by the exchange as the current market rate of the trading pair. If the number is very far off, it is possible that the value of the trade has unacceptably large margins in which case it is a bad deal for you and you should probably not trade that particular base pair on that exchange. The trick here is to just take your time and not rush. Make sure the math makes sense and that you are trading at the price you think you are.
Trading from one cryptocurrency like Bitcoin, to another like Dash is quite easy. In fact there are some websites like changenow.io that allow you to trade from one crypto to another without even requiring an account with the website.
You start by indicating which cryptocurrencies you are interested in trading. They ask you for the receiving address of the cryptocurrency you wish to purchase. You agree on the price, and then send the crypto you are trading away to the website. The exchange takes place and you receive the new crypto. Obviously this is risky because you have to trust the exchange to be honest and send you the crypto. So be careful and only use websites with a good reputation. In the near future trustless versions of these websites called decentralized exchanges, or DEXs, will operate on the same premise using smart contracts. They will require much less counterparty risk as the whole process would be extremely transparent.
It is trading into and out of FIAT like Russian Ruble, Euro, or US Dollar that requires more effort, primarily because they involve your bank or credit card and legally require more governmental regulation as a result. Consequently there are not as many exchanges that offer FIAT trading pairs and at the moment none that offer Armenian DRAM as a trading pair. Hopefully this changes soon. When it does we will happily report this to you.
How to pick an exchange
Not all exchanges are equal. They are different in a number of ways. For example not all exchanges cater to the same trading pairs. Some exchanges are highly regulated, others not at all. Some are brand new, others have a long history and well-earned reputation. These are all things you must consider when choosing which exchange to use. Going through the process of signing up for an exchange just to find out that they don’t work with your bank, or that they don’t have the trading pair you like would be inconvenient. But remember, they also will end up holding your money for as long as you have funds deposited on their website. So there is a risk you can lose your money if the exchange is hacked or even worse if they decide to steal from you. Unfortunately there are many instances of this happening and people have lost a lot of money as a result. That is why it is so important that you use reputable exchanges. It is also why you should never store your crypto long-term on an exchange. You are asking for trouble if you don’t follow this advice. The best practice is to move the crypto to your own wallet after the trade on the exchange has been completed. For even more security use a hardware wallet like the one linked to in the description of this video.
Which Exchanges are Popular in Armenia
Two of the most popular exchanges being used by Armenians currently are EXMO and CEX. We have affiliate links for both in the description of the video and again would appreciate you visiting the sites through these links to support the Armenian Crypto School. These exchanges have many trading pairs including U.S Dollars, Russian Rubles and Ukrainian Hryvnia. EXMO also offers trading pairs of our favorite cryptocurrency Dash.
Sign Up for Exchange
For an exchange like EXMO you start by signing up and creating an account. Simply follow the instructions and provide the requested information.
Following signing up for an exchange you will be sent to a page that shows you all the currencies you can deposit or withdraw from the website. If you have cryptocurrency you wish to exchange you can directly deposit the funds and begin trading. For FIAT currency, this particular exchange requires verification of your identity including a selfie picture and your address. After completing the verification process you can deposit FIAT to your account using a number of different services including a visa or mastercard.
Understanding Exchange Fees
Exchanges are businesses that charge various fees to make money. Exchanges charge fees for depositing funds, making trades, and/or withdrawing funds. These fees can be on a percentage basis or a flat rate. Every exchange has a unique fee structure so make sure you research what fees to expect so you don’t come across surprise fees. Generally, fees around 3 to 6% are considered average, less than 1% is considered good, and over 10% is considered bad. Some people around the world don’t have the option to use inexpensive services and the available exchanges price their services higher accordingly. As the number of exchanges increase within a market, it becomes more competitive and the fees inevitably drop.
How to Make A Trade
After you’ve deposited your money into the crypto exchange you can start making trades. Navigate to the trading pair that matches what you currently have and what you want to trade for. Set the amount of the asset you are selling and the price at which you want to trade. When the price is matched by a buyer the trade will be automatically executed.
How to Withdraw Funds
After you complete your trade on a traditional cryptocurrency exchange, the crypto you’ve now bought is being held by the exchange on your behalf. This is what is meant by a custodial wallet, when you aren’t in direct control of the cryptocurrency. Some people choose to keep their crypto on an exchange like this letting the exchange worry about securing the crypto. Do not do this. In crypto there is a saying: “Not your keys, not your crypto”. What this means is that by letting someone else hold your crypto you are removing the main benefits that crypto provides which is proof that you own it, not having to trust anyone, and not having to ask permission to use it. To get these benefits you need to withdraw your new funds from the exchange by sending them to a crypto wallet that you control. This is a fairly straightforward process. You do this by entering the receiving address of your personal crypto wallet into the withdrawal field of the exchange website. After some processing time, which varies between exchanges and even cryptocurrencies, you will receive the crypto in your cryptowallet. The trade can now be considered completed.
Using an exchange requires a bit of patience and may feel unfamiliar and uncomfortable at first. Follow the instructions provided by the exchange, take your time, and things should go smoothly. When you run into issues there is almost always a helpdesk you can contact for the exchange to help answer your questions and troubleshoot your problems. If they are unhelpful sometimes resorting to twitter or reddit is helpful in having your problem solved.
Lesson 14: How not to get scammed
Scammers are everywhere in the cryptoverse. They are constantly trying to take advantage of beginners. There are a number of common threads that connect almost all the scams we see. Once you know what to look out for these scams become very obvious and can be easily avoided.
One of the most important lessons in crypto is do not trust anyone. Legitimate uses of cryptocurrency don’t require you to trust anything, everything should be verifiable on the blockchain. If someone asks you to trust them, explicitly or implicitly, it should raise a big warning in your mind and you should proceed very cautiously.
The biggest trust you can give someone is to let them hold your private keys. Put another way, don’t let anyone hold your money, especially a stranger. Scammers and even legitimate services make a lot of promises as to why you should trust them to hold your crypto. They’ll tell you it is secure. They’ll tell you it is easy and safe. Maybe it is, maybe it isn’t. Maybe it is currently safe but won’t be in the future. Really what they are asking is for you to trust them.
The best way to protect yourself is by taking the responsibility to hold your own crypto and to use it yourself without any intermediaries. This means avoiding custodial wallets that hold your cryptocurrency for you. If you have no choice but to use one, like for instance when using an exchange, limit how much of your crypto they hold and only leave it on the exchange as long is necessary for you to make your trade. If you are concerned about how to securely store your crypto buy a hardware wallet like a Trezor. An affiliate link can be found in the description of this video. Using a hardware wallet is extremely secure and easy for anyone to set up.
A fairly common trick scammers employ to trick people, is to create backdoors into software that allows them to rob their customers. To protect oneself from this threat you need to use reputable software that has been reviewed by the crypto community. In order to perform this review, it is a requirement that the code used for the application is open-source, meaning the code is readily viewable by the public. When choosing a crypto wallet or other crypto-related application make sure it says it is open-source. Otherwise you are forced to trust that the developers did a good job coding the application and that they don’t have bad intentions.
A similar trick scammers do is to copy existing, highly reputable software or websites and then add code to it that allows them to rob from victims who download it. Scammers make it seem as though you are on the official website of the application but it is actually a copy of the website controlled by them. To protect against this scam, make sure you verify that the URL address of the website you are visiting is the one you meant to go to and that it is linked to reputable sources. Usually scammers will add 1 letter or number somewhere to the address to make it look similar to the authentic website. Additionally, if you are not sure, do an internet search of the URL and see if anyone has reported it as fraudulent. Lastly, you can move your mouse over the lock icon in the address bar of your browser to view their security certificate and verify that the names are the same as the website or development team you think you are visiting.
A very common scam found on social media websites like Twitter or Facebook, make it seem as though someone is giving crypto away for free. As with everything in life, there is no such thing as free. No one is giving money away without strings, especially not if you have to pay first. If someone asks you to pay them money to get something for free it is a scam, don’t do it. Really, just assume anyone offering you free anything is attempting to scam you.
Another variation on this scam is the scammer makes it seem like they are running an investment service where they will invest your crypto for you and return daily, weekly, or monthly returns that are astronomically high. This scam breaks every rule we’ve laid out so far. Most often it is a thief who will run off with your money or sometimes they will try to recruit you to get your friends involved in a ponzi scheme. Ask yourself, if someone has found a profitable trading strategy, why would they be telling you about it for free. No, if they actually had a good trading strategy they would be doing it themselves silently or they would be selling tips in a newsletter for other traders.
More sophisticated ponzi schemes do the same thing but instead of saying they are doing investment for you, they say they are doing a mining operation and need your capital. Stay far away from this sort of thing. Again, it breaks all the rules of safe crypto use. Most often these schemes aren’t doing mining at all and are just passing money from new victims of the scam to older ones, until they decide to run away with all the money. A classic ponzi scheme.
Legitimate mining can be a good hobby if you are interested in the technology, but it is not a reliable way to make money. This is especially true if you are hiring someone else to do the mining for you. Mining has too many variables and it is too easy to calculate something wrong and lose money on your mining investment.
The last common scam we will discuss are those of ICOs meaning Initial Coin Offerings. These are the births of new cryptocurrencies. ICOs are attractive to lots of people who get caught up in the hype of the new cryptocurrency offering and the promise of making lots of money, very quickly. You need to know, most ICOs fail spectacularly. A great many ICOs are outright scams designed to enrich the founders and are never intended to deliver anything of value to the investors. To make a simple rule for ICOs – unless you do a lot of research, would risk losing your investment, and really believe in the team, just do not invest in ICOs. If their project works like they say that it will, there will always be an opportunity to invest later on after they prove themselves worthy. The earlier you invest in a project the more risk there is. Don’t let your emotions govern how you invest. If an ICO catches your eye, track it for a long time before entering. Don’t be persuaded by online marketers that are trying to convince you to invest immediately. If it’s legitimate, the opportunity to invest later won’t disappear.
All these various scams prey on the fact that many people who are new to the crypto space don’t know what is normal and what is risky behavior. To mitigate this risk you need to keep it simple. Crypto should be simple. It is a digital asset that has a price and can do some specific things. It is not magic, it won’t magically make you rich immediately. Whenever you get involved with someone who begins making things complicated and confuses you, they are probably setting you up to get scammed. If they start promising huge returns and quick easy profit, walk away. You wouldn’t trust someone with your Dram for these sort of schemes, so don’t trust them with your crypto.
Lastly as a general word of warning, crypto is still in its infancy. Don’t invest more than you are willing to lose. As the cryptoverse matures the risk to the well-known cryptocurrencies diminish, but that doesn’t mean they aren’t still risky and relatively new to the market.
So to recap: Don’t trust anyone, make sure you are using reputable software, beware of ICOs, mining services and investment managers, and don’t let anyone hold your crypto for you. If you follow these steps you will avoid the vast majority of scams. If you’re not sure if something is a scam, don’t risk it. Do further research until you are sure what you are doing is proper. Stay safe out there my lovely crypto Armenians. As always, don’t take this lesson as investment advice. You need to do what makes sense for you.
Lesson 15: What is Dash?
You might have heard us in previous lessons mention Dash and wonder why. We feel the best cryptocurrencies need to be secure, scalable, easy to use, and decentralized. It is difficult to find one cryptocurrency that checks all these boxes. In our opinion, Dash is one of the few cryptocurrencies that can seriously make this claim. We’ll now go over Dash’s history and highlight it’s most important innovations, features, and accomplishments.
Dash is a cryptocurrency that is attempting to fulfill the original goal of cryptocurrency to be a peer-to-peer electronic cash system. Everything from the brand name, to the user experience, to the network architecture is focused on delivering to the world digital cash. Thanks to this focus, Dash as a community and ecosystem has been able to effectively and smoothly grow to better serve this role as digital money.
Dash was born in 2014 after its founder, Evan Duffield, was rebuked from adding Dash’s first feature, optional privacy enabling coin mixing, to the Bitcoin protocol. Convinced privacy and fungibility was a fundamental feature of digital cash, Evan undeterred forked Litecoin, and then ultimately forked Bitcoin, to create the first versions of Dash. This first version of the project was called xcoin and soon after called darkcoin.
Similar to Bitcoin and Litecoin, Dash at the base-layer of the network is a Proof of Work blockchain. This means it is secured by miners using electricity and specialized computers to solve mathematical problems that make it very difficult and expensive for the network to be compromised. Proof of Work is viewed as the most secure consensus algorithm in the cryptocurrency world at this time. The Dash proof of work algorithm is called X11. Dash is the king of X11 as it is the network that holds the vast majority of X11 hashing power. Competing networks such as Bitcoin Cash and BitcoinSV are babychains of Bitcoin as they all use the same hashing algorithm SHA256. This is a problem because while Bitcoin is the king of SHA256, Bitcoin Cash and Bitcoin SV can be attacked by Bitcoin miners with surprising ease simply by redirecting their hashing power from Bitcoin to say Bitcoin Cash. This puts these two networks at a high risk of 51% attacks and makes them very insecure and perilous to use.
In the very early days of Dash, a bug from the litecoin code caused an unexpectedly large number of Dash to be created through mining. This resulted in the earliest miners of Dash receiving a much larger than expected proportion of the initial supply of Dash. Detractors of the project create conspiracy theories that it was done purposefully to enrich the founders. In our research these claims are unfounded. You can review the forum conversations from those days, linked in the video description, to see exactly what happened and because everything is on the blockchain you can see that most of the Dash mined during the early days was sold not long after, resulting in a more even distribution.
If you believe the Dash detractors their argument amounts to the claim that the coin distribution was bad in 2014. As that was years ago, and the early miners have had many opportunities to sell their Dash, the conspiracy is rather skin deep and silly. Today, Dash has one of the best coin distributions perhaps only second to Bitcoin and the Bitcoin forks. Coupled with the fact that there are a number of high ranking cryptocurrencies that are entirely pre-mined like Ripple, EOS, Stellar, and IOTA it makes the claims that Dash is a scam even more bizarre.
Of course, as with everything, you are encouraged to do your own research to come to your own conclusion. The fact that dash has a long list of innovative accomplishments should put to rest any concerns that Dash is a scam of any kind.
As mentioned, the first feature for Dash was a derivation of Bitcoin mixing called coinjoin. Dash’s version of this technology is called PrivateSend. PrivateSend allows Dash users to mix their coins anonymously with other users, resulting in practically virgin Dash tokens. These Dash tokens effectively are fresh and have no history that can tie them with any user. This privacy feature is very useful because it injects fungibility to Dash. Fungibility means each token is indistinguishable from one another. This is a very important aspect of cash. 1 dollar should always equal 1 dollar, regardless of who did what with it. Without fungibility, it is conceivable that unfungible cryptocurrencies will have black lists that reject certain tokens that have been deemed bad in some way. This poses a risk because without strenuously checking you’d never know if you were receiving tainted tokens that could be worth less than the market price of the token or potentially worth nothing.
Privacy is also important for the usecase of digital cash because you wouldn’t want the entire contents of your wallet to be known to those whom you do business with. Without the ability to do private transactions, a bartender for example could look back through the blockchain from the transaction that you bought his beer and have a fair sense for how much crypto you own. This would put you at risk of theft, just as walking around with handfuls of cash would be reckless.
Unlike with Bitcoin’s coinjoin, Dash’s privatesend handles the mixing in a trustless manner on-chain and doesn’t require any additional setup, 3rd parties, or expertise to accomplish. This allows for the use of this feature by anyone including beginners.
To better accomplish privatesend, Dash created an innovation called Master Nodes that has since been copied by a great number of cryptocurrencies. In fact it is safe to say that while Dash was originally known only as a privacy coin, it is more accurate to think of it as a Masternode Coin as it unlocked a great number of features for Dash as you will soon see.
In the Dash ecosystem, a masternode is a participating computer on the network that is collateralized with 1,000 Dash. These masternodes provide a number of services to the network. This means anyone in the world, regardless of ethnicity, age, sex, or affiliation, can use their 1,000 Dash to substantially contribute to the Dash network by spinning up a Master Node.
The reason people choose to lock such a large amount of capital up, as 1,000 Dash is very expensive, is because Masternodes receive 45% of the Dash block reward.
In the Bitcoin network, the block reward is the monetary prize miners receive for successfully mining a new block. It is this economic incentive, along with the mined-block’s associated transaction fees, that fuels the entire network and allows it to function. The main innovation of the Dash blockchain is that it recognized that only having one network participant, the miners, economically incentivized was not enough for the network to scale and grow its capabilities. So instead of 100% of the block reward going to miners, Dash miners receive 45% of the reward, Masternode Operators receive 45%, and the final 10% is stored in a monthly treasury used to improve the network. More on the treasury in a minute.
Masternodes can be thought of as the second-layer of the Dash network protocol. This second layer is able to unlock a number of features that aren’t possible on traditional single-layered Proof of Work networks. Unlike 2nd layer solutions for networks like Bitcoin, such as the Lightning Network, Dash’s second layer solution is built directly into the network protocol and once again requires no additional setup or expertise to take advantage of it. So when thinking of Dash you can think of the base-layer of the network as being normal Proof of Work almost exactly like Bitcoin. The second-layer network comprised of Masternodes are similar to proof-of-stake or more accurately referred to as proof-of-service as the masternodes need to stake 1,000 dash while at the same time serving the network through computational power and providing governance.
The 1,000 collateral is important because it makes masternode operators financially incentivized to act in the best interest of the Dash network. Their investment is directly impacted by the price of the network. Consequently, they want to protect the network from harm.
To this end it is useful to think of Masternode Operators as board members of the Dash DAO. DAO means decentralized autonomous organization. The Dash DAO is the entity that governs the Dash network. It can be thought of as decentralized company dedicated to the goal of creating the best digital cash possible. Everything the Dash DAO does is through the Dash blockchain, making it extremely transparent and predictable. I like to think of the DAO as a robot that hires humans to improve itself. It is a very innovative technology and we wouldn’t be surprised if this form of governance spreads to more companies and eventually even nations. In fact one of the founders of the Armenian Crypto School has written a paper titled For a Digital Armenian Nation about this very topic that can be found in the library of our website.
It is the DAO that receives a treasury of 10% of the block reward every month. This money is used to improve the Dash network in various ways. Anyone in the world can approach the DAO with a funding proposal through signing a specific message on the blockchain and paying a 5 dash fee. The fee is used to prevent spam and excessive number of proposals. The proposal owner submits to the DAO through the blockchain details of their proposal including how much Dash they are requesting and how they intend to improve the network. It is the proposal owners’ task to prove themselves trustworthy and to make a good pitch to the DAO. Masternode owners then vote through the blockchain on whether to fund the proposal or not. Each masternode equals a single vote. If a proposal gets enough yes votes equaling a net 10% of the registered Masternodes, their proposal will pass and receive funding.
Through the DAO’s treasury, Dash is able to fund its own development work, marketing and advertising, legal and scholarly research, business development, and integration activities. The higher the price of Dash, the more the network can afford in every funding cycle as the payouts to the proposal owners are in Dash. This helps create a powerful positive feedback loop.
This funding model is a very significant distinction between Dash and other cryptocurrencies. Most cryptocurrencies rely on donations for development and improvements to the network. These donations can be unreliable and distracting but worse they can prove corrupting. A small number of financiers wielding undue influence over the network’s development can impact what path a cryptocurrency takes. One needs to just look at bitcoin to see how far they have wandered from the whitepaper. Bitcoin’s original, explicitly stated goal was to create a peer-to-peer electronic cash. In part because of Bitcoin’s funding model and lack of coherent governance, this mission has instead shifted focus to being digital gold. The Dash network’s ability to fund itself through the participation of thousands of highly involved and invested Masternode Operators creates a more distributed power structure and helps prevent the network from being covertly taken over.
To further prove this point, let’s look at the historic and frankly embarrassing blocksize debate that erupted in the Bitcoin community around 2015 and came to a head in 2017 with the hard-forking of the network to create a new Bitcoin blockchain called Bitcoin Cash. The community became divided around the question of whether to increase the blocksize. The contingent that wanted Bitcoin to be digital gold ultimately won as they had the better financing and were also proposing a vision that was less intensive and expensive to mining operations. Because there was no formal way of coming to a consensus on what to do, the Bitcoin community resorted to using reddit, which is censored by politically opinionated moderators and other forums and email lists. This whole drama continues to this day and is slowing down the growth of crypto as so much energy is being put forth to bickering.
The Dash community faced a similar question on whether it should increase its blocksize. Yet the dash community didn’t need to form political parties and become militant. In fact the Dash community was able to entirely avoid the toxicity of the Bitcoin blockchain debate by holding a Masternode vote on the blockchain as to whether or not the developers should increase the blocksize. Over the period of 1 month voting cycle, the proposal was debated, votes were cast, and the decision was made to increase the blocksize. In 1 month, the Dash community was able to settle an issue that has raged in the Bitcoin community for 5 years.
Thanks to having a formalized governance system comprised of the Dash masternodes the network doesn’t need to guess what to do. The most heavily invested in the community are able to have their voices heard so that they can protect the project they love and value from being perverted. There are also shared masternode services such as crowdnode.io that allow people with less than 1000 dash to pool their resources to run a masternode together and coordinate on how the masternode should vote.
If Masternodes get the decision wrong there are still 3 other players in the Dash ecosystem that can swing the power balance. The first group is the existing developers who can refuse to make a change to the code, clearly signaling they are not in agreement. Ultimately they can be replaced by the DAO on behalf of the masternodes as the developers are not all powerful and the code is open-sourced. In the case of Dash Core Group the network owns their assets including their access to making changes to code repository.
The 2nd group that has power are the miners. If a change is made to the code on behalf of the Masternode owners that the miners are against, they will choose not to run the new code at which point the change will not come into being or a fork of the network would happen.
The last and most important group in the power dynamics is the users of the networks. The holders of Dash have the final say in whether the network is heading in the right direction. If they view a mistake is being made they will vote with their feet and leave the network, selling their Dash for a project more closely aligned to their values.
One problem with the DAO is that it fundamentally is a non-person. It can’t enter contracts and it can’t hold equity or other assets other than what is coded into how it operates. In most cases this is what makes a DAO so exciting, that it is essentially a robot company executing predictably and unstoppable. However there are situations where it would benefit the Dash ecosystem if the DAO could exhibit properties of a more normal entity. To this end a legal entity called the Dash Investment Foundation or DIF was formed in 2019. It is the world’s first ownerless and memberless investment fund. Dash Investment Foundation is tasked with strengthening the Dash network through investment operations funded by the network itself. What this means is now when the DAO decides to fund a proposal it has the option to enter into more complex agreemnts than just releasing the money and hoping for good results. Instead the DAO through the Dash Investment Foundation can enter into a legally binding business agreements, issue loans, and can even take stake or equity in a partner. This is unprecedented and the bleeding edge of what is possible using DAOs.
While the DAO might be one of the most significant improvements of the Dash network, there are still other features that push Dash forward as the premier digital cash cryptocurrency. One such feature is Dash Instantsend. InstantSend is a feature of the Dash protocol that utilizes transaction locking and masternode consensus to facilitate instantaneous transactions on the Dash blockchain. InstantSend allows Dash to compete with existing centralized payment platforms such as VISA, who offer rapid transaction times. Dash’s InstantSend technology offers this, but in a decentralized and trustless manner. This is significant when compared to its direct crypto competitors whose transactions take 2.5 or even 10 minutes
Another similar feature of the Dash network is called chainlocks which mitigates the risk of 51% attacks against the network and reduces the need for extended confirmation times. 51% attacks are the biggest threat to proof of work networks. What they mean is that if an attacker gets control over 51% of the hashrate of the network, meaning they have control over 51% of the miner power, they can reorganize the blockchain. In doing so they are able to execute elaborate thefts where they purchase something using the blockchain but then make it so that the transaction never happened. To mitigate this risk in regular proof of work networks like in Bitcoin, the solution is to wait multiple confirmations to ensure such a blockchain reorg won’t happen. The more time and the more blocks are involved in the reorg, the more expensive the attack is to conduct.
For Bitcoin, finality of a transaction is recommended after 6 confirmations which is approximately 60 minutes. This is obviously much better than something like visa which takes multiple days to settle but not as good as Dash which with chainlocks arrives to finality immediately. Dash Chainlocks accomplishes this by leveraging a long living masernode quorum to check the blockchain for new blocks. When 60% of the masternodes agree on the sighting of a new block all other competing blocks are ignored, thus signaling which is the true Dash blockchain and closing the threat of a deep chain reorganization. In order for an attacker to compromise this new system they would again require 51% of the hashing power of the network as well as control of 60% of the Masternodes. This combination is actually more expensive than controlling 51% of the hashing power of a network like Bitcoin, which is very very expensive. All this arguably makes Dash the most secure cryptocurrency network in the world as it is outrageously expensive to attempt to attack the network in this way.
So to recap, with instantsend, Dash achieves what is equivalent to the first transaction confirmation instantly, which for Bitcoin takes at a minimum 10 minutes. With chainlocks Dash achieves the equivalent of 6 Bitcoin confirmations or finality instantly instead of the 60 minutes needed in Bitcoin. This makes for a user experience that is very easy and fast without sacrificing security or decentralization.
While all these innovations might sound good, if the network can’t scale to handle more users and more transactions while still maintaining these properties they are effectively useless. The vast majority of cryptocurrencies do not have a scaling solution or if they do have one it is incoherent or sacrifices certain principles necessary to be considered a proper cryptocurrency such as peer to peer network architecture or peer to peer network usage.
The problem of blockchain scaling stems from the fact that as the network grows in useage and blocksize correspondingly increases so does the blockchain. The blockchain needs to be stored by every node in the network forever. As the blockchain increases in size so does the cost of storing and accessing this data. For networks without coherent scaling strategies the outcome will be a network with very few or potentially even no nodes as the cost of running a node would be greater than the perceived benefit. Systems that rely on altruistic nodes are unlikely to scale to meet global demands as it is unreasonable to expect a volunteer to put up the necessary capital. Dash avoids these pitfalls by incentivizing masternodes and miners through the splitting of the block reward and transaction fees.
As it stands there are over 5000 nodes in the Dash network ranking it near the top in turns of decentralization. The compensation of the nodes through the block reward and transaction fees will grow in step with the increasing costs required to run the network. This ensures the nodes are properly incentivized and the network won’t experience a centralizing factor of very few nodes as we expect to see with other similar blockchain projects that attempt on-chain scaling.
All these innovations and technical accomplishments are exciting but what is most impressive about Dash is that whereever you find people using cryptocurrency as money, you will find Dash being used. In some places Dash is used even more than Bitcoin. This phenomena can be seen in places like New Hampshire and Malta but more importantly in places like Colombia and Venezuela. It shouldn’t really come as a surprise though. People who want to use cryptocurrency as money value several things that Dash excels at. Namely speed, low fees, and ease of use. Dash through its singular focus on being digital cash and its dao capable of financing local adoption efforts make Dash one of the go to cryptocurrencies as communities enter the cryptorevolution.
Lesson 16: What are Hardware Wallets?
There are many ways to store your cryptocurrency yourself. Some ways are arguably better than others. In our opinion, the safest way for users of all levels is to use a specialized device called a hardware wallet. A hardware wallet is a special type of crypto wallet that stores the user’s private keys in a secure hardware device.
The thing that makes hardware wallets so special is that they don’t assume your devices are clean and free from the prying eyes of hackers. In fact, with a hardware wallet it doesn’t really matter if your devices are compromised by hackers.
How is this possible? Normally, when a transaction is created and sent in a regular wallet app the signing, or private key, which is stored on the device, is exposed to the app proving that it is an authentic transaction. In most cases this is not an issue as the private key is not loudly broadcast to the world. If it was so, it would be trivial for people to rob the funds. However if there is a secret program running on the device checking for it, it is conceivable that a hacker could steal this private key information and thus the funds stored in the wallet. To prevent this from happening the hardware wallet cleverly creates a barrier between the device and the hardware wallet.
The private keys are stored in a protected area of a microcontroller within the hardware wallet. These keys cannot be transferred out of the device in plaintext. This makes the hardware wallet immune to computer viruses that steal from software wallets as they can’t physically access the keys. The hardware wallet can be used securely and interactively signing messages and sending funds but the private keys never touch potentially-vulnerable software. Instead a cryptographic hash of the private key is sent to the device proving ownership of the private key without actually exposing the private key itself.
All hardware wallets are not the same. They have different properties and price points. We believe it is best to choose a hardware wallet that is open source and uses a single-chip architecture. Open-source because it allows a user or researcher to validate the entire operation of the device and single-chip designed because it is least susceptible to physical attacks and compromise. The Trezor which is affiliate linked in the description of this video is one such hardware wallet though there are others good ones to choose from.
When buying a hardware wallet it is important to buy from a trusted source, usually directly from the manufacturer is best. This is because if you are buying used or from an unknown supplier it is possible they have changed the software without you knowing in order to execute a theft. The slight amount of money you might save on sourcing your hardware wallet from another source is not worth the piece of mind that what you are using is authentic and secure.
Setting up your hardware wallet properly is the most important step that will ensure your peace of mind that your cryptocurrency is stored. As with all cryptowallets, a hardware wallet needs to be backed up. When you first open the device, it will come with detailed instructions on how to record and store the backup seed phrase of your device. These steps are very important, so give them great care and attention. Make sure to accurately record the backup and then store it in a safe place. Keep in mind that anyone who finds this backup can potentially take your crypto funds. Optional password protection is available on some hardware wallet as well to mitigate this risk.
It is also important to note that even when using a hardware wallet, it is still possible to be deceived by a hacker or thief. Careful focus is needed to ensure that malware hasn’t swapped the recipient’s crypto address in your wallet app. A hardware wallet won’t fully protect you from being tricked into sending crypto to the wrong address, though if you are careful it will provide warning signs. For example, malware on a PC could monitor for high value transactions and then swap out the recipient’s authentic Bitcoin address for an address controlled by the attacker. To prevent this from happening the Trezor wallet displays on its screen the address you are sending to and the amount. If the address differs from that of your recipient cancel the transaction and start again with a different wallet isn’t compromised. It is important that you always verify that the address and the amount are as you entered them.
While there is a lot to be fearful of as you become your own bank, using a hardware wallet takes a lot of the fear and uncertainty out of the equation. When you use a proper hardware wallet, one that you’ve set up and backed up properly, you have very little to worry about. This is a beautiful thing. We highly recommend to all those who are securing sizeable amounts of crypto to start using a hardware wallet. Why stress needlessly?
Lesson 17: Cryptocurrency in the real world
When crypto first started the commerce was mainly limited to online purchases. Today, cryptocurrency usage at physical stores is becoming increasingly more common. Depending on where you live there might be businesses near you accepting cryptocurrency. We’re fortunate that where we live there are over 40+ businesses that accept cryptocurrency. These businesses are restaurants, barbershops, tattoo parlors, electronic stores, and quite a few technology related businesses.
We went to one of our favorite local bars that accepts Bitcoin and Dash to demonstrate what using cryptocurrency in the real world looks like.
Cryptocurrency can be used the same way as cash. For example you can spend it as cash to purchase a drink at a bar. I am currently in my favourite bar getting ready to purchase a drink and pay with dash cryptocurrency. I am using my dash wallet on my phone and will now demonstrate to you how simple it is to complete a peer to peer transaction using dash.
-Step 1 is I order my drink
-The merchant is requesting the payment in his wallet and generates a QR code
-I scan his QR code with my wallet and the payment is sent to the merchant
The payment was in euros, he asked me to send him 1.50 euros worth of Dash and that is how he’s able to make sense of it for the accounting.
As you can see using cryptocurrency isn’t limited to buying things online. The growing number of merchants around the world accepting cryptocurrency is very encouraging for overall growth of the crypto revolution.
If you want to spend your cryptocurrency at your favorite local businesses, we encourage you to speak with the owners and be persistent. If there is enough demand, they might start accepting cryptocurrency. There are even crypto point of sale systems that will pay you to onboard new businesses into the crypto economy.
I hope this lesson painted a picture in your mind of what real crypto adoption looks like. We all look forward to many more businesses around the world accepting crypto for payments.
Lesson 18: Mistakes to avoid
Nothing beats experience. Whenever you start something new, there is the possibility that you will make mistakes. Today we’ll be sharing our experience and the mistakes we’ve made and seen so that you are less likely to repeat these mistakes.
So without further delay, the first mistake you must absolutely avoid is not backing up your wallet. This has been discussed in several lessons so far because it is so important. When you begin using a new wallet you must take the time to back up the wallet. It is not difficult to do, it just requires a little bit of patience and concentration. Equally important when you do the backup make sure you store it somewhere secure that you will not forget about. Having an accessible and accurate backup of your wallet is so important because it undoes the potential negative affects of countless other beginner mistakes. Knowing you can restore your wallet if something bad happens brings about a peace of mind that not having would be needlessly reckless.
While on the topic of wallets, this one is quite foundational, if you send your crypto to the wrong address, it isn’t coming back. Sending to the wrong address can’t be undone. It comes with the territory of having this freedom and responsibility, there is no support staff you can call who can help. While some mistakes are bound to happen, training yourself not to rush when making a crypto transaction will help you avoid making this irreversible mistake. Take your time and confirm before sending the transaction that all the details are correct especially the recipient’s address and the amount being sent.
Using cryptocurrency is fundamentally different than the online banking services you may be accustomed to. Trying to use cryptocurrency like you would paypal or your online bank portal introduces a number of issues that are wholly unnecessary. Chief among these holdover values and ideas is the mistake of using custodial services that hold your private keys. The expression not your keys, not your crypto is so powerful in the cryptoverse because it is fundamentally what makes crypto different from fiat. You don’t need to trust anyone, so don’t. Crypto is designed to be trustless. The more people you trust, the more that can let you down. It introduces counter-party risk, meaning anything bad that happens to the custodian also then happens to you. If they get robbed, you get robbed. It also, usually, reduces the usability of crypto and instead enforces old modes of control over you and your money. They will want to know who you are and what you want the money for. Crypto is a permissionless. Why give up this power and ask for permission to use your own money? It is an unnecessary mistake to cede your new won freedom. Instead educate yourself, be brave, and learn how to exert your financial independence. In situations where you have no choice but to use a custodial service, limit your exposure to them. Do not hold all your money with the custodian, and don’t let them hold your money for longer than is absolutely necessary. The history of cryptocurrency is scattered with the metaphorical bodies of those who through lazyness or hubris disregarded this warning. Don’t be one of these people.
While we appreciate that you are taking our classes and trust us to give you the information you need to understand cryptocurrency, it is still very important that you do your own research. Staying in the theme of cryptocurrency is trustless, don’t assume the information someone tells you is accurate. When you are making decisions about which cryptocurrencies, exchanges, and wallets to use, you must first do the research to ensure they are the right choice. What are people saying about them? Does it have a good reputation? Is it open-sourced, trustless and permissionless? Is it insured? These are the types of things you need to find answers to every time you make a decision to use a new product or service in the cryptoverse. The quality of products vary wildly, you can’t assume without research you are making a good choice.
A common theme among many of these warnings is not to rush. You have little to gain from rushing and potentially a lot to lose. In the cryptoverse there is a concept called FOMO, or Fear Of Missing Out. Beware of FOMO. It is almost always an artificial hype designed to make you rush and make bad decisions. If the decision you are contemplating FOMO-ing into won’t look attractive in 1 day or 1 more week, it probably isn’t a good decision to make right now either. Be cool, and move at a comfortable pace. When you are being rushed your internal alerts should go off. What is so tough about FOMO is often it is yourself that is trying to make yourself rush. Be disciplined and don’t be influenced by what others are doing. It rarely benefits to be a follower of a trend.
Similar to the mistake of FOMO-ing into a bad investment, make sure not to invest more than you can comfortably lose. While we like to think that cryptocurrency is here to stay and will change the world. The reality is that as of right now crypto is still in its infancy. There is no guarantee that your investment into cryptocurrency will be a good one. We know many people whose wealth is entirely in cryptocurrency and we applaud their bravery, but for normal people just getting into cryptocurrency for the first time, such a thing would be lunacy. Start off small to test the waters. If cryptocurrency truly is here to stay you will have many opportunities going forward to increase your crypto holdings.
A question we get very often is whether it is a good idea to start mining to earn cryptocurrency. Put simply the answer is no, it is not a good idea. Mining at a loss happens more often than not. To be competitive you need to invest huge amounts of capital and have access to very inexpensive electricity. To really make money with mining it needs to be treated as a business and requires a lot of expertise that the average person does not have. Mining is a great hobby and a good way to better understand the technology that creates the backbone of the cryptocurrency networks. Just don’t start mining expecting big profit. In almost all instances you’d be better off spending the money you would otherwise spend on miners and electricity on purchasing crypto directly instead.
Just as it is unreasonable that your average person will become a mining professional, it is just as unlikely that an inexperienced person will become a successful trader. Most traders lose money. Holding crypto and using it as money is better than trading if you don’t know how to trade. Trading cryptocurrency is taking something already risk and making it more risky. If you take the time to study the market and learn about trading investment strategies by all means attempt to trade. However just because you now have an account on the exchange where you bought your cryptocurrency doesn’t mean you are a trader and that you should make risky bets.
To sum up and leave you with one final mistake to avoid, have reasonable expectations. Crypto isn’t magic. It won’t make you rich over-night. Just like buying a barrel of oil or a bar of gold won’t. If you go into cryptocurrency with unreasonable expectations you are more likely to fall into the mistakes we’ve discussed today. If you seek unreasonable returns you also ramp up the risk and make it more likely you will make a mistake you will later regret. When all else gets confused, remember, cryptocurrency is about freedom. It is about not having to ask permission to use your money or to trust anyone with it. It is about financial sovereignty. It is not a get rich quick scheme. In fact there is no promise at all it will make you wealthy. Keep things simple and you will revel in your new found freedom. We hope you take these precautions seriously as you enter cryptocurrency and are able to avoid making these mistakes.
Lesson 19: Where is the best place to buy crypto in Armenian 2020
Unfortunately at this time there are not many good options for Armenians living in the Republic of Armenia when it comes to buying cryptocurrency. In fact there is not even an exchange that we know of that has as a dram to cryptocurrency trading pair. That being said, based on our research we’ve identified three options that are the most popular in Armenia at this time. You can find all these recommendations in the description of the video with affiliate links that help support the Armenian Crypto School.
The first option for purchasing cryptocurrency in Armenia is through the exchange EXMO. EXMO is a relatively old exchange founded in 2013. It is based in London, Kiev, Barcelona and Moscow. EXMO claims to be #1 exchange in Eastern Europe. The average monthly trading volume is reported as 1.5 billion dollars. Exmo has USD, Euro, Ruble, Ukrainian hryvnia, Poland złoty, and turkish lira trading pairs. The fees for using the service are average and varies the most based on which fiat currency you use to make deposits. One thing we really like about EXMO is that it has Dash trading pairs.
Another popular option for Armenians living in Armenia is the cryptocurrency exchange CEX. They too were founded in 2013 and is headquartered in London. They allow fiat deposits in USD, Euro, Ruble, and GBP. They too have an average fee structure.
For both EXMO and CEX, you will be required to undergo Know Your Customer (KYC) procedures when depositing FIAT currencies. You will be asked to provide to the exchange identifying information about yourself. This generally slows down the process for you to begin purchasing cryptocurrency. It also exposes you to potential tax implications from your home country so be aware of that. The benefit of these exchanges are of course that you can use them without leaving your house and they have a good reputation. With that said, if you do choose to use these exchanges to purchase cryptocurrency, you are advised against storing your cryptocurrency on the exchange. It is safer for you to use something like a hardware wallet to securely store your cryptocurrency and not rely on anyone else.
The final popular way of purchasing cryptocurrency in Armenia today is through the popular classifieds website list.am. If you search for Bitcoin and a select few other cryptocurrencies you will find people who are selling these cryptocurrencies at competitive prices. They generally have a good rate and accept Dram which the other options at this time to not. Another benefit is that the transaction will be in cash and will not leave a paper trail or expose your information to tax authorities or anyone else for that matter.
There is of course added risk to purchasing cryptocurrency this way. You will be dealing with people you don’t know and whose reputation is unknown to you. To mitigate these risks, it is important that you follow these steps to make sure you stay safe and don’t get tricked or robbed. The first thing to do after agreeing upon a price and how much crypto you want to buy is to select where to make the purchase. It is advised to meet in a public, well-lit place like a popular cafe. Do not meet at your business or home, or the home or business of the seller. Before the transaction begins make it clear that you will insist that you wait for at least 1 transaction confirmation before considering the transaction complete. This information will be displayed in your receiving wallet and will say that the transaction is pending until it says 1 confirmation, then 2 and so on.
Just as the seller will want to count the money to make sure it is all there. So too would you want to make sure that the cryptocurrency arrives in your wallet with finality. Unfortunately with Bitcoin, this can sometimes take a long time. At minimum expect it to take around 10 minutes. To mitigate this wait time, make it clear that you expect the transaction to be sent to your wallet using a high transaction fee so that it will arrive in the next block. Show the seller the cash and let them count it prior to them sending the transaction, but do not hand it over to them until you have in your crypto wallet at least 1 confirmation that the crypto is yours. If you have arranged a very large purchase of cryptocurrency from the seller, it is advised that you wait even longer than 1 confirmation.
If you are not interested in waiting suggest using another cryptocurrency for the trade. With Dash for instance the transaction will be considered final immediately if chainlocks and instandsend is applied. Again, your dash wallet will notify you if this is the case. If it hasn’t been applied or you are not sure, then wait the 2.5 minutes needed for a confirmation to be announced by your wallet.
If you feel that the seller is uncomfortable or is rushing you, it is most likely best to end the transaction and walk away. It is not unreasonable that you should want a confirmation on your crypto transaction. Not having it would be the equivalent of trusting a complete stranger. If the seller makes a big deal about this and suggests it is unreasonable, you have every right to be suspicious of the person. Again, to minimize this confusion, make it clear prior to meeting in person your expectations that you will be needing at least 1 confirmation and that they should expect to wait until it is so.
As it will be known that you are carrying cash on you, you must be careful in how you enter the venue. It is best to arrive well before the appointment. If you are leaving without having completed the transaction it is best that you exit into a well-lit and crowded area and that you have transportation set up so you can quickly and safely leave without risk of being robbed. To aid in this you may also want to bring along with you a friend or two.
While all of this perhaps sounds too much like an action thriller movie for comfort, it is always best to be safe than sorry. The vast majority of people in the cryptocurrency space are good people. They are very often nerdy, harmless people. Regardless, cryptocurrency is trustless and you should not trust anyone to behave honorably.
Lesson 20: Understanding Transaction Fees
Maybe you’ve made a transaction before and wondered what is a transaction fee and why is it necessary. You’ll soon learn the transaction fee is a form of communication between you the consumer and the miners securing the network.
As you may know the blockchain is a ledger that stores the history of its respective cryptocurrency. Each new block contains recent transactions that are now being confirmed to the blockchain making them final and permanent. These new blocks gets added one at a time when a miner’s mining hardware successfully hashes the block reward problem. But how do transactions get into the blocks? As it turns out, miners decide which transaction to add to the block they are mining. They do this primarily by looking at which transactions will make them the most money.
When a person sends a transaction they attach to it transaction fee that ultimately goes to the successful miner whom ultimately adds it to the blockchain. This transaction fee signals to the miner the urgency of the transaction. The higher the fee, the more urgently a person wants their transaction added to the next block.
Now, if a network has very little activity or it has very high throughput it might be the case that the blocks are not full. This means each newly minted block contains less transactions than it could have processed if there were more transactions being made. When this happens the transaction fees are not very important because the miner will be incentivized to grab all the pending transactions into their block. The more transactions they add, the more transaction fee they will earn. This is good for users of the cryptocurrency because it means that even with inexpensive transaction fees they can expect to have their transaction added to the next block. This means for them less uncertainty and less waiting around for a confirmation to announce that their transaction has been added to the blockchain and can be considered permanent and final.
It is when the blocks become full that transaction fees begin to take on more significance. As blocks become full the number of transactions waiting to be confirmed grows. These transactions exist in what is called the “mem pool”. When the mem pool grows faster than the miners are able to mine full blocks, the miners are able to be more selective on which transactions to include in their blocks. Naturally, the miners prioritize the transactions with the highest transaction fees. They are incentivized to want to make the most money. It is during these times that there effectively becomes a bidding war by users of the network to have their transaction added next to the blockchain. When normally a relatively small transaction would be included in the next transaction it now would require a very large transaction fee as one would need to outbid all other users of the network. Historically we have seen during very hectic period of use on the Bitcoin blockchain transactions rise as high as $50 dollars when normally it would take 50 cents or less.
During these periods of high use, transactions that have a low transaction fee have to wait for the mempool to clear and for their transaction fee to become competitive again. This wait sometimes can last as long as several days.
Obviously this creates a pretty terrible user experience, so it is necessary to be aware of the status of the mem pool and to set your transaction fee accordingly. Most wallets these days have a transaction fee tool that estimates a fairly accurate transaction fee needed to confirm the transaction in a reasonable amount of time. They usually also include a feature that lets you set the priority of the transaction to high if you need the transaction confirmed soon or low if you are not in a rush and would rather keep the transaction fee low at the expense of having to wait longer for it to be confirmed. These wallets usually provide an estimate for how long to expect to wait given the transaction fee being used.
While it may seem like a fairly insignificant topic, it turns out that the transaction fees and in particular the block size which dictates the optimal transaction fee amount is a very contentious topic in the cryptoverse. The reason for this is that to solve the high transaction fee and long wait times dilemma a blockchain would simply need to increase the blocksize to handle more transactions per block. Doing so would clear the mempool and thus remove the need for high transaction fees. The cost with this solution is that it means that the blockchain grows in size faster than if it had smaller blocks. As the blockchain grows it becomes more expensive for nodes on the network to run and it reasons that there will be less nodes running as a result. This creates a centralization concern as the network infrastructure loses participants.
Different blockchains handle this concern in different ways. Bitcoin takes the most conseravtive approach and refuses to increase the block size. The perceived risk of centralization of the blockchain infrastructure primarily to the miners, who are the only participants incentivized by the block reward and transaction fees is deemed too great. Bitcoin cash and Bitcoin SV on the other hand do not share this concern and instead focus on the user experience of keeping the transaction fees low and scales on-chain through growing the blocksize. Consequently these blockchains have less nodes that are beginning to centralize around a small number of network participants. Dash takes a hybrid approach to the onchain scaling issue. Dash splits the block reward and transaction fees between the miners and the masternodes. This insures that a large number of nodes are able to afford large blocks and the consequently larger blockchain storage costs because they are being paid monthly by the network. As a result Dash will be able to scale to accomodate a large number of user transactions without succumbing to network centralization. It is an elegant solution that cuts to the heart of the issue which is that the economic model of Bitcoin is not fully mature. Expecting altruistic full nodes to carry the burden of a global currency for free is unreasonable. It makes more sense that nodes be compensated to run the significantly powerful and expensive hardware necessary to support a network capable of global mass adoption.