Last updated on January 7th, 2021. Posted in Mindset & Mission.
If you don't know much about bitcoin or cryptocurrencies or how the heck all this stuff works, but if you're really interested in at least understanding how this stuff works, then keep watching -- you're definitely in the right spot!
Here are links and resources mentioned in today's video. Enjoy!
Now normally I'm making videos and tutorials about online business, building an audience online and all this stuff.
That said, bitcoin and cryptocurrencies are certainly related to online business and earning an income for yourself online...and who knows exactly where all this stuff'll lead to in the coming years.
So the idea behind this video is to break everything down and simplify everything as much as possible for you to wrap your head around.
We'll talk about the various components that are involved here, and how you can buy your first bitcoins and other cryptocurrencies.
Really, all this stuff is not nearly as complicated as you might be thinking. I've worked hard and done my best to simplify and compartmentalize this stuff as much as possible.
That said, because there's so many moving parts, you may want to go through this video more than once just so you get your head wrapped around it all. So on that note, let's get started...
Okay first up, there are five components to getting started with crypto and bitcoin:
First, understanding what cryptocurrencies really are, then understanding what blockchain is, next cryptocurrency exchanges, cryptocurrency wallets, and finally, there's private keys.
Let's start with understanding what cryptocurrencies are. You probably have a pretty good idea of what cryptocurrencies are here -- after all, you're watching this video which means you already have some interest, right?
But if you're unsure, a cryptocurrency is simply a digital online currency. Cryptocurrencies aren't denominated in traditional currencies like US dollars. Instead they're denominated in...well...their cryptocurrency!
The whole idea behind crypto is anonymous, decentralized currency...which is a very interesting idea.
As for Bitcoin, it's just one of hundreds of cryptocurrencies that you can hold and exchange. Ethereum, Litecoin, and Libra are examples of other cryptocurrencies...
...but again, there are hundreds. Bitcoin was the first cryptocurrency and it's the most popular.
Okay now next, we need to talk briefly about the technology behind cryptocurrencies -- and that's what blockchain is all about. So blockchain is the technology that cryptocurrencies are built with.
Blockchain technology can be used and built upon in all sorts of different ways...like digital contracts, agreements, software development...and blockchain can be used in ways that we haven't even thought of yet.
As I understand, the blockchain is comprised of nodes. A node can run on a computer, a web server, a raspberry pi device...whatever.
And every node on the network contains a complete history of all transactions that have occurred on that specific blockchain, which are all updated simultaneously.
And there are thousands and thousands of nodes worldwide. This makes fraud and theft very, very difficult, if not impossible -- it's completely decentralized and every node is accountable to all other nodes.
So this is what makes cryptocurrencies so appealing -- decentralization, security, and anonymity.
Okay now the next piece of the puzzle is what's called a cryptocurrency exchange. A cryptocurrency exchange is an online company that allows users to buy, sell, and trade cryptocurrencies.
Coinbase or Blockchain.info are two examples of crypto exchanges...but there are many to choose from. Here, you'd have an account on the cryptocurrency exchange -- and you can use whatever one you want.
Just starting out, stick with Coinbase or just do a search for "cryptocurrency exchange" and go with whatever one you want.
On a crypto exchange, your account would be connected to your credit card or bank account, allowing you to buy cryptocurrencies like Bitcoin or Etherium, or sell them and transfer the funds to your bank.
I think of it as kinda like having a PayPal account where you can transfer money in and out, and hold funds in a variety of currencies, if that helps.
Next up we need to talk about something called a cryptocurrency wallet. A wallet is just like an online bank account where you can send, receive, and store funds -- again, like a PayPal account.
Anyone who wants to buy, sell, and hold bitcoin and other cryptocurrencies has a wallet...and in fact, when you setup an account with a cryptocurrency exchange, as a part of your account, you'll have a wallet for each cryptocurrency you can hold.
Now what you could do is simply keep all your cryptocurrencies in your account on the crypto exchange you decide to use -- like Coinbase or whatever...and that would be perfectly fine.
However, this isn't necessarily the safest way to store your crypto. And this brings us to the fifth and final component, private keys.
Private keys are based on very sophisticated cryptography. Your private keys grant access to your cryptocurrencies. This means that you've gotta be very careful and keep your private keys safe.
Anyone who has access to your private keys has access to your cryptocurrencies. So obviously, you'll want to protect and keep your private keys very safe -- ideally offline and in a physical safe if you can.
Now if you decide to hold all your crypto in your exchange account wallets -- again, like on Coinbase -- then your private keys are what are called "custodial." This means you're entrusting a third party to keep your funds safe and secure.
And if like me, this doesn't sit so well with you and you'd rather have complete control, security, and ownership of your private keys and thus the cryptocurrencies you hold, then you'll need to set up an independent crypto wallet that you own and control.
And I know that this might seem confusing -- it's totally optional, and starting out you don't need to add this extra layer of complexity if you don't want.
But think of it this way: What's better, having an envelope of cash under your bed or having that same envelope of cash sitting in a locked and hidden safe in your house? Under your mattress is certainly secure to a degree, but the second option obviously offers much more security and protection.
And the same holds true for your cryptocurrency wallets. Remember, on a crypto exchange, you don't have absolute, total security and ownership of your cryptocurrencies.
So if you want that extra layer of security and ownership, you'd need to set up a separate crypto wallet that you own.This is how I like to run things.
Now it's important to understand that no matter how you decide to set yourself up, each of your crypto wallets has a public address that people can send money to, like an email address.
Anyone who knows your wallet address can send you bitcoins (or other cryptocurrencies). If you'd like an example of what I'm talking about, take a look down in the Show Notes below and you'll see wallet IDs for a few cryptocurrencies I hold, like Bitcoin, Litecoin, and a few others...
...you'll see them down in the Show Notes appearing as a long string of letters and numbers. If you sent a little bit of crypto to those addresses, they'd show up in my wallet on my end.
Now I should mention two other things: First, every crypto currency that you hold will have it's own separate wallet and thus wallet ID (again, as you can see in the examples in the Show Notes below).
Second, there are four different types of cryptocurrency wallets that you can use -- Hopefully this doesn't get too confusing -- you could use an online wallet, a software wallet, a hardware wallet, or a paper wallet.
An online wallet would be the wallet that you have with the cryptocurrency exchange you use -- again, like Coinbase or Blockchain.info.
So here, as we've eluded to already, you have your account plus a wallet on a crypto exchange of your choice. The nice thing here is that you can use any internet-connected smartphone, computer, or other device to access your account.
However don't forget that the downside is those less secure "custodial" private keys.
A software wallet is an application that you download and install on your computer or smartphone. There, you can manage all your cryptocurrencies.
What's great about going with a software wallet is that you have complete control and ownership of your private keys. And there are many different options to choose from.
Exodus, Atomic Wallet, and Electrum are just a few to choose from.
If you're interested, once again an internet search for something like, "best software crypto wallet" will give you all sorts of options.
Next, you could use a hardware wallet. This is a physical device, similar to a USB thumb drive that contains special software to store and manage your cryptocurrencies. And going with a hardware wallet is the most secure way to store your crypto.
Here what you'd do is, anytime you want to move, exchange, send or receive crypto, you'd plug your physical hardware wallet into your computer and then initiate the transactions.
When you're all done, you'd unplug your wallet and store it somewhere safe.
Trezor, Ledger, Keep Key are all great options for physical hardware crypto wallets. Again, head for your favourite search engine for more options.
Finally what you could do if you really wanted to, is you could print out your wallet's private keys and public address onto a physical piece of paper, and then safely store that piece of paper.
This is a very secure way to store your crypto...but you have to take very good care of this piece of paper and be careful when using it. If you lose it or it gets destroyed, you'll lose access to your crypto funds.
Alright...is all this making sense? So you understand what cryptocurrencies are and that they're built on blockchain technology.
You've got the idea of cryptocurrency exchanges and setting up an account on one, right? And the whole private keys and crypto wallets concept makes sense?
Okay, with all the components and moving parts out of the way, let's now go through a typical process for how you'd buy your first Bitcoins or other cryptocurrencies:
First, you'll have to set up an account on a cryptocurrency exchange. Personally, I use Coinbase but you can use whichever one you want.
When you're setting up your account, you'll also need to verify your identification and then add a credit card or bank account.
Setting up an account on a crypto exchange is probably the biggest hassle in this entire process, but it's not too bad. And of course, it's a one time thing.
Once your account is set up and verified, you're ready to buy your first Bitcoins and other cryptocurrencies!
To buy, all you'd do is initiate a "buy" transaction in your account. You'd use your bank account or credit card to purchase Bitcoins and other cryptocurrencies in your local currency -- like US dollars, British pounds, Canadian dollars...or wherever you're located.
The process only takes a moment, and once complete, you can save and hold your bitcoins, in your crypto exchange wallet, you can exchange them for other cryptocurrencies and vice versa, pay for items with vendors that accept bitcoin...
...and you can exchange bitcoin for traditional currencies, sending funds back to your bank account, for example.
There are fees to buy and send bitcoin, but costs are low.
Now as mentioned earlier, for extra security, it's a really good idea to move your crypto over to a software or hardware wallet. You could optionally keep everything in your crypto exchange account, but the whole point behind crypto is decentralization...
...and remember, crypto exchanges are companies themselves. So keeping all your crypto there might not be safe.
If you wanted to go with a hardware or software option, of course as mentioned earlier, there are plenty of options.
Each wallet has it's own unique set up process and the internet is filled with really great step-by-step tutorials to show you how to set up whichever wallet you'd like to use.
For example, right now I'm using a software wallet called Exodus. I like it because it's simple, user-friendly, has a great interface, and is completely free.
So on my end with Exodus, I had to go through a brief set up process, including downloading and installing Exodus and setting up some security.
Once set up, you can then move your crypto from Coinbase or whatever exchange you're using over to your software or hardware wallet.
To do this, all you'd need to do in your exchange account is initiate a "send" transaction, make sure you're sending to the right software or hardware wallet ID, and send over your crypto.
You'll likely have to insert a verification code, but once you finish this transfer, your crypto will show up in your software wallet a few minutes later.
So as a quick example of the entire process, here's what I do anytime I want to buy Bitcoin or other cryptocurrencies:
First, I'm using Coinbase, so I'd log into my account there.
Once logged into Coinbase, I'd initiate a "buy" transaction to purchase Bitcoin, using funds from my bank account or credit card.
After my purchase is complete, I don't want to keep my crypto in my Coinbase account -- I want to transfer them out of Coinbase and into to Exodus, my software wallet.
Now an important aside: You can only transfer Bitcoin to Bitcoin, Etherium to Etherium, and so on. You CAN'T send Bitcoin to an Etherium wallet -- it's gotta be Bitcoin to Bitcoin, Etherium to Etherium, and so on.
As I understand, if you attempt to send a different cryptocurrency, you'll lose all your money -- so be careful!
So back to our example, if it's Bitcoin I'm transferring from Coinbase to Exodus, then in Exodus I'd be careful to copy my Bitcoin wallet ID. So I'm copying the wallet ID for the cryptocurrency I'm transferring.
Then in Coinbase, I initiate a "send" transaction by clicking Send / Receive. In the window that appears, I set the amount that I want to send, paste the wallet ID that I copied from Exodus into the "To" field, and then initiate the transaction.
That's it -- that's all there is to it! See, with everything laid out clearly, this stuff really isn't all that complex is it?
Now a few quick notes that come to mind: First you may notice that when you're buying Bitcoin or other cryptocurrencies that you aren't buying whole bitcoins or whole currency units.
That's because of the price of...well, I'll use Bitcoin as an example: At the time of this recording, Bitcoin is hovering around $39k Canadian dollars, or $30k US dollars...
...that's for a single, whole Bitcoin! See, there's a limited number of Bitcoins available -- 21 million I believe. This gives the digital currency legitimacy and value.
So in your wallet, your balance will always read as a very deep decimal...you know, something like "zero-point"...and then a deep number of decimal places...depending on how much you hold of course.
Here's something else: If you wanted to transfer between different cryptocurrencies, you'd have to use an exchange transaction, which is built right into Exodus and other crypto wallets.
Alright now, I hope this guide has really laid out all the components and demystified cryptocurrencies and how to buy your first Bitcoins.
It's important to note too that I don't see bitcoin or other cryptocurrencies as an investment or anything like that. For me, this isn't a way to make money or grow my money or anything like that.
Instead, at least for me, it's more something that's really interesting that I want to learn more about and play around a bit with to better understand.
As far as making money with this stuff, in my mind at best Bitcoin and other cryptos are otal speculations...and that's because the value of Bitcoin and other cryptocurrencies can be highly, highly volatile.
So here, if we make a little bit of money, great! And if we lose money...so what...we're having fun and learning about a pretty cool technology, so who cares?!
So at a minimum, to get yourself started, what I'd suggest you do is throw $20, $50, or whatever amount of money you're okay losing -- throw that into Bitcoin. Consider that like a "tuition fee" for learning about this stuff hands-on!
Or, maybe throw a little bit of money into two or three different cryptocurrencies if you like. Try exchanging between them, try selling them...and just get comfortable with the whole thing.
Optionally, set up a software wallet like Exodus or even go with a hardware wallet if you like.
Then later on, if you wanted to, maybe just dollar-cost-average it -- throw $50 a month, $100 a month, $20 a month...whatever amount you're comfortable with -- into your crypto wallet.
But again I've gotta stress -- I really do think this is speculation, so you've gotta be okay with losing it all...
...so don't bet the farm, don't cash in all your home equity and buy Bitcoin or anything else like that. And everying I've discussed here with you is certainly NOT investment advice. I'm not responsible for any losses or gains!
For now, again at least for me, all this stuff is just for fun and leanring.