Crypto Fundamentals

This guide covers the foundational concepts you need to understand before investing in cryptocurrency. Whether you're new to crypto or looking to fill knowledge gaps, this is your starting point.

What is Bitcoin

Bitcoin is a decentralized digital currency created in 2009 by an unknown person or group using the name Satoshi Nakamoto. Unlike traditional currencies, Bitcoin operates without a central authority or banks, using peer-to-peer technology to facilitate payments.

Transactions are verified by network nodes through cryptography and recorded in a public distributed ledger called a blockchain.

How it works:

• Blockchain: A digital ledger where all Bitcoin transactions are recorded chronologically and publicly.
• Mining: The process by which transactions are verified and added to the blockchain. Miners use computational power to solve complex mathematical problems and receive new bitcoins as rewards.
• Wallets: Digital tools where users store their bitcoins using private keys (secret numbers) corresponding to a public address.

Why Bitcoin matters:

• Decentralization: No single entity controls it, reducing the risk of centralized manipulation.
• Limited supply: There will only ever be 21 million bitcoins. This scarcity affects supply and demand dynamics.
• Transparency: Every transaction is recorded on the blockchain and can be viewed by anyone.
• Global reach: Bitcoin can be sent and received anywhere in the world.

Bitcoin often acts as a gateway to the broader crypto market. It's the largest and most well-known cryptocurrency, and its performance frequently influences the trends of other cryptocurrencies (altcoins). Many view it as a store of value similar to gold.

Risks to be aware of: Price volatility, regulatory changes, and security risks on exchanges and wallets (not the Bitcoin network itself).

What is Blockchain

At its core, blockchain is a decentralized ledger technology that securely records transactions across a network of computers. Once data is recorded, it cannot be altered. Initially designed for Bitcoin, blockchain has evolved far beyond digital currencies.

Decentralization and security: Blockchain operates on a decentralized network of nodes (computers) that validate and record transactions. No single point of failure exists. Altering data requires consensus of the majority of the network, making it extremely difficult for hackers to compromise.

Transparency and immutability: Every transaction is recorded in a transparent and immutable manner. Anyone on the network can view the transaction history. Tools like Etherscan let you see all transactions across the Ethereum network.

Efficiency: Blockchain eliminates intermediaries, reduces third-party verification, and enables faster transaction processing. Smart contracts (self-executing contracts with terms written directly into code) further automate transactions.

Applications beyond crypto: Finance (DeFi platforms), supply chain (end-to-end traceability), healthcare (secure patient records), and more.

Crypto Wallets

A crypto wallet is a digital tool that allows you to store, send, and receive cryptocurrencies. Wallets don't store actual coins. Instead, they store the public and private keys needed to access your cryptocurrency on the blockchain.

• Public key: Your wallet address, like an account number. Safe to share for receiving funds.
• Private key: A secure code that gives you access to your funds. Never share it.

Types of Wallets

Hot wallets are connected to the internet. They're convenient for quick trades and everyday use, but more vulnerable to hacking. Think of it like carrying cash in a locked briefcase. Examples: MetaMask, Coinbase Wallet, Phantom Wallet, Kraken Wallet, Trust Wallet.

Hardware wallets (cold wallets) store your keys completely offline. They maximize security at the expense of speed. Think of it like an underground vault. Examples: Ledger, Trezor. See the Security and Account Setup guide for detailed setup instructions.

Why Use a Wallet Instead of an Exchange

• Security: Exchanges are prime targets for hackers. Hardware wallets keep your keys offline.
• Ownership: "Not your keys, not your coins." On an exchange, you're trusting them to manage your assets.
• Protection from exchange failures: Exchanges can go bankrupt or freeze withdrawals (FTX being a notable example).
• Privacy: Wallets let you manage crypto without disclosing personal information.
• DeFi access: Wallets provide direct access to decentralized finance platforms and applications.

Recommended Setup

1. Two reputable exchanges for onboarding and off-ramping. Keep a cash position on exchange for easy weekly DCA. (Coinbase, Kraken)
2. A hardware wallet for larger portfolios where deposits and withdrawals are less frequent. Safest place to hold crypto. (Ledger, Trezor)
3. A hot wallet for active management and frequent access. (MetaMask, Phantom, Coinbase Wallet)

Sending and Receiving Crypto

When sending or receiving crypto, you're transferring value between wallet addresses on a blockchain. The process is the same regardless of the asset:

To receive: Open your wallet, select the asset, and copy your receiving address. Share this address with the sender. Always verify the address by checking the first and last few characters.

To send: Open your wallet, select Send, paste the destination address, enter the amount, review the fee, and confirm. Always double-check the address and network before confirming.

Key things to know:

• Transactions are irreversible. If you send to the wrong address, the funds are gone.
• Network fees (gas fees) vary by blockchain and network congestion.
• Different blockchains have different address formats. Never send ETH to a BTC address, for example.
• Send a small test amount first when using a new address.
• Confirmation times vary: SOL is 1-5 min, ETH is around 15 min, BTC can take 1 hour or more.

Crypto Exchanges

Crypto exchanges are platforms where you can buy, sell, and trade cryptocurrencies. They serve as the on-ramp and off-ramp between traditional money (fiat) and digital assets.

Centralized exchanges (CEX) are operated by companies that act as intermediaries. They offer user-friendly interfaces, high liquidity, and fiat on-ramps. Examples: Coinbase, Kraken, Binance. The tradeoff is that the exchange holds your keys.

Decentralized exchanges (DEX) let you trade directly from your wallet without a middleman. They offer more privacy and control but can be harder to use. Examples: Uniswap, Jupiter, Raydium.

Choosing an exchange: Look for strong security practices, regulatory compliance, reasonable fees, good liquidity, and a solid track record. Having accounts on multiple exchanges provides flexibility and redundancy.

What is an Airdrop

An airdrop is when a crypto project distributes free tokens to wallet addresses, usually as a marketing strategy to raise awareness, reward early adopters, or grow their community.

Types of airdrops:

• Standard: Tokens distributed to wallets holding a particular cryptocurrency.
• Bounty: Tokens given for completing tasks (social media promotion, referrals, etc.).
• Holder: Rewards for holding a specific token at the time of a blockchain snapshot.
• Hard fork: Tokens distributed after a blockchain splits, where holders of the original coin receive the new one.

How to participate: Stay informed through crypto news and project communities. Join official social media channels and Discord servers. Meet eligibility requirements. Use reputable wallets. Register on airdrop platforms like AirdropAlert or CoinMarketCap's Airdrop page.

Safety: Be cautious of scams. Legitimate airdrops will never ask for your private keys or require you to send funds. Always verify through official project channels.

Common Beginner Mistakes

1. Not securing your private keys and seed phrases. Store them offline in a secure location. Never share them with anyone.
2. Keeping large amounts on exchanges. Use a hardware wallet for long-term storage.
3. Investing more than you can afford to lose. Crypto is volatile. Only invest money you can afford to lose entirely.
4. Chasing pumps and FOMO buying. Stick to your strategy and use DCA rather than trying to time the market.
5. Ignoring security basics. Use 2FA on every account, unique passwords, and a VPN when accessing financial accounts.

As always, if you have more questions, reach out to the BMB team on Slack.