Interested in cryptocurrency, blockchain, or Bitcoin, but don’t know where to start? Feel overwhelmed by all the jargon, misinformation, and straight-up hype?

Don’t worry, we’ve been there… so we’re here to help.

This guide will walk you through everything you need to know, from how to invest in cryptocurrency, to discussing it intelligently at the dinner table, or just understanding how this new technology works. We’ll explain need-to-know concepts about cryptocurrency and its underlying technology, discuss drivers and variables that move its prices and offer practical tips for beginning investors.

Cryptocurrency may have started as an obscure niche of the web, but its become important enough to be a central topic at the Global 20 International Summit. Top cryptocurrencies like Bitcoin and Ethereum saw tremendous growth in 2017. With new ways to invest and increasing mainstream adoption, it seems that the next few years are poised for even bigger growth.

Many have made fortunes in the market, from that meetup hipster who’s now a millionaire to the stay-at-home mom who randomly threw a few thousand at Bitcoin five years ago. Despite the volatility of the market, the industry is still on the rise, thanks in large part to blockchain, its disruptive underlying technology.

If there’s ever a best time to learn about this important industry… it’s right now.

Of course, investing has risks. Many of the cryptocurrencies are, at the end of the day, based on innovative developments in technology.

Remember the dot-com boom and bust? Certain currencies will likely experience busts that magnitude; that’s simply the cycle of new technologies.

Before you back away in fear, however, consider the fact that some of the biggest companies in the world today are completely Internet driven…the dot-com bust was simply a small piece of a much bigger puzzle. Even with minor set-backs, cryptocurrency has the potential to be a society disruptor on the same scale as the Internet.

And still, there are thousands of cryptocurrencies out there, dozens of exchanges, and layers upon layers of technologies to grasp…it’s a problem.

So here’s the solution.

Plain and simple, this is a crash course on everything you need to know about cryptocurrency before actually investing.

You can click the links below and jump to different sections, or simply scroll down to read everything. At the end of the guide, you’ll find additional resources.

Table of Contents

I. The Fundamentals of Cryptocurrency

• The Purpose of Cryptocurrency
• What is the Underlying Technology?
• Different Types of Cryptocurrencies

II. How to Understand Price Movements of Cryptocurrencies

• Intrinsic Drivers of Prices
• Extrinsic Drivers of Prices

III. How to Invest

• How to Pick the Right Exchange
• How to Store Cryptocurrency
• The Fastest Way to Get Investing 

I. The Fundamentals of Cryptocurrency

Five years ago, you would be hard pressed to find someone knowledgeable about cryptocurrencies. Today, your taxi driver is pitching you the latest and greatest coin.

The market and participation have grown exponentially in size and complexity, but there are still fundamentals that many investors miss.

What is the purpose of cryptocurrency exactly? Why is the underlying technology so important? How are different cryptocurrencies like Bitcoin, Ethereum, Litecoin, etc. related and/or different from each other?

The Purpose of Cryptocurrency

Cryptocurrency serves multiple purposes that can transform the way we transact with and think about money. Let’s break down some of the most important ones.

1.) The first purpose is decentralization.

Imagine you are a hacker trying to break into a bank. To do so, you can trick its employees and “social engineer” your way into its systems, bypass the various security verifications, or find a loophole in the code. This is not an easy task, but once you do gain access to the bank’s computers, you have full control.

In other words, banks and credit card companies have ONE “centralized” point of failure. There is ONE target for hackers, and you must trust the bank’s internal security. Even without attacks, you must trust the bank’s computer developers enough to avoid any systemic bugs. And even then, the GOVERNMENT might issue a withdrawal freeze (like in the wake of the 2008 financial crisis), barring you from YOUR money.

Given the facts that central authorities can easily change the money supply and incompetent or corrupt leaders can alter or destroy records of ownership (physial and digital), one central point of failure can be easily compromised (there are too many recent examples to count).

Cryptocurrencies, on the other hand, are decentralized. Instead of trusting a single bank or authority, all transactions and records are stored across hundreds of THOUSANDS of computers around the world. There is no single point of failure, and the power lies in everyone who makes up the “network” of the cryptocurrency.

2.) The second purpose is transparency.

While anonymized, actual transactions on the blockchains are stored across the world in all computers that belong to the network. Anybody who participates in the network will see all of the anonymized transactions.

This has several important benefits.

• First, any suspicious changes or activities can be spotted easily and automatically.
• Second, you don’t need to trust any central authority (such as a government or a bank). This is especially important for countries with unstable or dictatorial governments. In this regard, cryptocurrencies are often regarded as the “currency for the people.”
• Third, you can build various other applications on top of blockchain technology, including escrow services, legal contracts, prediction markets, real estate deeds, etc.

3.) Finally, the third purpose is global accessibility.

Today, if you want to cross the border to a different country with a fair amount of money, you are required to declare how much you are carrying, be subjected to taxation laws, and leave yourself vulnerable to loss or theft while traveling. Instead, you can cross borders with millions of bitcoins and no taxation, no need to declare your stash, and no vulnerability to theft.

You can also send cryptocurrencies to family members or business partners around the world in minutes and with near-negligible transaction fees.

Geography and exchange fees no longer pose a problem when sending and receiving cryptocurrency. As long as you have an internet connection, you can receive and send however much you want – whether you’re in France, Korea, U.S., China, Russia… it doesn’t matter.

What is the Underlying Technology?

The underlying technology for all cryptocurrencies is called blockchain.

Simply put, a blockchain is a database.

Whereas in a traditional sense, a database sits on one server, one computer or in one location, blockchain sits on potentially thousands of computers all over the world for fractions of the cost. All the information in the blockchain is heavily and automatically encrypted.

When you conduct a transaction with your debit card today, it goes through the tiny physical card reader, which then records the transaction and passes those transaction details to your bank. The bank of your debit card would then put that transaction information on their own database, storing that in the server somewhere. That transaction is confirmed at one place: the bank. The integrity of that transaction is vulnerable to manipulation by anyone with authority in that bank. In fact, your entire bank account can be compromised at one single point of failure: the bank.

If you conducted that transaction using cryptocurrencies, however, the transaction would be encrypted and confirmed in its validity by thousands of other servers. If the information on even one server is changed, the other copies of the database would all have to agree that the change is legitimate. If the other copies of the database disagree, then the transaction is rejected.

Through blockchain, one point of financial failure is transformed into thousands of copies of the same database all over the world. This makes it infinitely harder to hack; and through mechanism and the decided consensus method of the cryptocurrency, the blockchain would “correct” itself in case of a hack.

Hypothetically, if a hacker got into the bank’s computer tomorrow, transferred your entire balance to an offshore account, and then erased all traces of the transactions, you would be screwed.

With blockchain technology, if a fake transaction was added to the database, it would not match the database copies on hundreds of other servers. The blockchain would then reject this transaction, preventing the hack from being successful.

This is one of the biggest advantages of the underlying blockchain technology.

What’s the difference between Bitcoin, Ethereum, Litecoin, and other coins?

Almost every cryptocurrency has a slightly different purpose, implementation, and use case. Some cryptocurrencies naturally compete against each other, while others are complementary.

In business and the stock market, there are thousands of companies serving different purposes in different sectors. A big telecommunication company would be in a completely different industry than a casino on the Vegas strip.

Even within the same industry, there are companies that complement each other. For example, although a digital media company may see social media giant Facebook as a threat in the advertisement space, it would still leverage the power of Facebook ads for its campaigns and clients.

Cryptocurrency fundamentally solves the problem of centralization, inaccessibility, and obscurity. As such, in industries where there are middlemen, cryptocurrency can thrive.

There are a lot of industries with middlemen: expensive ones no less. A cryptocurrency like FunFair, for example, tackles both expensive middleman in casinos and obscure odds in the gambling industry; it is fundamentally different than a cryptocurrency like REI that is looking to disrupt the real estate industry.

Instead of viewing the overwhelming number of cryptocurrencies and trying to understand them individually, we recommend looking at the entire group through the framework of industries.

Here are a few examples of cryptocurrencies and their intended uses. This is by no means an exhaustive list, as that would take many more pages; rather, it is to illustrate a framework for you to adopt when looking at any of the numerous varieties of cryptocurrencies.

Currency and Store of Value

• Bitcoin
• Bitcoin Cash

Online Storage & Computing Power

• Golem
• Storj
• SiaCoin
• Factom

Fast Worldwide Transaction

• NEM
• OmiseGo
• Stellar Lumens
• Ripple

Private Transactions

• Monero
• ZCash
• Dash

Gambling & Prediction Markets

• Augur
• FunFair
• Unikrn

Platform to Develop Applications

• Ethereum
• NEO
• Cardano

Social & Marketing

• Steem
• BAT

II. How to Understand Price Movements of Cryptocurrencies

One of the funniest things about investing in any market is that every time one person buys, another sells, and both think they got the better deal.

With the volatility of cryptocurrency making the volatility of the stock market look like child’s play, it is important to understand the price drivers to make sure you’re on the right side of a trade.

Imagine you are in the market for a new house. There are a few things that would drive the price of that house, right?

First: the house itself. You would look at whether the house is on a good foundation, the age of the roof, the appliances, and the square footage, among dozens of other factors. In other words, these are intrinsic variables that determine the price of a home.

Second: the market/environment. Are interest rates high? Or is it winter, so sellers are less willing to relocate their families in the cold? Or is the house in a really good school district? These are the extrinsic variables that determine the price of the home.

Similarly, cryptocurrency prices are driven by both intrinsic and extrinsic variables.

You don’t need to memorize every nitty gritty detail of the next two sections, but you should gain a big-picture understanding of key price drivers in cryptocurrency.

Intrinsic Drivers of Prices

While there are dozens of intrinsic variables that would influence the price of a home to some degree—the number of windows, the condition of the walls, the landscaping, etc.— there are a few leading drivers such as the age of the house, the sturdiness of the foundation, and the square footage.

Likewise, while there may be dozens of drivers of cryptocurrency prices, there are three main intrinsic drivers that are crucial:

1. Human Capital
2. Underlying Technology
3. Business Model / Token Rights

1.) Human capital sets the foundation for a successful blockchain project.

This is about the people actually running the whole organization; it is arguably the most important factor for any coin, because the leadership and team can lead the coin to massive success or embarrassing failure.

Furthermore, a strong leadership team can help a coin navigate regulations, competition, and other external variables. Here are the things to look out for.

a. Leaders should have experiences in running and scaling a business.

Even better: experience in developing new technologies. The founders and leadership team should also have full biographies, with no contradicting information.

b. Teams and roles should be structured and clearly defined.

There should be an easy-to-understand and logical organizational chart, growing development team, and good balance of development vs. management roles.

c. Executives should have strong professional networks.

They should have firm foundations and connections in not only the crypto network, but also in the relevant industry. For example, if a coin is aiming to solve major issues in the real estate industry, leadership should have connections in that industry.

2.) The underlying technology defines the win condition for a coin.

On top of all the rampant speculation in the market, it’s important to remember that the coins we are investing in are technologies and should be judged based on their technological merits.

a. Steady development progress in the code base.

The easiest way to track progress in the development of the code is through Github. Take note of forks and the ratio of issues vs closed issues. Look for high number of watches, number of new commits, number of unique contributors, and frequency of updates. These paint a clear picture of the progress behind the scenes.

b. Technically clear whitepaper and roadmap.

The whitepaper should be technology focused, not purely speculative and full of “imagine ifs…” It should cover the underlying technology, team, consensus protocol, scalability, openness, block size, fees, privacy transaction throughput, roadmap, incentives, token distribution, governance, comprehensiveness, references, and technical details.

There should be a disruptive but realistic goal. Clear layout of milestones and big picture targets are critical.

c. Positive product testing results and high-quality code.

A high volume of updates in the code doesn’t always mean genuine progress. This is why the launch of the Minimal Viable Product (MVP) or the Alpha version of the product are such an essential gauge on actual progress. Obviously, these MVPs would ideally receive overall positive reviews and enthusiasm.

If the MVP is still quite some ways away and you are well versed in the language used in the development, you can dig in to make sure the code written is high quality, and not just a copy and paste job. Another gauge for that is through the high number of stars and constructive and positive comments on Github.

Finally, a unique form of MVP in the blockchain space is called a “Test Net,” which is similar to an Alpha/Beta test in other software categories. This is the bare minimum requirement to actually be considered a functioning “blockchain.”

3.) The business plan and token rights are what rewards investors for growth.

Aside from the technology, marketing, human capital, and market landscape, there must be a sustainable and sound business model as the backbone for the coin to scale and profit.

a. Long term necessity and utility of the coin.

Hunt for coins that are actually needed within the solution. Do extra research on tokens that are just adding another coin into the market, when BTC, ETH, or another major coin in the industry can be used instead.

b. Ease in trading and transacting.

Look for ease of hardware and software wallet support, integration and partnership with leading ecosystem players, and prevalence in exchanges. These allow the coin to be transacted more easily, hence allowing higher adoption rates.

c. Clear investors’ rights.

There is a clear delineation of voting, governance, and influence of token holders; clarification on transfer rights, public reporting, block creation rights, contribution rights, and access rights.

Extrinsic Drivers of Prices

Just like intrinsic drivers, there are dozens of extrinsic drivers. We will focus on three.

1. Community & Adoption
2. Current Market Landscape
3. Government Regulations

1.) Community and adoption are critical to the value appreciation of any coin.

This is especially true in the crypto market where network effects can propel a coin miles ahead of its competitors.

a. High Popularity & Traffic.

Positive, large growth rate and traffic are all well sought-after metrics. Also look at competitors in the same space to see which one is comparatively better.

b. Strong social signals.

This means large number of followers on Reddit and Twitter, likes on Facebook, and general high levels of activity in social media accounts, as that is how the crypto market conveys important information nowadays.

c. Smart money, corporate, and reputable crypto partnership signals.

You may not always be the best researcher out there. That’s why when smart money, big corporations, and reputable businesses/people in the crypto space pay attention to this coin in the form of partnerships, you should pay attention and take that as a positive signal.

2.) Current market landscape can be the wind behind or against the sail.

Just like any business, the market landscape and conditions play a role in accelerating or decelerating the progress of a coin. Think of this as evaluating the underlying macro current of your coin’s industry.

a. Large market size or markets with large CAGR.

Look for large markets, or markets with large CAGR (Compound Annual Growth Rate). More importantly, look for a good ratio of TAM (Total Available Market demand), SAM (Serviceable Available Market within reach), SOM (Serviceable Obtainable Market of SAM) that can be captured.

b. Industries where high value is added by blockchain technologies.

Look for markets where intermediaries hold a lot of power, where there are low price transparencies, low degrees of automation, and high levels of centralization. This is where blockchain technologies can have the strongest impact.

c. Weak competitors.

Evaluate the current competitors and gauge how ahead other crypto companies are in this space. Is there a high barrier to entry? How do the competitors compare on team, funding, product maturity, and first mover advantage.

3.) Government regulations will always demand attention.

Government regulations will remain a big factor in the ease in which the public adopts the technology. Historically, when governments restrict exchanges, scrutinize transactions, and meddle in the crypto ecosystem, it puts downward prices on cryptocurrencies.

When China put a blanket ban on crypto in 2017, the market crashed. Rumors that South Korea was banning all exchanges, sparked a downward trend in the market until they were proved false. When SEC and CFTC met to discuss cryptocurrency and gave an overall neutral to slightly positive stance on crypto, the market went on a bullish run.

III. How to invest

Next, let’s talk about how to actually, practically, invest in cryptocurrencies.

Now, before we run through the steps, we do want to circle back to the Internet analogy used earlier in this guide. You see, in the early years, many people talked on and on about how the Internet would change society forever. And it did… eventually.

But there were also plenty of uninformed investors who overhyped the first wave of internet companies, causing tremendous volatility and losses.

So just remember, trading cryptocurrencies carries risks. Some of these cryptocurrencies will change the world. But many will implode and die off. That’s the nature of the game when it comes to investing in extremely early-stage emerging technologies.

How to Pick the Right Exchange

First, you’ll need to pick an exchange. An exchange is where you can trade your fiat money (USD, EUR, CAD, YEN, etc) for crypto (Bitcoin, Ethereum, Litecoin). Think of it as one of those currency exchange shops you see in a new country. This is the first type of exchange: those that allow you to trade your fiat money for cryptocurrency.

Fiat-to-Crypto Exchanges

In general, these exchanges have lots of volume and traffic, allowing you to either connect your bank or use a credit card to start buying cryptocurrencies.

A good rule of thumb is picking highly vetted exchanges with a clean history of ZERO hacks or scandals.

Here are our top three fiat-crypto exchanges, based on ease of use and reliability.

• Coinbase
• Gemini
• GDAX

Because of the sheer number of cryptocurrencies out there, it would be unrealistic to have fiat-crypto pairs for each one. As a result, you’ll also need to join a crypto-crypto exchange. This is the second type of exchange: those that allow you to trade one cryptocurrency for another.

Crypto-to-Crypto Exchanges

In general, these exchanges use Bitcoin or Ethereum as the “reserve” cryptocurrency, which means you’ll need to first purchase some Bitcoin or Ethereum from the fiat-crypto exchanges before diversifying into other crypto coins.

Here are our top 3 crypto-crypto exchanges based on ease of use and reliability.

• Binance
• Bittrex
• Poloniex

In terms of difficulty, it is relatively easy to just go on one of the fiat-crypto exchanges to buy Bitcoin, Ethereum, or Litecoin. But if you want the smaller coins, commonly known as “altcoins,” you will need to venture to one of the crypto-crypto exchanges.

The last thing to note is that this is a true 24/7 market. This means that exchanges are open and ready to trade any time, day or night (aside from maintenance periods, of course).

How to Store the Cryptocurrency

Unlike fiat money such as US dollars, you can’t simply put the crypto into a physical wallet or a bank. Cryptocurrencies must be stored on the blockchain in a digital “wallet.” This is simply an address on the blockchain, like how the website www.charlesriverresearch.com would transfer you to this site on the internet.

There are different types of wallets, with different pros and cons. We’ll tour each one, and describe who should use it.

1.) Online Wallets

These are the easiest ones to use- most often these are exchange wallets. In fact, when you open a new account on an exchange, an exchange wallet is automatically created for you. After you purchase/exchange coins, they’re stored on the exchange wallet. They are easy to access as long as you have an internet connection.

Who should use this: Active and/or short term investors.

If you are actively buying and selling coins, or trading the coins actively, it’s inevitable that you will have to store some coins here. Just know that you are sacrificing a bit of security for more convenience, and that you should not store large amounts of digital assets in online wallets.

2.) Paper Wallets

As the name indicates, this is basically having your wallet on a piece of paper, consisting of a “Public Address” and a “Private Key”.

A Public Address is the destination of your wallet, and it’s needed for people to send you cryptocurrencies. A Private Key is a super long password that you need to print out and keep in a safe spot because it is the only way to access your funds.

This means if you lose your private key, or someone finds your private key, you lose all your cryptocurrencies. This is what allows cryptocurrencies to be decentralized (no intermediary bank), but it also puts more responsibility into your own hands, so be sure to keep it safe!

In terms of safety, Paper Wallets are more secure than Online Wallets and Software Wallets, as they are offline and therefore impervious to server compromises. The online wallet services like Bitaddress.org and MyEtherWallet.com often allow you to generate a paper wallet. Instead of simply signing in with your username and password like you do at exchanges, you now have to type in the super long and super-secret private key.

Who should use this: Intermediate- long term investors. People who want to avoid server risk and don’t mind storing passwords in a very safe place.

If you plan on just buying and holding coins, you should look into an offline wallet like Paper Wallets or Hardware Wallets, as they are secured from online attacks. Paper Wallets are free, while Hardware Wallets cost a few hundred bucks. Note, however, that Paper Wallets are still prone to Computer Malwares on your personal computer. Keyloggers can track your super-secret private key. So make sure to have your Anti-Virus programs turned on!

3.) Hardware Wallets

As the name implies, these are actually keeping your cryptocurrencies on a hardware device. Like Paper Wallets, the Hardware Wallet is storing your coins offline. They are USB shaped devices that have to be plugged into a computer in order to make a transaction, and they are secured from computer malwares as the keys are generated on the device.

They support a myriad of backup options, additional password authentications, and recovery options. This is absolutely the most secure way to store your cryptocurrency.

Who should use this: Investors with a fair amount of skin in the game.

If you want the top-notch level protection on your investment, this is the way to go.

4.) Software Wallets

These are wallets that are…well, software on your computer that serve as wallets. They require a download of the software client and often require extensive technical knowledge to set up. Some desktop software even requires you to download the entire Blockchain, which can take days.

For Desktops, Bitcoin Core, MultiBit, and Armory are popular options. MyCelium and Copay are popular ones for mobile devices.

Who should use this: Same group of people who would choose Paper Wallet, but in a more digital form.

If you value safety and want an additional layer of assurance over regular online wallets, this type of wallet is for you.

Easiest way:

The easiest way is to sign up to an exchange that allows you to buy, trade, or sell cryptocurrencies; they allow you to generate a wallet for every token that they trade, even if you don’t own any. Coinbase, for example, gives you a wallet for Bitcoin, Ethereum, Litecoin, and Bitcoin Cash.

Advanced way:

Go through our more technical tutorial on wallets and setup. Sign up here to receive our all-in-one getting started guide.

Summary: The Fastest Way to Get Investing

If you are looking to just get some coins under your belt, the absolute fastest way is to simply sign up to an exchange like Coinbase that allows you to buy and sell cryptocurrencies. It will automatically generate an online wallet for you to store those coins.

But to get investing intelligently, here’s our handy five-step guide.

Final Thoughts

You’ve gotten through the first step of becoming an informed investor: understanding the fundamentals

If you want to know how to invest better, the answer is simple but remarkably underrated in our trigger-happy culture: get educated. Being educated in this new, exciting, but highly volatile market can mean the difference between losing and profiting.

Disclaimer: The information provided here is for informational purposes only, and it should not be taken as personalized investment advice. You should always seek your own professional financial advisor and do your own research before investing or trading.