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Crash Course on Cryptocurrency – Pt. 2

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This entry is part 2 of 2 in the Lighthouse's Crash Course on Cryptocurrency

This will be a continuation of the previous article on this topic that is located here, I highly recommend reading these in order. Last time I discussed the two basic concepts of money itself and how decentralization can change the world. This article will cover how cryptocurrencies function, how to receive cryptocurrency, and how to send it. When you first hear the word “cryptocurrency”, you might think that the prefix “crypto” is only used to mean “secret” or “hidden”. Such as how it is used here to describe someone who secretly adheres to Judaism. However this prefix with “cryptocurrency” is also used with a different meaning, in this case crypto- stands for cryptography.

Cryptography is the use of some kind of technology to ensure secure communication between parties that cannot be deciphered by an adversary. An Enigma Machine that was used by Germany to create ciphertext is an example of this practice. Therefore cryptocurrency is the usage of cryptographic information security and applying this to create a decentralized medium of exchange, the cryptography ensures the validity and security of the network. This is important to make sure that Bitcoins aren’t duplicated as well as other issues that would arise if cryptography was not used. When you create a cryptocurrency wallet it is linking you to this vast network of computers that are all simultaneously using cryptography to verify your cryptocurrency transactions and everyone else’s at the same time. This vast network is called the “blockchain”. The blockchain is the use of cryptography to verify every single transaction. The definition of blockchain is as follows: a system in which a record of transactions, especially those made in a cryptocurrency, is maintained across computers that are linked in a peer-to-peer network.

Cryptocurrency wallets have addresses. You can think of these as being similar to your home address. The mailman uses your home address to make sure that your mail arrives at the correct place, cryptocurrency addresses are used to make sure that the money arrives at it’s proper place. It is important to distinguish between two different kinds of cryptocurrency wallets. In cryptocurrency there are self-custody wallets and custodial wallets. A custodial wallet is a wallet that is created by someone else, and a self-custody wallet is a wallet that you create yourself. Lets say you purchase some Bitcoin from Coinbase (a cryptocurrency exchange website). The bitcoin that you purchase will be stored in a Coinbase custodial wallet that is associated with your Coinbase account. When you log in to Coinbase you will see your Bitcoin balance on the screen. However you do not actually possess those coins yourself, technically Coinbase has those coins in their wallet and they just display your balance on the screen. In order to actually possess the cryptocurrency yourself you must withdraw those coins from Coinbase into your own wallet that only you control.

Lets create a basic Bitcoin wallet now, it is free and takes only a couple minutes.

I personally prefer to use https://electrum.org/ for Desktop PC. This wallet has a simple to use user interface. Head to the download page and install the software that is the correct software for your device. Choose the Windows installer if you are on a PC that is running Windows, and then follow the steps in the following video:

Voila! You can now receive the decentralized peer-to-peer medium of exchange known as Bitcoin. You can now personally own the coins as well, instead of entrusting their custody to a third party. As the software instructs save your seed phrase and make sure that no one else has it. Anyone can recover a wallet from its 12 phrase seed.

Toward the end of the video you can see me view the “Addresses” tab. Others can input one of your addresses into their wallet to send you Bitcoin. To send someone Bitcoin you input one of their addresses in the “Pay To” section of the “Send” tab. You type in the amount that you wish to send in the “Amount” section, and then you adjust the fee that you’d like to use.

The fee is what is paid to ensure that your transaction gets added to the blockchain. The higher the fee the faster that your transaction gets added to the blockchain, and the faster the recipient of the bitcoin receives it. To find out the optimal fee for your purposes you can use this website. In the following screenshot the fee amount is circled in blue, and the time that the transaction is expected to complete when using that fee amount is circled in red. Given this information if I wanted my Bitcoin to arrive at the recipient’s address in about 10 minutes, I would use a fee of ~30 sat/vB.

I also recommend clicking on “Tools“, then “Preferences“, then “Units“, and change the “Base unit” to “BTC“. To convert a Bitcoin amount to fiat currency such as the United States Dollar, you can use a website such as https://www.coingecko.com/. As of writing 1 Bitcoin is listed as being worth 70,660.73 USD. Therefore 0.1 Bitcoin would be 7,066.073 USD.

If you are making a mobile cryptocurrency wallet on your phone, look for Edge – Bitcoin & Crypto Wallet on either the Apple App Store or Google Play Store. The installation on mobile is very easy, and the process of doing so is relatively similar. This series will primarily focus on methods involving a desktop computer going forward. Let’s recap all of the things that have been learned so far in this series.

1. The purpose of cryptocurrencies as a peer-to-peer decentralized medium of exchange, and an example of decentralization changing the world.
2. What “money” is and why it is created in the first place by complex human societies to facilitate trades.
3. A basic understanding of the usage of cryptography as a means to secure cryptocurrencies from fraud or other issues, and what the blockchain does.
4. How to create a Bitcoin wallet using the Electrum software.
5. How to change the base unit displayed by the wallet.
6. Briefly where to get a good self-custody mobile cryptocurrency wallet.

This will conclude this part of my cryptocurrency series. Part 3 will discuss where to get cryptocurrency in-depth, Know Your Customer and Anti-Money Laundering laws that impact your financial privacy, the importance of financial privacy for everyone (especially political dissidents), and more.

Series Navigation<< Crash Course on Cryptocurrency – Pt. 1

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