What a crypto exchange is
In the world of cryptocurrencies, one of the most important things to an investor is having the ability to buy or trade coins at any time. Whether it be the chance to strike it big on a coin or the opportunity to buy and sell whenever you please, there needs to be a service that allows this to happen 24 hours a day, 7 days a week. This is the job of an exchange. An exchange is a place where financial instruments like stocks or commodities are traded. In the traditional financial markets, some examples of exchanges are the New York Stock Exchange and the NASDAQ. Because of the trading that occurs 24/7 in crypto, there need to be places where investors can go anytime of the day, with the certainty their requests will be taken care of. On an exchange, you can either buy crypto with fiat currency or convert coins from one to the other - a feature unique to the world of cryptocurrencies. There are hundreds, if not thousands, of coins that are currently on the market. Due to the rapid pace that coins are created and traded, not all of them will be available on any given exchange - coingecko is a good place to check which exchange each coin is traded on. Some examples of centralised crypto exchanges are Coinbase, Binance, FTX and Kraken. While all of these are fairly similar, there are advantages and disadvantages inherent to each one. This is primarily due to the rambunctious nature of the crypto markets, as certain investing styles are more suitable to different exchanges. For example, Bybit offers leverage trading, while Coinbase offers both a simple buy/sell interface, as well as market and limit orders. While centralised exchanges might be best for most users, there are also decentralised exchanges for those who wish to dive a little bit deeper into crypto. Some examples of these are Uniswap, Sushiswap and 1inch.
How to register on an exchange
There are a variety of cryptocurrency exchanges to trade on. You could embrace the wild side and trade on a decentralized exchange like Uniswap or Sushiswap - or you could stick with the simpler route and head over to a centralized exchange (CEX). If it’s your first time doing this, it can be pretty tricky. Crypto is still an uncharted space in a lot of ways, so it’s important to feel comfortable before putting your money in the line. For starters, let’s head over to a CEX like Binance or Coinbase. For the sake of simplicity, let’s assume you’re in the United States. If you haven’t done this before, you’ll need to gather up some information to assist you in the process. Because Binance and other major exchanges adhere to KYC (know your customer) rules, you’ll need some form of identification card to verify your identity. After this, you’ll need to type in your email or phone number and perform two-factor authentication (2FA). Binance will send you a message to confirm it’s you trying to access their platform - you’re dealing with money after all, you wouldn’t want someone else claiming they’re you! Next, create a username and password - and write this down somewhere safe! If you get signed out of your account with no way to get back in, this can be a long and difficult process. If you’re able to, save the info on your computer so you don’t need to log back in everytime. Sometimes, an exchange might take a few days to verify your identity. You might need to give them a social security number (possibly only the last 4 digits) or a piece of paperwork to prove you’re a citizen. After this, you’re free to trade! While most exchanges have similar processes for onboarding new users, it’s important to make sure you’re prepared for when it’s time to start trading. Most will continue to require 2FA to ensure you aren’t being hacked, so always have access to your email or message app. Feel free to explore and see what every exchange has to offer - the possibilities are endless.
What tokens are
When Bitcoin first came to be in 2008, this was the first example of what the world now refers to as cryptocurrency. As the years have gone by, tens of thousands of crypto currencies have popped up, largely thanks to Bitcoin’s innovations. But what are these other tokens and how do they work? In the cryptocurrency world, any coin that isn’t Bitcoin or Ethereum is referred to as a token. While Bitcoin utilizes proof of work (PoW) algorithms to approve blocks, many tokens do not, instead opting for proof of stake, which is less intensive than PoW. Because Bitcoin was the first cryptocurrency, any token that isn’t as dominant as it is referred to as an alternative - hence the ‘alt’ abbreviation. Because of recent developments in the Ethereum ecosystem and its status as the definite Layer 1 coin, Ethereum isn’t considered a token anymore. At this point, you might be wondering why tokens exist. After all, if Bitcoin and Ethereum are the two strongest coins, why have any alternatives? Because of the ever growing crypto ecosystem, new technologies and use cases pop up nearly everyday. Due to this changing and constantly expanding demand, tokens pop up that fill a need in the ecosystem. Just as Bitcoin serves as a digital store of value and Ethereum is used more as a traditional currency, tokens like Solana or Chainlink fill their respective roles. Due to tokens typically having smaller market caps, they can be more volatile than Bitcoin and Ethereum. Those who wish to speculate on token should know the risks that come, as not all projects have proven themselves and generally carry elevated risk.
What a hardware wallet is and how it is different from a software wallet
While most individuals who own cryptocurrencies utilize centralized exchanges like Coinbase or Binance, there are ways to own your coins on a physical wallet. A hardware wallet holds your private keys away from the internet, this way you can interact with the blockchain without having to worry about the risk of malware or phishing. A hardware wallet can interact with most blockchains, and can be accessed at any time. Custodial services like Binance and Coinbase may allow you to own crypto, but they don't give you access to your private key. A hardware wallet is non-custodial and allows owners of crypto to feel secure knowing only they have possession over their private keys. If a centralized exchange like Binance were to be hacked (god forbid) anyone who had their money on it would be out of luck. Contrast this with the safety of mind that comes from owning a hardware wallet, and the choice is easy to make. While a hardware wallet like this might seem like an unnecessary hurdle, it is actually a precaution that everyone should take advantage of. As more enter the crypto space, it’s important they’re aware of the option of a hardware wallet, as crypto doesn’t optimize for security as much as traditional banks and exchanges do. It’s important to keep your money - and your private keys - safe, so a hardware wallet is definitely something to keep on your radar.
What an NFT is
You’ve probably heard a ton of buzz online about the NFT craze, but what really is an NFT? Going by the name ‘non-fungible tokens,’ NFTs have taken the public by storm, for better or worse. A form of digital art - or “expensive screenshots” - NFTs are a form of ownership unique to the blockchain that allow purchasers of these non-fungible tokens to claim a digital photo or video as their own. Due to the immutable nature of the blockchain, once someone buys an NFT, it can be seen as theirs forever - or at least until they sell it. NFTs have provided a new medium for artists to monetize their work, as the decentralized nature of the whole concept has led to many making life changing money through sales of their work. Where traditional art pieces can make it difficult to determine an owner, blockchains make it easy. Once someone has bought an NFT, the transaction lives forever on the blockchain. No one can make any adjustments to it, and a digital good bought is the same as a physical one, just easier to manage and hold ownership over. While NFT art has been catching most of the media’s attention, some have suggested NFTs could replace items in video games. Decentraland and The Sandbox are two metaverse blockchain games that offer players in-game NFT items - a novel idea for a group of gamers that have long been controlled by greedy corporations. There has been a ton of conversation surrounding NFTs, and it doesn’t seem like they’re going anywhere anytime soon. Keep your eye on the space, as a ton of exciting developments are happening everyday.
Layer 2s can make blockchain networks cheaper, faster, and therefore more useful for more people. Blockchain systems offer great technological benefits for money transfers and record-keeping in general; the main properties most often considered are decentralisation, trust– and permissionlessness, censorship resistance and immutability. These desired properties of decentralised networks come at the cost of limited throughput, however. Even the most prominent networks of today, Bitcoin and Ethereum are only able to handle a fairly limited amount of transactions in a given time period; an average BTC transfer takes about 10 minutes, and some interactions with Ethereum dApps can cost hundreds of dollars in gas fees during congested. times. Scaling solutions to blockchains are an advanced topic with much ongoing research and development. The technical descriptions and differences between each is beyond the scope of this explainer, but they are well worth researching for the curious. For Bitcoin, the most notable L2 solution is Lightning Network. Ethereum has numerous Layer 2 implementations, with the two main approaches being Optimistic Rollups and Zero-Knowledge Rollups.