Cryptocurrency 101. Real Deal or Not.

I’ve been interested in personal finance and building wealth since I was 25. It’s now 2018, and I’m 47. My fascination with learning about money started when I realized I made $39,000 in 1995, but somehow ended up $16,000 in debt. WTH? For 22 years, I’ve been learning about money. How to make it. How to save it. How to multiply it.

Now, we have a new development in the financial world, and depending on who you talk to, the jury is still out on if cryptocurrency will be a total bust or the biggest thing to hit the financial world since gold. I’ve been studying cryptocurrency more lately. While some form of digital currency has been around in various forms for over 20 years, the latest iteration came into being with Bitcoin in 2008/2009.

As I’ve gotten deeper into bitcoin and cryptocurrencies, I’ve realized that the resources are very scattered and it can be very difficult to make sense of it all. It shouldn’t have surprised since the industry is still so new. As with any new industry, it takes years, even decades for the industry and knowledge to mature. Cryptocurrency is still very much in its infancy and early stage development.

During my learning process, I came across a group of individuals who are launching a cryptocurrency hedge fund. As a financial guy and business entrepreneur/executive, I decided to help them pull some of the details together for their business, which should be launching in the next 90 days. As a result of my efforts, we’re putting together some resources to help explain and simplify cryptocurrency. We’ve coined this explanation and getting started steps “Cryptocurrency 101.”

Cryptocurrency 101

Cryptocurrency History and Foundation

The current iteration of cryptocurrency began in 2009 following the financial upheaval brought about by the banking industry and traditional monetary practices. While modern cryptocurrencies are a more recent innovation in the financial sector, it is important to recognize that historically, the digital and cryptocurrency concept began much earlier in the mid-1990s.

In the mid-1990s, DigiCash was founded by David Chaum. Since that time, multiple other iterations of digital currency models have had their run including egold, prepaid cash cards, and PayPal. All of these prior contributions helped in the development of digital payment systems and commerce finally bringing the latest innovation to market.

In 2008, the Bitcoin paper was released by Satoshi Nakamoto. With the release of the bitcoin, the idea of a decentralized currency was launched. While Bitcoin was the first in this generation hence the reason it is called a “1st generation cryptocurrency”, many others have followed it. They are referred to as “alt coins” or “alternative coins.” With bitcoin being the “1st generation coin”, these alt coins are classified as “2nd generation” and “3rd generation” cryptocurrencies. Currently, there are over 1,500 cryptocurrencies.

More on the foundation of crypto currencies…

The Market Problem and Innovation

Technologists and entrepreneurs have attempted to bring digital currency to market since the 1990s. The financial problems of 2009, pushed one individual, a.k.a. Satoshi Nakamoto, to publish the Bitcoin papers.

Problem #1 Centralized Banking

The centralized banking and currency system which governs the finances of most countries had nearly collapsed. Engineered inflation and debt by the financial powers in the global economy had nearly brought the world to a devastating financial impasse. In the end, it was the people’s tax money that bailed out the banking and financial sector from their failures.

Problem #2 Trust Based Slow Transactions

In addition to widespread financial mis-management by the banking sector, the financial industry had yet to undergo any of the major innovation that other industries had experienced from technology. This is best seen in the clearing process for transactions.

Payment processing for small transactions could take days to clear while larger business or international transactions could take weeks. It is time for innovation in the financial sector. Discrepancies among the transactions required manual processing to clear up, and a certain amount of loss is acceptable as part of the process. The result is a banking industry charges $1.7 Trillion per year in transaction fees just to move money around the world while collecting interest on the money during the hold and transition times.

Both of these market problems are addressed with the cryptocurrency innovation. First, a decentralized network of computers handles the management of the currency, who owns it and which transactions are taking place. This removes the need to use the banking industry as a “clearing house” to track ownership of funds. Peer to peer transactions without the need of a “middle man.”

Secondly depending on the currency, transactions take place in a matter of seconds rather than hours, days or weeks with the current banking system. Near instantaneous transactions is the goal. It should be recognized that the crypto currency technology is still in its infancy and developing. As more users and transaction load are applied to specific cryptocurrencies, like Bitcoin, the limitations of the technology are shown. Hence the need for more advanced “alt coins” technology. Bitcoin is a 1st generation cryptocurrency. Ethereum, Litecoin and others are second generation currencies, and as a result, address some of the design flaws of bitcoin including transaction speed.

Virtually every industry has seen innovation changes from the technology age.

Communications innovations like email, text, and video conferencing.
Retail with ecommerce and Amazon.
Marketing industry with the advent of search engines, Google and Facebook.
Music with Napster followed by Pandora, Spotify, and iTunes.
Entertainment and video with online streaming.
Travel industry with Expedia, Travelocity, Priceline, etc.
Hotel and Vacation lodging with, AirBNB, VRBO, and
Transportation with Uber and Lyft.

Each of these industries underwent extreme innovation makeovers. It is now the banking and financial industries time to undergo the same type and level of innovation. While we have not seen the final developments in the cryptocurrency space, there is one thing that most experts agree on…cryptocurrency is here to stay.

The Cryptocurrency Market

As of late, Bitcoin has dominated the industry and news, but other coins are now rising up to fill their place in the cryptocurrency space. Since Bitcoin, over 1,500 crypto currencies have been created and are in different stages of maturity.

Bitcoin has seen substantial growth in value since it’s inception in 2009. The last several years have seen it increase in value causing many to classify it as a new asset class. With its increase in value and growing adoption as a medium of exchange, Bitcoin has paved the way for the new wave of alt coins and their growing valuations.

Bitcoin Annual Valuations per Coin
December 31, 2017 – $12,622
December 31, 2016 – $967
December 31, 2015 – $429
December 31, 2014 – $317

2017 was a monster year for crypto currency growth and valuations. Bitcoin’s value grew over 1,000%, while Ethereum experienced nearly 10,000% growth and Litecoin saw almost 5,000% growth. Other cryptocurrencies experienced significant growth as well.

Bitcoin has come to be called “digital gold” by many people as it has become the primary medium of value and exchange in the cryptocurrency space. Much like gold was a primary medium of exchange for transactions over the last 3,000 years. Ethereum has taken on the title of “digital silver” as it has been the second most valuable cryptocurrency for an extended period of time. Both of these currencies are considered “trusted” and as such are the primary methods for obtaining other cryptocurrencies for speculative investors.

Many investors are familiar with “IPOs” or “Initial Public Offerings.” However, investors are not as familiar with “ICOs” or “Initial Coin Offerings.” Initial Coin Offerings companies to raise funds for their projects without all the regulation of an IPO. It also allows investors to get in early on a new development project. The speed and fervor surrounding these ICOs is very reminiscent of the .com days from 1998 to 2002. This comparison has caused many financial minds to call Bitcoin and the cryptocurrency space a “bubble”, while other entrepreneurs disagree with the comparison instead saying that we are witnessing the birth of something new in the financial sector the potential of which we do not yet fully understand. In any case, there will continue to be development in the cryptocurrency space and its full effects on the financial and commerce markets are yet to be fully seen or understood.

Many exchanges have been created as the space has expanded including,,,,,,, and more.

For a list of exchanges, visit

Getting Started with Cryptocurrency

To get started with cryptocurrency you have to decide which type of user you are: 1) Investor, 2) Miner, or 3) User. Let’s review.

Investors – want to benefit from the newly developing cryptocurrency space by making money through investing in the projects. This can be done through the ICO, trading for coins on one of the exchanges or investing through a cryptocurrency fund and letting someone else do the investing for you. The investing types could be classified as “Do It Yourself” or “Someone Do It for You.”

Miners – many of the cryptocurrencies allow “mining.” Mining is when people use their computers to expand the cryptocurrencies network. The specific cryptocurrency mined rewards the miner with coins for helping the network expand to serve the users.

Users – As adoption continues to grow in the merchant community, users continue to shop and buy things at a greater rate with bitcoin. In fact, there are some things online now that you can only buy with bitcoin. ATMs are also being put in across the world. They are more common today in Europe than America. In 2018, we expect to see larger online merchants and communities being to work cryptocurrency into their systems.

Cryptocurrency Investment Funds

For the average investor, a cryptocurrency investment fund is the way to go. In a speculative and volatile investment like cryptocurrencies, it is important to lower your risk through a good investment strategy. A cryptocurrency investment fund allows you to benefit from a “diversification strategy” by investing in multiple cryptocurrencies.

The fund managers are responsible for staying ahead of the development and growth curve by staying on top of the latest developments in the cryptocurrency markets. With an investment team working full time to analyze the market for the best opportunities, the probabilities of achieving a positive return are increased. However, there are no guaranteed returns on cryptocurrency investing.

Cryptocurrency funds will charge you a “management and growth” fee for their services and responsibilities to grow your funds.

Solo Investing

As cryptocurrency is a newly developing industry, cryptocurrency fund investment options are limited. It has only been in the last 2 years that a more significant number of funds have been created. The majority of investing in cryptocurrency has been done through individual investing. Solo investing can carry more risk especially for the inexperienced investor. Even a seasoned stock market investor can have problems with the highly volatile cryptocurrency space.

To get started solo investing, you will enter the market by purchasing one of the top 2 crypto currencies, BitCoin or Ethereum, through or You will then need to transfer your Bitcoin or Ethereum to one of the exchanges. On the exchange you will trade your cryptocurrency for another cryptocurrency of choice.

The transfer and trading process is a delicate and somewhat “dangerous” in that a typo can cause several irreversible problems.

During the transfer process you could lose your crypto currency if you mistype the deposit address. Cryptocurrency is a “digital asset.” If you lose it, it’s gone. Cryptocurrency is stored in “wallets” or “holding accounts.” As you move your currency to the exchange you are moving your funds from one wallet to another. A typo at this stage means that you sent your funds somewhere else. At that point, your funds will be irretrievable.

Once inside the exchange you will begin the trading process, trading your coins for other coins that you believe will generate growth and a return for you. During the trading process, it is possible to enter a purchase amount that exceeds the current value of the coin you are purchasing. It is like buying something at a premium; you could “overpay.” This possible error is not unique to cryptocurrency, but it is inherent issue with the currency trading systems in general. Be especially careful when doing your own currency trading.

Crypto Mining

Cryptocurrency mining is the backbone of many of the cryptocurrencies. It is viable way for the newly launched coin based businesses and projects to get access to the infrastructure they need to expand without spending their precious capital. It is also a great way for the community and supporters to get involved with the project.

Crypto mining began on a smaller scale with bitcoin and hobbyists, but has now grown to include major enterprise operations. “Mining Rigs” as they are called, range from relatively low cost home computers to computers design specifically for mining costing $2,500 to $15,000. Mining operations are generally located in homes, offices, basements, or warehouses filled with tens to thousands of these specifically designed computers. Miners are paid “rewards” for their mining services which are either Bitcoin payments or payment in the coin they are mining.

Solo mining vs. Pool Mining

As mining has grown it has been more difficult for entry level miners to keep up. In the earlier days of Bitcoin, Ethereum, and other coins, solo mining was possible. As the difficulty of the mining as increased with the size of the network, pool mining surfaced. Pool mining allows an individual to join a group of miners where they can work as one group to continue solving the mining algorithms. Each new miner increase the power of the mining pool. Pooled miners share in the rewards by being issued “shares” of the mining reward. For the more difficult mining operations, this is the only way to get in.

For newer coins, it is still possible to do solo mining and obtain rewards in the coin you are mining. However, the risk is that the coin mined may not be successful long term which means it has little or no value during the time of the mining. However, if it does turn out to be successful, the miner would be able to sell his coins for a nice profit since he obtained a significant amount of them at a relatively low cost.

Cryptocurrency mining resources are available online.

Last Thoughts

Now back to the title of this post, “Cryptocurrency. Real Deal or Not.” Personally, I believe cryptocurrency is here to stay. In 10 years, cryptocurrency may not look like it does today, but we will likely look back in hindsight and say it was the biggest innovation in the financial world of the last 100 years (or longer).


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