Frequently Asked WTFs
What is a blockchain and how does it work?
A blockchain is an information database. Blockchain databases produce new blocks through different proof mechanisms which allow transactions and activity to occur on-chain. Blocks are chunks of storage that record the transaction history of actions taken on-chain, similar to storing data on a computer hard drive or server.
What’s a proof?
A proof is a consensus mechanism that secures a blockchain, allows for the creation of new tokens, and maintains the usability of the blockchain's network and ecosystem. Bitcoin introduced proof-of-work (POW) in 2009. POW relies on the consumption of electricity to achieve consensus, which is costly and energy-intensive. In 2012, Peercoin (PPC) introduced another consensus mechanism, proof-of-stake (POS), which uses time as a security protocol instead of electricity. Since then, dozens of cryptocurrencies have embraced POS. Notably, ethereum launched as POW transitioned to POS in 2022. More types of proofs exist as inventive developers continue to discover new proof designs.
How do I buy cryptocurrency or digital assets like NFTs?
Only buy crypto or NFTs from trusted companies that operate in your local area. Buy crypto from trusted crypto exchanges and NFTs from trusted NFT marketplaces.
Think of crypto exchanges like a bank for the crypto economy and digital asset world. You’ll create an account at the exchange, authenticate your identity in a Know Your Customer (KYC) process, and fund your account with fiat money like the U.S. dollar, Euro, Yen, and so on. With an exchange, you can trade crypto assets, convert or swap assets from one crypto to another, send or receive assets, or exchange crypto to fiat if you want to cash out.
Can I convert crypto back to “real money” like USD?
Sure! One way to cash out crypto for fiat currency is send assets to an exchange and then transfer the funds to a bank account. You can also go bankless with DeFi services like Uniswap (uniswap.org), a permissionless, decentralized protocol that allows users to buy, sell, or convert tokens.
What is a wallet and do I need one?
Generally, yes, you need a crypto wallet. Chapter 8: Wallets discusses wallets types and utility. Basically, crypto wallets are either software-based (apps, browser extensions) or hardware-based (physical USB drives that connect to a computer). Walter are similar to an account name and password in web2. You use crypto wallets to sign in to web3 products and approve transactions or do other wallet-related activities. Crypto wallets include “crypto browsers” which allow you to participate in web3.
Is crypto legal where I live?
Do your own research (DYOR). It depends on where you live. Research the crypto laws and regulations where you live. Learn about any legal restrictions or tax reporting implications related to using crypto. Legal frameworks might not exist where you live as governments address laws and regulations for the emerging crypto industry and economy.
Why does this tech matter?
The internet was and has become a critical component of modern infrastructure. It’s hard to imagine life without the convenience and utility of the internet. Crypto technology is an evolution of internet technology. Crypto will play a bigger and more important role in the internet experience in the future. Crypto will continue the disruption caused by the internet by adding new features, functionality, and use cases.
The Guide expand on this topic in Chapter 1: Welcome to the Guide and Chapter 2: Down the Rabbit Hole. Review those chapters and remember that as far as the 2020s go, it’s early days for crypto.
Is crypto sustainable?
PoW chains use a lot of energy and have been the subject of environmental criticism. PoS chains, on the other hand, don’t require a lot of energy and are considered green-friendly. A key point to underscore is that anything that consumes energy is only as green as the source. Even energy-hungry bitcoin can be sustainable if it draws from renewable energy sources.
With any new technology, initial rough drafts get refined over time through attentive iteration. The original electric cars were more energy consumptive than gas cars. Now, electric cars demonstrate the future of the car industry. The analogy applies to crypto. Over time, developers will create better, more sustainable ways to interact with blockchains. For example, ethereum transitioned from PoW to PoF in 2022, immediately reducing its carbon footprint by 99%.
Should I buy crypto? How much should I buy?
This book doesn’t offer financial advice.
The answer to this question also depends on your financial situation and investing goals. The emerging crypto market is young and volatile, lacking the common consumer and security protections in established financial markets. Never invest more than you’re willing to lose.