Crypto 101: For the Average User

Originally published on July 7, 2021

The majority of us don’t understand how the internet works. In fact, the internet is extremely complicated. Yet, we use it everyday. Similarly, cryptocurrencies are pretty complicated. But there are key concepts to be familiar with before jumping in.

In this article I will be covering:

• Using Crypto — how do we use cryptocurrencies?
• Owning Crypto — what does it mean to own cryptocurrencies?
• Verifying Crypto — how do we verify the ownership of cryptocurrencies?

1. Applications — Using Crypto

Like internet applications, cryptocurrencies have applications where you can buy, sell, trade, hold, lend, and send cryptocurrencies. This will be covered in future articles but some high level applications include:

• Exchanges: For buying, selling, and trading cryptocurrencies (like trading on a forex exchange) — E.g. Coinbase, Binance, Kraken, Uniswap
• Wallets: For holding, sending, and receiving cryptocurrencies (like holding cash in a physical wallet) — E.g. Electrum, Exodus, Ledger, Coinbase Wallet
• Lending Institutions: For lending cryptocurrencies for interest (like depositing to a bank or a lending institution) — Eg. BlockFi, Nexo, Ledn, Aave
• Platforms: For using cryptocurrencies on the platform (like using a token in a game arcade) Eg. Brave Browser, IMVU
• Marketplace: For spending cryptocurrencies on actual physical goods and services (like spending money in a shop) E.g. BitPay

2. Public/Private Key — Owning Crypto

Public/private key cryptography is an encryption scheme used in cryptocurrencies. At a high level, public/private keys determine ownership of the cryptocurrency.

To focus on the concept, rather than dive into the ins and outs of the cryptography, let’s take the example of Venmo.

Public Key — The Username

In the Venmo world, we have usernames where we can send and receive funds. The public key is like the username on Venmo. The public key is used for sending and receiving crypto. But, in this case, the username is a bunch of gibberish like -

3MLs75Yc12GapoGkLXPtmZFq7aVbKvEfZU.

In Venmo, you can’t search other usernames’ balance. But in crypto, you can search the amount of cryptocurrencies held in any public key by using a blockexplorer — an online blockchain browser — to be covered more in section 3. Try searching the above public key in this this blockexplorer.

Private Key — The Password

In Venmo, you have a password to access your account/username. Similarly, the private key is like the password to access your public key. The private key is used for accessing crypto held in the public key and represents ultimate ownership of the cryptocurrency. The person who owns this password has the ability to send funds from the corresponding public key.

For instance, if you have, [public key A: 10 BTC] and private key A, you will be able to move the 10 BTC from public key A to public key B with private key A. The person who knows private key B will be the new owner of the 10 BTC.

The private key/password also looks like a bunch of gibberish like -

E9873D79C6D87DC0FB6A5778633389F4453213303DA61F20BD67FC233AA33262

But a lot of applications encode the gibberish into a few English words for people to write down/memorize.

In Applications

Based on the application you use, the level of exposure you have to the keys might be limited. For example:

• Exchanges: You probably won’t see public/private keys if you just buy and sell crypto on the exchanges (centralized exchanges). The exchanges hold the private keys and the money is “technically” theirs. If the exchange disappears, so does your money.
• Wallets: In wallet software, you will see a list of public keys generated by the wallet. And you will have the responsibility to store the corresponding private keys. A lot of wallet applications use a master private key, which is a single private key that can unlock all your private keys. Even if the wallet application disappears, you still have access to your money through your private keys.

3. Blockchain — Verifying Crypto

Digital money is hard to verify. When you see $10,000 in your bank app, there is no way to verify that your actual $10,000 exists. Rather, that $10,000 is an entry on the bank’s database that only the bank is able to see and verify. If the bank says that $10,000 is not there, then it’s not there.

Well with cryptocurrency, you are able to actually verify that your digital money exists. And the technology that allows that is blockchain.

To put simply, blockchain is a database. In the section above, I gave the link to a blockexplorer. This tool allows you to search the bitcoin database. In this database, you can see the balance of ALL the public keys and ALL the bitcoin transactions that exists in this world. If Elon Musk buys (or sells) more bitcoin, we can view it — though we’ll have to know Elon Musk’s public keys.

You can verify that you own your funds by searching your public keys in the database. If you know the private keys to the public keys, you own the funds.

Compared to the bank’s database, blockchain is:

• Decentralized: It is near impossible for one entity or person to control the database
• Incorruptible: It is near impossible for the database to be corrupt due to the mechanics of how the database is run (which I may get into in future articles)
• Global & Public: The database is open to the public
• Open-Sourced: All codes about the database are open-sourced for anyone to review

Understanding cryptocurrencies to the full extent takes a lot more than reading this article. But these are the concepts that I think are crucial to know before getting into cryptocurrencies. Hope this helped!