The Beginners Guide To Crypto: Difference between revisions

From Seasonal Tokens
Jump to navigation Jump to search
 
(54 intermediate revisions by the same user not shown)
Line 1: Line 1:
=Crypto-Lingo=
=Crypto Market Cap:=


In this section we will learn some of the most important concepts to understand the cryptocurrency technology.
The Market Cap of a cryptocurrency is the amount of currency in the market multiplied by it's price in the market.


==Introduction==


Cryptocurrency is a totally new type of technology.
==Quest: (Crypto Market Cap)==
It is so useful that it is growing at an amazing speed.
You won't be able to ignore this for long.
Not knowing how does it work may put you in disadvantage, or expose you to new dangers and scams.


At the time of this writing there are thousands of cryptocurrencies, and the literature, videos, webinars, etc. About it
1) Visit the following website:
is enough to discourage most people from even trying to learn how does it work.


That is why we have prepared this introduction, as a step by step guide that provides you a hands on experience to discover
[https://www.coingecko.com/en/global-charts Coingecko Global Charts]
by yourself the wonders of this new technology.


'''First some encouraging ideas:'''
2) Find the Total Crypto Market Cap Chart.


1) Even though there are thousands of cryptocurrencies, if you have a basic understanding of Bitcoin and Ethereum you will have the tools
Make sure to select the full range of the chart.
to understand any other crypto project.


2) The same way you don't need to be an engineer to operate a computer or a car, you don't need to understand everything
(insert image of total crypto market cap here with notes for legibility)
about cryptocurrencies. Using them will be as easy as using your phone.


'''Second, an encouraging warning:'''
In the graph you can see that Coingecko has collected the information of 15239 different cryptocurrencies, sold across 1154 markets around the world.
And the chart represents the sum of all market cap of those 15239 cryptocurrencies.


With every great power comes a great responsibility.
===Task: What is the total crypto market cap?===


Nowhere else is this more true than in crypto.  
(Ans: Text)
Write down this value, we will use it in the next task.


'''Notice:'''


'''A great Power:'''
Notice that at the time of this writing the total market cap is about 3 Trillion dollars.
A trillion is 10^12. A billion is 1000 Millions and a Trillion is 1000 Billions.


Crypto puts in your hands the power to access markets where billions of dollars fly around.
==Quest: (Gold Market Cap) ==
Imagine somebody gave you a free entrance ticket to the stock-market, or a pool full of sharks!


'''Great Responsibilities'''
Golds market cap is the price of gold per ounce multiplied by the amount of gold stored in the worlds reserves.


Most people trading in these markets loose money. It is easy to be lured by the dream of making
1) Visit this website:
lots of money in one lucky trade, which you may, but making consistent profits in the crypto or stock market is
an art of its own. But you can adopt low risk strategies that will create value over time.
Knowing more about the factors affecting a cryptocurrency's price will surely help a lot.


[https://companiesmarketcap.com/gold/marketcap/ Gold Market Cap]


But even in your daily life there are great responsibilities. If you loose your crypto, or send them to the wrong place, nobody in the world can help you
===Task: What is the Gold Market Cap?===
recovering them.


Therefore even though you don't need to understand integrated chips and engines to operate a car or phone, a basic understanding of the way they work is very important
(Ans: Text)
because of safety reasons, and to maximize the benefits you can get from this technology.


'''To conclude:'''
'''Exercise:'''


There are two basic types of cryptocurrency represented by Bitcoin and Ethereum. We will talk about Ethereum on section X.  
Compare the Gold Market Cap to the Total Crypto Market Cap. At the time of this writing Gold's market cap is around 17 Trillions.
But in the following sections let's talk about Bitcoin-Type cryptocurrencies.
Therefore the Total Crypto Market Cap is over 17% of Gold's Market Cap, showing how important is this class of digital assets.
So when we say "cryptocurrency" you can think of Bitcoin as the most important example.


==Quest: (Companies Market Cap)==


==Basic Fundamental Principles==
The market cap of a company is the number of shares multiplied by the price of each share.


We mention that cryptocurrency is a totally new technology. But money is nothing new, and most of the money we use everyday with credit and debit cards is digital,
1) Visit this website:
so what is new about crypto?


The groundbreaking innovation of Bitcoin is that it behaves like digital cash.
[https://companiesmarketcap.com/ Largest Companies by Market Cap]


With electronic money like debit or credit cards, you have a balance with the bank and any transaction you make is processed by the bank,
this system is "centralized" because the bank has to process all transactions and approve or deny them.


The bank act as a "trusted third party"
===Task: What is the most valued company by Market Cap?===


With cash, If  you give a coin or a bill to somebody, you don't need any third party or approval. The money is physically transferred from one person to the other immediately.
(Ans: text)


Therefore what is totally new about cryptocurrency is that it behaves like digital cash, you can transfer it from one person to another and don't need the approval of a central authority that functions as a trusted third party.
'''Exercise'''
When you transfer cryptocurrency to other person it is similar to giving a coin or physical bill, the transaction is complete, you can't take it back, or cancel it.
 
Compare the Total Crypto Market Cap to the top valued companies in the world.
 
Notice that the most valued companies are related to computers. Cryptocurrency is a computer technology
and it has achieved the same size as the largest companies in the world.
 
 
= BTC Dominance Chart=
 
Bitcoin is the major contributor to the Total Crypto Market Cap
 
Find the top 3 Cryptocurrencies by market cap.
 
==Quest: (BTC Dominance Chart)==
 
1) Visit the following website:
 
[https://www.coingecko.com/en/global-charts Coingecko Global Charts]
 
2) Find the Bitcoin Dominance Chart. Hover your mouse over the chart to display the top ten cryptocurrencies
contributing to the Total Crypto Market Cap.
 
===Task: What is the percentage of Bitcoin Market Cap. (Percent of the Total Crypto Market Cap)?===
 
=Bitcoin Price History=
 
Bitcoin was released to public in 2009, but until 2000x didn't even have a price!
This is the most important lesson in Cryptocurrency. Pay attention.
There is a recurring pattern in Bitcoins price history. Every four years on average there is a bull run that brings
Bitcoin's price to an all time high value. We will see why this happens in the next sections.
 
==Quest: (View all Price History)==
 
1) Visit this website:
 
[https://www.coingecko.com/en/coins/bitcoin Bitcoin Price History]
 
(Insert image of btc price)
 
Select "MAX" as the range of data displayed.
 
Select Logarithmic scale in the price chart.
 
===Task: Take a screenshot of the graph in logarithmic scale.===
 
(Ans: Upload File)
 
'''Exercise:'''
 
Using a logarithmic scale on a data chart helps to manage large ranges of values by compressing the scale of higher values more than lower ones. This makes it easier to see patterns and compare data points across a wide range of magnitudes, highlighting trends that might be missed on a linear scale.
 
For example see the beginning of the BTC price chart, this large change in price was not visible compared to the larger more recent price spikes.
And when you select log scale these price spikes are more visible.
 
==Quest (Analyzing the Bitcoin Price History Chart)==
 
1) In this exercise we will use TradingView:
 
[https://www.tradingview.com/chart/?symbol=BITSTAMP%3ABTCUSD TradingView Bitcoin Price Chart]
 
Using the ruler icon in the left hand side of the chart, we will measure the height of the last Bitcoin price spike from the bottom of the bear market
That happened around November 2022. Click and drag the mouse from the bottom of the chart to the peak, as shown in the picture.
 
(Introduce a picture of the required result)
 
===Task: Take a screenshot showing the percentage of price increase from the bottom of the last bear market to the present.===
 
(Ans: upload file)
 
'''Exercise:'''
 
Introduce here the explanations of the various parts of the price action, halvings, bull runs, bear markets. (see brochure)
 
 
 
=Trading View=
 
Trading view has many useful functions to analyze markets. In this section we will use it to compare Bitcoin and Ethereum's price history.
Notice how Ethereum's price follows the same pattern as the Bitcoin price. When bitcoin price rises, it causes other cryptocurrencies price to rise.
This is called "alt-season". (alt-coins are all other cryptos except Bitcoin).
 
==Quest (Comparing BTC and ETH Price History)==
 
1) Sign in to Trading View. You can sign in with your Google account.
 
2) From the "Markets" tab select: Crypto.And From Crypto select Large Cap.
 
3) Right click on BTC and select: Add CRYPTO:BTCUSD to Watchlist > Select Watchlist or create a new list.
 
4) Right click on ETH and select: Add CRYPTO:ETHUSD to Watchlist > Select Watchlist or create a new list.
 
5) On the right hand side column you see your Watchlist. Select BTC to display Bitcoin's price chart.
 
6) Select Full Chart
 
7) Click on the Compare Button
 
8) Select ETHUSD notice that there are various markets available to see the price history. Choose the first one.
 
9) On the Gear icon at the bottom right select regular, not percent.
 
10) Notice that the difference in prices makes it difficult to compare the behavior of the prices. Select LOG scale
   
===Task: Take a screenshot of your chart comparing Bitcoin to Ethereum ===
 
(Ans: Upload File)
 
'''Exercise'''
 
Notice how it was not easy to see the similarities in the regular chart. Changing the scale to a logarithmic scale made
it possible to see that the Ethereum price chart looks very similar to Bitcoin's.
 
This is very important because we know that all other cryptos follow Bitcoin's behavior. And Bitcoin price action has a periodic
behavior. Every 4 years there is a bull market leading to all time highs in prices, and then a bear market follows that can last
up to 3 years.
 
Investors who know this can make significant profits with a long term view.
 
= Summary / check point / =
 
We have seen how much money is being invested in cryptocurrency, and compared to gold and the largest companies in the world.
We observe that Bitcoin and Ethereum are the dominant cryptocurrencies.
 
 
Ethereum's price history follows closely the movements of Bitcoin. Other cryptocurrencies experience a similar behavior.
this is called an "alt-season".
 
 
We saw that there is a periodic behavior in Bitcoin price history. This is the KEY observation in cryptocurrency.
 
Now, in order to understand the origins of this periodic behavior we have to learn more about Bitcoin.
In the following section we will take a closer look at Bitcoin and discover what causes these price oscillations.
 
=Bitcoin=
 
Let us dive directly into the world of cryptocurrency.
Let’s go where Bitcoin started. The idea was first published on a cryptography mailing list, because the core ingredient of
cryptocurrency technology is: Public and Private Key Cryptography.
 
Basically you have a pair of "keys", the public and private keys, you can use the Private Key to encrypt a document or file,
it is converted into an unintelligible bunch of symbols, and only a person with the associated Public Key can convert back to its
original form.
 
This is used to send information over public channels but only the receiver (who has your public key) can decipher.
But another very important use of this is that you can use the Private Key to create a "Digital Signature" that can be added to
a document or file. Whoever has the associated public key can verify that the document or file was signed by the owner of the Private Key.
 
In the next sections you will see how Digital Signatures are at the hearth of Cryptocurrency Technology.
 
==Quest: (Visit the Cryptography Mailing List)==
 
1) Visit this website:
 
[https://www.bitcoin.com/satoshi-archive/emails/cryptography/1/ Bitcoin is first presented]
 
This is the email where the mysterious author Satoshi Nakamoto announced the creation of Bitcoin.
the concept was presented in the Bitcoin "white paper" an article explaining the invention.
 
===Task: Take a screenshot showing the introduction (Not the Abstract) of Bitcoin's white paper.===
 
(Ans: Upload File)
 
'''Exercise:'''
 
The most important function of cryptocurrency is described in the introduction of the Bitcoin article:
What is needed is an electronic payment system based on cryptographic proof instead of trust. Allowing any two willing parties to
transact directly with each other without the need of a trusted third party.
 
Most of the money used today is digital money, only few percent of the total money supply exists in physical form.
The majority of transactions are made digitally, and they are processed, verified and approved by financial institutions banks and credit card companies.
 
In bitcoin the transactions are processed by a peer to peer computer network. Peer to Peer means that all computers in the network are on equal footing, there are no
special nodes in the network, any network node can join or leave the network at any time. All they need to be part of the network is to use the same communication protocol implemented by
a piece of software called Bitcoin client.
 
In other words, Bitcoin eliminates the need to trust third parties, governments, banks, institutions, companies, individuals. Instead it relies on Cryptography.
 
Bitcoin changes the monetary system and removes the need to trust people, and replaces this with the trust in Mathematics. Instead of trusting the human made laws, it puts the foundations
of the monetary system in the laws of nature, and pure mathematics.
 
==Quest: Reading the Abstract in Bitcoin's White Paper==
 
 
 
Abstract. 
 
{{Quote| A purely peer-to-peer version of electronic cash would
allow online payments to be sent directly from one party to another
without the burdens of going through a financial institution.}}
 
The important idea here is that Bitcoin, and cryptocurrency in general, is a form of Cash. With cash you give it directly to another person,
no need of an intermediary to validate the transaction. The coins and bills are supposed to have all proofs that they are real.
 
This is easy to do in the physical world, but in the digital world of electronic communications it was not easy to do, many attempts were made
but Bitcoin was the first system that successfully eliminated the need to trust a third party to validate the transactions.
 
 
{{Quote|Digital signatures provide part of the solution, but the main
benefits are lost if a trusted party is still required to prevent
double-spending.}} 
 
A Digital Signature is the proof that a document was signed by the owner of the Private Key.
Therefore you can create a document saying that you transfer the property of some Bitcoin to another person, and sign it with your Private Key.
This is the definitive proof that you are the author of the document, and that you agree to transfer the property to another person.
 
This is better than a legal document because Cryptography makes sure that only you, (the owner of the Private Key) can sign the document.
no need for a lawyer to testify that the document was signed by you.
 
But the problem remains that you could create two (or more) documents saying that you transfer the property to another person. Both documents will
have your Digital Signature, and so they are valid from this point of view.
 
This problem is called "Double Spending", and to solve it it requires that all transactions have to be registered on a database, to make sure that nobody makes fraud in this way.
 
By the way, this is the only "viable" form of fraud that could be achieved in Bitcoin, Cryptography makes sure that it is impossible to find a Private Key from a Public Key.
   
   


===Two Classes of Cryptocurrency===
{{Quote|We propose a solution to the double-spending
problem using a peer-to-peer network.}} 
 
Older versions of Digital Cash still needed a central server or computer to store and validate all transactions to avoid double spending. But Bitcoin solved the problem by
storing and validating transactions using a peer to peer network.
 
Peer to Peer means that all computers connected to the network (network nodes) are on equal footing. All network nodes keep a copy of the database of all transactions. This database is called the Block Chain
by the way it stores the transactions in blocks.
 
 
{{Quote|The network timestamps transactions by hashing them into an ongoing chain of hash-based
proof-of-work, forming a record that cannot be changed without
redoing the proof-of-work.}} 
 
Here we find one key concept in cryptocurrency: Hash Function. This is a cryptographic mathematical function that can take any information and apply a mathematical procedure to obtain a string of characters.
The string is allways of the same length, no matter the size of the input. The important thing is that every Hash is unique, there is no way that two different inputs can produce the same Hash. And even a minimal change in one file produces
a completely different Hash. And knowing the Hash it is impossible to find out the input that produced it, except by trial and error. But it is so extremely difficult that it will take billions of years to find it by trial and error.
 
This is very important, because even if only one bit of information changes in the blockchain, the Hash is completely different, and so it is very easy to see that the database is corrupted.
 
Another key concept here is the Proof of Work. This is another technology used in computer networks to protect them from being abused by malicious actors. An example is very useful to understand this concept. Proof of Work is used in email software to prevent SPAM, every email that you will send requires the computer to perform a computational task that takes some time and energy to solve. This is not a problem if you are sending few emails, but if you want to send thousands, then the time and energy that it will take becomes a significant burden on the computer.
 
In Bitcoin, every block of the database requires a significant amount of time and energy to produce. If somebody wants to make a change in the database at some previous block, it has to produce a new blockchain and repeat all the proof of work, and produce a blockchain that is longer than the "real" or "honest" blockchain. It will need more computational power than the rest of the network.
 
 
{{Quote|The longest chain not only serves as
proof of the sequence of events witnessed, but proof that it came
from the largest pool of CPU power. }}
 
Bitcoin nodes accept the longest chain as the "true" blockchain. If any malicious actor wants to make a change in the database, it has to re-do all the proof of work and surpass the "honest" block chain.|
But because the proof of work requires time and energy, this attacker will need to have more computing power than the rest of the network combined. This is called a 51% attack, the idea being that if somebody has more than 50% of the computing power, it could create another blockchain.
 
 
{{Quote| As long as honest nodes control
the most CPU power on the network, they can generate the longest
chain and outpace any attackers. }}
 
A 51% attack has never happened in Bitcoin, and even if it was possible, the only thing that the attacker can do is to double spend Bitcoin. If anybody has that much computing power, it can make more money by supporting the network than by trying to make fraud. And this is an additional economic barrier for the possibility of fraud.
 
{{Quote|The network itself requires
minimal structure.  Messages are broadcasted on a best effort basis,
and nodes can leave and rejoin the network at will, accepting the
longest proof-of-work chain as proof of what happened while they
were gone.}}
 
None of the network nodes is special in any way, they can join or leave the network without affecting the performance. Anybody with the right hardware and software can join the network. When a node joins the network it takes the longest proof of work chain as the valid chain.
 
This means that anybody can see the record of all transactions. The blockchain is a public database, all transactions are visible. However, even if all public addresses are visible, it is not possible to associate those addresses to a specific person. Privacy can be maintained as long as users don't reveal their association to a particular address.
 
This is very useful for transparency and accounting, since an entity can reveal their connection to a public address so that anybody can see the movements in the address, this is particularly useful for non-profit organizations who want to make public and transparent their operations, and it would be amazing if governments and other public entities had their business open to people's scrutiny.
 
==Quest: Bitcoin Client Released==
 
1) Read the email where the Bitcoin client was released:
 
https://www.bitcoin.com/satoshi-archive/emails/cryptography/16/
 
===Task: Take a screenshot of the email, from the line that says: Total circulation will be... Until Satoshi Nakamoto's signature===
 
'''Exercise:'''
 
The total number of Bitcoins will be 21 million. They are distributed to the Bitcoin network nodes when they add blocks (transactions are processed in blocks)
with the amount cut in half every 4 years.
 
The network nodes receive Bitcoin as economic incentive to process transactions and keep the database. It is anticipated that when the rewards are not enough to pay for the operation of network nodes,
the system will live out of transaction fees established by open market competition, possibly with some nodes willing to process transactions for free.
 
 
===Task: During the first 4 years of operation, the nodes received 50 Bitcoin per block. find out what is the current bitcoin reward per block===
 
(Ans: Text)
 
'''Exercise'''
 
Every four years the reward is cut in half. This effectively doubles the cost of production overnight, leaving many miners out of business. This new scarcity puts an upward pressure on Bitcoin's price,
and it is the cause of the periodic behavior in Bitcoin's price history. Go back to the log price history chart.
 
==Quest: Bitcoin Mining==
 
[https://en.macromicro.me/charts/29435/bitcoin-production-total-cost Bitcoin Production Cost]
 
Proof of work hash functions, describe the process of mining, task visit the above site.
 
=The Block Chain=
 
We have seen that the major technical breakthrough in Bitcoin is to eliminate the need to trust a third party to make a transaction.
Most of the Fiat money used today is electronic, the difference with cryptocurrency technology is that Fiat transactions are processed by financial institutions, banks and credit card companies,
whereas cryptocurrency transactions are processed by a Peer to Peer computer network.
 
The record of all transactions is stored in a public database called the Block Chain, because new transactions are stored in blocks produced every 10 minutes on average.
 
Every computer in the network stores a copy of the Block Chain, and it is receiving the new transactions made since the last block was added to the block chain.
 
==Quest: Peer to Peer Computer Network==
 
In a peer to peer computer network, all nodes are on equal footing, all run the "Bitcoin client" software that allows computers to communicate with each other.
 
===Task: Node Finder ===
 
 
 
==Quest: How Secure is Bitcoin?==
 
Visit some famous wallets:
 
[https://bitinfocharts.com/bitcoin/address/1FeexV6bAHb8ybZjqQMjJrcCrHGW9sb6uF MtGox Hack Wallet]
 
It has 80K BTC since 2011, everybody knows the BTC are there, and yet, nobody has ever succeeded at hacking the wallet.
 
This is how secure a Bitcoin address is, even if everybody knows the public address, nobody can get the funds. And be sure that
a bounty prize of 7 Billion dollars is very attractive.
 
==Quest: Blockchain Explorer==
 
Indtroduction.
look for some famous transactions.
First transaction and metadata.


Most cryptocurrencies fall on one of two fundamental types represented by Bitcoin and Ethereum.
Look for wallet with lots of BTC and not moving.
address security in this way. It is public, everybody knows about it,
but nobody has taken the money in 15 years.


Bitcoin was designed to be digital cash.
First mint transaction with 50 BTC or so…
Current block, a mint transaction now…


Ethereum was designed to be a decentralized virtual computer. 


Here in these words is summarized all we need to know about cryptocurrency!
First transaction Hash
But we will spend some time understanding in depth the meaning of these sentences.
000000000019d6689c085ae165831e934ff763ae46a2a6c172b3f1b60a8ce26f
First let us talk about money.


===Two classes of Money===
https://www.blockchain.com/explorer/blocks/btc/000000000019d6689c085ae165831e934ff763ae46a2a6c172b3f1b60a8ce26f


Bitcoin was designed to be like money, but there are fundamentally two types of money represented by Gold and Fiat.


====Gold====
First transaction between 2 persons> Satoshi to Hal Finney:


Gold is a commodity, a physical object and it's price is determined by the balance of supply and demand, it's value is influenced by the cost of production,
Hash ID
the handling of the asset, transportation, storage, checking its purity, etc.
f4184fc596403b9d638783cf57adfe4c75c605f6356fbc91338530e9831e9e16


====Fiat====
https://www.blockchain.com/explorer/transactions/btc/f4184fc596403b9d638783cf57adfe4c75c605f6356fbc91338530e9831e9e16


Fiat is a form of money created by banks and adopted by a government to run a country. Its value is decided by the banks and governments,
First Bitcoin Sold
and one of the most important features is that they can create it at will. This creation of money out of nowhere is the cause of inflation, which decreases the value
of the fiat currency. Another interesting fact about fiat money is that only 5% exists in the form of coins and bills, most of it is purely electronic money.


https://www.blockchain.com/explorer/transactions/btc/7dff938918f07619abd38e4510890396b1cef4fbeca154fb7aafba8843295ea2


'''Gold 2.0'''
The latest Block mined


Bitcoin is a digital asset that behaves similar to a commodity like gold, for example. That is why you will hear it called Gold 2.0
Observe the BTC reward. And Fees.


Like gold, bitcoin has a cost of production, the process of producing bitcoin is called "proof of work mining" or simply mining, and requires energy and special equipment. The process of proof of work effectively
https://www.blockchain.com/explorer/blocks/btc/864924
converts energy into currency. bitcoin's price is determined by the supply and demand of the digital asset.


Following Bitcoin's example there are other cryptocurrencies produced by proof of work, and so they have an intrinsic value given by the cost of production.
==Exploring an Address==


And there are cryptocurrencies that can be created out of thin air as well, without spending time or energy in creating them.
Look up an address that has been dormant for years, with lots of money in it.
We are not going to talk about those in this introduction to cryptocurrency. And we advise you to stay away from them.
to discuss some features, differences from a transaction address, and the fact that nobody has moved the money,
even if the fact that it contains millions of dollars is public.


=Node Explorer:=


In the following sections we will be talking about digital assets that have a connection with the real economy given by their cost of production.
==Bitnodes.io==


https://bitnodes.io/


===Summary===
Task> Number of reachable nodes on Bitnodes.io


Bitcoin was designed to be Digital Cash.
Task> Nodes per country.
The ground breaking Bitcoin innovation is that you don't need to trust third parties to make transactions.
(Bitcoin transactions are made trough a decentralized computer network that we will be discussing in section XYZ)


Bitcoin is very different from digital money like credit or debit cards that need a centralized database to process all transactions.
https://newhedge.io/terminal/bitcoin/node-map
Bitcoin is closer to a physical coin than to a credit card.  


==Crypto-Currency==
Hashrate and price


The name comes from the fact that it is a form of digital money based on cryptography.
https://newhedge.io/terminal/bitcoin/hashrate-vs-price


=How to get Bitcoin: CEX=


Traditionally Cryptography is used for two main things:
CEX, credit card, examples. KYC


1) To send messages trough a public channel, but only the person who has the key to open it can read it.
Top Cryptocurrency Exchanges:
Imagine you send a message but you need a password to read it. Only the person with the password can read it.


2) To sign a document with a special signature that only you can produce, but anybody with the key can confirm that it was signed by you.
https://coinmarketcap.com/rankings/exchanges/


There have been many attempts in the past to create a form of digital money using cryptography but Bitcoin was the first to achieve this without the need of trusted third parties.
CMC Liquidity score 0 to 1000


The oldest forms of cryptography involve two persons that agree on a rule or "key" to substitute the symbols of a message.
=Bitcoin Halving.=
Once they agree, person 1 can use the rule (key) to take a message and "encrypt" it, converting it into a different message, that only person 2 can recover or "decrypt" using the same rule (Key) used to encrypt it.


This form of cryptography has the disadvantage that person 1 and person 2 have to share in advance the key to encrypt and decrypt messages.
The only 100% safe way to do it is in person. Because using other means may reveal the key to other people.


For example if person 1 sends the key by mail, there is a chance that somebody can read the mail. etc.
Trading View graph.


Bitcoin uses another type of cryptography called Public and Private key cryptography. Otherwise you would have to know in person all people you want to send bitcoin to.
Task> Logarithmic Graph. Halvings.


So let's have a closer look to Public and Private key cryptography.


==Public and Private Keys==
=Ethereum:=


Public key cryptography involves a pair of keys: a public key, which can be shared openly, and a private key, which is kept secret. Information encrypted with the public key can only be decrypted with the corresponding private key, and vice versa. This method is widely used for secure communication and digital signatures.
EVM


So for example if person 1 wants to receive a secret message from person 2, then person 1 can send person 2 his public key.
Smart contracts
Person 2 will use Person's 1 public key to encrypt the message. The message can be sent trough a public channel and be visible to all,
but only Person 1 will be able to decrypt it using his Private Key.


Person 1 can send a message to Person 2, and if Person 2 can decrypt the message with Person's 1 public key, then he knows the message
was created by somebody who has Person's 1 Private key.


That is why it has to be really private!! to make sure the message is from Person 1 if it was decrypted with Person's 1 Public key.


As you can see this method has the advantage that two unknown persons can send encrypted messages to each other by sharing their Public keys.


Public and Private Pairs of keys are the heart of cryptocurrency technology, they match each other like lock and key.
Gas fees


===Relation to Bitcoin:===
https://milkroad.com/ethereum/gas/


Roughly speaking, in Bitcoin, your Private Key will be associated with your "wallet", The Private Key can create many associated Public Keys that will be associated with your "Bitcoin Addresses".
https://etherscan.io/gastracker#chart_gasprice


When a new address is created it is empty, and then anybody with the address can send Bitcoin to it.


EtherScan


Every Bitcoin address contains either zero or some Bitcoin. Only the person who owns the private key that created the address can transfer the bitcoin in the address.
https://etherscan.io/


DEX


'''Bitcoin Transaction'''
https://coinmarketcap.com/rankings/exchanges/dex/?type=spot


Let's suppose that Person 1 transfers X BTC to Person 2.
Examples, explanations on Uniswap V3


Person 1 is the owner of X BTC in address 1.
Liquidity Pools:
Address 1 was created with Person's 1 Private Key. And only Person 1 can transfer the BTC at that address.
Person 2 owns an address 2 that was created with Person's 2 Private key.


In a (oversimplified) way, a bitcoin transaction is like a document or receipt where:
Examples and explanations of features.


1) Person 1 transfers the ownership of X BTC at address 01 to Address 2.
https://app.uniswap.org/swap


2) Person 1 signs the transaction with it's Private key, authorizing the transfer from address 1 to address 2
https://app.uniswap.org/pool


==Double Spending==
Price Impact


The problem with this oversimplified analogy is that Person 1 can transfer the property of X BTC at address 01 document to more than one person.
Try a swap and see.


This is the problem known as "double spending".
Layer II


Let's picture an example to illustrate the problem:
Polygon.


Imagine Person 1 owns a house, and has a legal document that proves it. In Crypto your Private Key is what proves you own something.
PolygonScan


Imagine Person 1 signs a contract saying I transfer the property of my house to Person 2, and sign it with Person's 1 Private key.
Compare features to Etherscan


And then Person 1 signs another contract saying I transfer the property of my house to Person 3. And also signs with Person's 1 Private key.
https://polygonscan.com/


Wrapped BTC


Both Person 2 and Person 3 have the proof that Person 1 owns the house and has agreed to transfer the property (because the transaction was signed with Person's 1 Private Key).
https://www.kraken.com/learn/what-is-wrapped-bitcoin-wbtc


Wrapped tokens


In practice, after Person 1 gave the house to Person 2, he is no longer the owner and it is illegal to give the house to Person 3.
WEB III


=Test Drive=


One way to prevent this situation to happen, where the same Bitcoin can be used more than once, is to have the transactions time stamped,
Metamask


and the first transaction that arrives is final, when a second transaction arrives spending the same Bitcoin, the transaction fails making sure that the first transaction to arrive is the valid one.
Website Integration


Ethereum / Polygon Chains (Explorers Transactions)


'''To Summarize'''
Token smart contracts.


Bitcoin solution to the problem of double spending is to have the transactions time-stamped.


However this requires to have the record of all transactions and their time stamps. So that if two transactions arrive and both claim to transfer the same Bitcoin to different addresses,
Mint transactions.
the earliest transaction will be valid and the latest will fail.


How to keep this record without the need of trust in third parties is the great achievement of Bitcoin  technology.
Mining Pool
The decentralized database that accomplishes this task is called the block chain, because it processes and time stamps transactions in blocks.
A complete understanding of block chain technology is not necessary to operate Bitcoin, but we need to talk more about this to learn more concepts that you will hear all the time in this business.


GPU


BlackMiners


so that the chain of Private key signatures with dates attached can be used to determine which transaction is first and this will be the valid one.
Swaps


==Bitcoin==
Uniswap liquidity pools


==Bitcoin Network==
Token Pair Contracts


==Proof of Work==
Price trackers


==Bitcoin Halving==
Buy Sell


==Blockchain Explorer==
Farming


==Ethereum==
Creating a farm position NFT


==Layer II Polygon==
Polygon Bridge


==Coin Market Cap==
Ways to make money with S.T


==Centralized Exchanges CEX==
Trading Simulator Trade tokens for more tokens


==Decentralized Exchanges DEX Uniswap==
Investors Club

Latest revision as of 02:04, 20 November 2024

Crypto Market Cap:

The Market Cap of a cryptocurrency is the amount of currency in the market multiplied by it's price in the market.


Quest: (Crypto Market Cap)

1) Visit the following website:

Coingecko Global Charts

2) Find the Total Crypto Market Cap Chart.

Make sure to select the full range of the chart.

(insert image of total crypto market cap here with notes for legibility)

In the graph you can see that Coingecko has collected the information of 15239 different cryptocurrencies, sold across 1154 markets around the world. And the chart represents the sum of all market cap of those 15239 cryptocurrencies.

Task: What is the total crypto market cap?

(Ans: Text) Write down this value, we will use it in the next task.

Notice:

Notice that at the time of this writing the total market cap is about 3 Trillion dollars. A trillion is 10^12. A billion is 1000 Millions and a Trillion is 1000 Billions.

Quest: (Gold Market Cap)

Golds market cap is the price of gold per ounce multiplied by the amount of gold stored in the worlds reserves.

1) Visit this website:

Gold Market Cap

Task: What is the Gold Market Cap?

(Ans: Text)

Exercise:

Compare the Gold Market Cap to the Total Crypto Market Cap. At the time of this writing Gold's market cap is around 17 Trillions. Therefore the Total Crypto Market Cap is over 17% of Gold's Market Cap, showing how important is this class of digital assets.

Quest: (Companies Market Cap)

The market cap of a company is the number of shares multiplied by the price of each share.

1) Visit this website:

Largest Companies by Market Cap


Task: What is the most valued company by Market Cap?

(Ans: text)

Exercise

Compare the Total Crypto Market Cap to the top valued companies in the world.

Notice that the most valued companies are related to computers. Cryptocurrency is a computer technology and it has achieved the same size as the largest companies in the world.


BTC Dominance Chart

Bitcoin is the major contributor to the Total Crypto Market Cap

Find the top 3 Cryptocurrencies by market cap.

Quest: (BTC Dominance Chart)

1) Visit the following website:

Coingecko Global Charts

2) Find the Bitcoin Dominance Chart. Hover your mouse over the chart to display the top ten cryptocurrencies contributing to the Total Crypto Market Cap.

Task: What is the percentage of Bitcoin Market Cap. (Percent of the Total Crypto Market Cap)?

Bitcoin Price History

Bitcoin was released to public in 2009, but until 2000x didn't even have a price! This is the most important lesson in Cryptocurrency. Pay attention. There is a recurring pattern in Bitcoins price history. Every four years on average there is a bull run that brings Bitcoin's price to an all time high value. We will see why this happens in the next sections.

Quest: (View all Price History)

1) Visit this website:

Bitcoin Price History

(Insert image of btc price)

Select "MAX" as the range of data displayed.

Select Logarithmic scale in the price chart.

Task: Take a screenshot of the graph in logarithmic scale.

(Ans: Upload File)

Exercise:

Using a logarithmic scale on a data chart helps to manage large ranges of values by compressing the scale of higher values more than lower ones. This makes it easier to see patterns and compare data points across a wide range of magnitudes, highlighting trends that might be missed on a linear scale.

For example see the beginning of the BTC price chart, this large change in price was not visible compared to the larger more recent price spikes. And when you select log scale these price spikes are more visible.

Quest (Analyzing the Bitcoin Price History Chart)

1) In this exercise we will use TradingView:

TradingView Bitcoin Price Chart

Using the ruler icon in the left hand side of the chart, we will measure the height of the last Bitcoin price spike from the bottom of the bear market That happened around November 2022. Click and drag the mouse from the bottom of the chart to the peak, as shown in the picture.

(Introduce a picture of the required result)

Task: Take a screenshot showing the percentage of price increase from the bottom of the last bear market to the present.

(Ans: upload file)

Exercise:

Introduce here the explanations of the various parts of the price action, halvings, bull runs, bear markets. (see brochure)


Trading View

Trading view has many useful functions to analyze markets. In this section we will use it to compare Bitcoin and Ethereum's price history. Notice how Ethereum's price follows the same pattern as the Bitcoin price. When bitcoin price rises, it causes other cryptocurrencies price to rise. This is called "alt-season". (alt-coins are all other cryptos except Bitcoin).

Quest (Comparing BTC and ETH Price History)

1) Sign in to Trading View. You can sign in with your Google account.

2) From the "Markets" tab select: Crypto.And From Crypto select Large Cap.

3) Right click on BTC and select: Add CRYPTO:BTCUSD to Watchlist > Select Watchlist or create a new list.

4) Right click on ETH and select: Add CRYPTO:ETHUSD to Watchlist > Select Watchlist or create a new list.

5) On the right hand side column you see your Watchlist. Select BTC to display Bitcoin's price chart.

6) Select Full Chart

7) Click on the Compare Button

8) Select ETHUSD notice that there are various markets available to see the price history. Choose the first one.

9) On the Gear icon at the bottom right select regular, not percent.

10) Notice that the difference in prices makes it difficult to compare the behavior of the prices. Select LOG scale

Task: Take a screenshot of your chart comparing Bitcoin to Ethereum

(Ans: Upload File)

Exercise

Notice how it was not easy to see the similarities in the regular chart. Changing the scale to a logarithmic scale made it possible to see that the Ethereum price chart looks very similar to Bitcoin's.

This is very important because we know that all other cryptos follow Bitcoin's behavior. And Bitcoin price action has a periodic behavior. Every 4 years there is a bull market leading to all time highs in prices, and then a bear market follows that can last up to 3 years.

Investors who know this can make significant profits with a long term view.

Summary / check point /

We have seen how much money is being invested in cryptocurrency, and compared to gold and the largest companies in the world. We observe that Bitcoin and Ethereum are the dominant cryptocurrencies.


Ethereum's price history follows closely the movements of Bitcoin. Other cryptocurrencies experience a similar behavior. this is called an "alt-season".


We saw that there is a periodic behavior in Bitcoin price history. This is the KEY observation in cryptocurrency.

Now, in order to understand the origins of this periodic behavior we have to learn more about Bitcoin. In the following section we will take a closer look at Bitcoin and discover what causes these price oscillations.

Bitcoin

Let us dive directly into the world of cryptocurrency. Let’s go where Bitcoin started. The idea was first published on a cryptography mailing list, because the core ingredient of cryptocurrency technology is: Public and Private Key Cryptography.

Basically you have a pair of "keys", the public and private keys, you can use the Private Key to encrypt a document or file, it is converted into an unintelligible bunch of symbols, and only a person with the associated Public Key can convert back to its original form.

This is used to send information over public channels but only the receiver (who has your public key) can decipher. But another very important use of this is that you can use the Private Key to create a "Digital Signature" that can be added to a document or file. Whoever has the associated public key can verify that the document or file was signed by the owner of the Private Key.

In the next sections you will see how Digital Signatures are at the hearth of Cryptocurrency Technology.

Quest: (Visit the Cryptography Mailing List)

1) Visit this website:

Bitcoin is first presented

This is the email where the mysterious author Satoshi Nakamoto announced the creation of Bitcoin. the concept was presented in the Bitcoin "white paper" an article explaining the invention.

Task: Take a screenshot showing the introduction (Not the Abstract) of Bitcoin's white paper.

(Ans: Upload File)

Exercise:

The most important function of cryptocurrency is described in the introduction of the Bitcoin article: What is needed is an electronic payment system based on cryptographic proof instead of trust. Allowing any two willing parties to transact directly with each other without the need of a trusted third party.

Most of the money used today is digital money, only few percent of the total money supply exists in physical form. The majority of transactions are made digitally, and they are processed, verified and approved by financial institutions banks and credit card companies.

In bitcoin the transactions are processed by a peer to peer computer network. Peer to Peer means that all computers in the network are on equal footing, there are no special nodes in the network, any network node can join or leave the network at any time. All they need to be part of the network is to use the same communication protocol implemented by a piece of software called Bitcoin client.

In other words, Bitcoin eliminates the need to trust third parties, governments, banks, institutions, companies, individuals. Instead it relies on Cryptography.

Bitcoin changes the monetary system and removes the need to trust people, and replaces this with the trust in Mathematics. Instead of trusting the human made laws, it puts the foundations of the monetary system in the laws of nature, and pure mathematics.

Quest: Reading the Abstract in Bitcoin's White Paper

Abstract.

A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without the burdens of going through a financial institution.

The important idea here is that Bitcoin, and cryptocurrency in general, is a form of Cash. With cash you give it directly to another person, no need of an intermediary to validate the transaction. The coins and bills are supposed to have all proofs that they are real.

This is easy to do in the physical world, but in the digital world of electronic communications it was not easy to do, many attempts were made but Bitcoin was the first system that successfully eliminated the need to trust a third party to validate the transactions.


Digital signatures provide part of the solution, but the main benefits are lost if a trusted party is still required to prevent double-spending.

A Digital Signature is the proof that a document was signed by the owner of the Private Key. Therefore you can create a document saying that you transfer the property of some Bitcoin to another person, and sign it with your Private Key. This is the definitive proof that you are the author of the document, and that you agree to transfer the property to another person.

This is better than a legal document because Cryptography makes sure that only you, (the owner of the Private Key) can sign the document. no need for a lawyer to testify that the document was signed by you.

But the problem remains that you could create two (or more) documents saying that you transfer the property to another person. Both documents will have your Digital Signature, and so they are valid from this point of view.

This problem is called "Double Spending", and to solve it it requires that all transactions have to be registered on a database, to make sure that nobody makes fraud in this way.

By the way, this is the only "viable" form of fraud that could be achieved in Bitcoin, Cryptography makes sure that it is impossible to find a Private Key from a Public Key.


We propose a solution to the double-spending problem using a peer-to-peer network.

Older versions of Digital Cash still needed a central server or computer to store and validate all transactions to avoid double spending. But Bitcoin solved the problem by storing and validating transactions using a peer to peer network.

Peer to Peer means that all computers connected to the network (network nodes) are on equal footing. All network nodes keep a copy of the database of all transactions. This database is called the Block Chain by the way it stores the transactions in blocks.


The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work.

Here we find one key concept in cryptocurrency: Hash Function. This is a cryptographic mathematical function that can take any information and apply a mathematical procedure to obtain a string of characters. The string is allways of the same length, no matter the size of the input. The important thing is that every Hash is unique, there is no way that two different inputs can produce the same Hash. And even a minimal change in one file produces a completely different Hash. And knowing the Hash it is impossible to find out the input that produced it, except by trial and error. But it is so extremely difficult that it will take billions of years to find it by trial and error.

This is very important, because even if only one bit of information changes in the blockchain, the Hash is completely different, and so it is very easy to see that the database is corrupted.

Another key concept here is the Proof of Work. This is another technology used in computer networks to protect them from being abused by malicious actors. An example is very useful to understand this concept. Proof of Work is used in email software to prevent SPAM, every email that you will send requires the computer to perform a computational task that takes some time and energy to solve. This is not a problem if you are sending few emails, but if you want to send thousands, then the time and energy that it will take becomes a significant burden on the computer.

In Bitcoin, every block of the database requires a significant amount of time and energy to produce. If somebody wants to make a change in the database at some previous block, it has to produce a new blockchain and repeat all the proof of work, and produce a blockchain that is longer than the "real" or "honest" blockchain. It will need more computational power than the rest of the network.


The longest chain not only serves as proof of the sequence of events witnessed, but proof that it came from the largest pool of CPU power.

Bitcoin nodes accept the longest chain as the "true" blockchain. If any malicious actor wants to make a change in the database, it has to re-do all the proof of work and surpass the "honest" block chain.| But because the proof of work requires time and energy, this attacker will need to have more computing power than the rest of the network combined. This is called a 51% attack, the idea being that if somebody has more than 50% of the computing power, it could create another blockchain.


As long as honest nodes control the most CPU power on the network, they can generate the longest chain and outpace any attackers.

A 51% attack has never happened in Bitcoin, and even if it was possible, the only thing that the attacker can do is to double spend Bitcoin. If anybody has that much computing power, it can make more money by supporting the network than by trying to make fraud. And this is an additional economic barrier for the possibility of fraud.

The network itself requires minimal structure. Messages are broadcasted on a best effort basis, and nodes can leave and rejoin the network at will, accepting the longest proof-of-work chain as proof of what happened while they were gone.

None of the network nodes is special in any way, they can join or leave the network without affecting the performance. Anybody with the right hardware and software can join the network. When a node joins the network it takes the longest proof of work chain as the valid chain.

This means that anybody can see the record of all transactions. The blockchain is a public database, all transactions are visible. However, even if all public addresses are visible, it is not possible to associate those addresses to a specific person. Privacy can be maintained as long as users don't reveal their association to a particular address.

This is very useful for transparency and accounting, since an entity can reveal their connection to a public address so that anybody can see the movements in the address, this is particularly useful for non-profit organizations who want to make public and transparent their operations, and it would be amazing if governments and other public entities had their business open to people's scrutiny.

Quest: Bitcoin Client Released

1) Read the email where the Bitcoin client was released:

https://www.bitcoin.com/satoshi-archive/emails/cryptography/16/

Task: Take a screenshot of the email, from the line that says: Total circulation will be... Until Satoshi Nakamoto's signature

Exercise:

The total number of Bitcoins will be 21 million. They are distributed to the Bitcoin network nodes when they add blocks (transactions are processed in blocks) with the amount cut in half every 4 years.

The network nodes receive Bitcoin as economic incentive to process transactions and keep the database. It is anticipated that when the rewards are not enough to pay for the operation of network nodes, the system will live out of transaction fees established by open market competition, possibly with some nodes willing to process transactions for free.


Task: During the first 4 years of operation, the nodes received 50 Bitcoin per block. find out what is the current bitcoin reward per block

(Ans: Text)

Exercise

Every four years the reward is cut in half. This effectively doubles the cost of production overnight, leaving many miners out of business. This new scarcity puts an upward pressure on Bitcoin's price, and it is the cause of the periodic behavior in Bitcoin's price history. Go back to the log price history chart.

Quest: Bitcoin Mining

Bitcoin Production Cost

Proof of work hash functions, describe the process of mining, task visit the above site.

The Block Chain

We have seen that the major technical breakthrough in Bitcoin is to eliminate the need to trust a third party to make a transaction. Most of the Fiat money used today is electronic, the difference with cryptocurrency technology is that Fiat transactions are processed by financial institutions, banks and credit card companies, whereas cryptocurrency transactions are processed by a Peer to Peer computer network.

The record of all transactions is stored in a public database called the Block Chain, because new transactions are stored in blocks produced every 10 minutes on average.

Every computer in the network stores a copy of the Block Chain, and it is receiving the new transactions made since the last block was added to the block chain.

Quest: Peer to Peer Computer Network

In a peer to peer computer network, all nodes are on equal footing, all run the "Bitcoin client" software that allows computers to communicate with each other.

Task: Node Finder

Quest: How Secure is Bitcoin?

Visit some famous wallets:

MtGox Hack Wallet

It has 80K BTC since 2011, everybody knows the BTC are there, and yet, nobody has ever succeeded at hacking the wallet.

This is how secure a Bitcoin address is, even if everybody knows the public address, nobody can get the funds. And be sure that a bounty prize of 7 Billion dollars is very attractive.

Quest: Blockchain Explorer

Indtroduction. look for some famous transactions. First transaction and metadata.

Look for wallet with lots of BTC and not moving. address security in this way. It is public, everybody knows about it, but nobody has taken the money in 15 years.

First mint transaction with 50 BTC or so… Current block, a mint transaction now…


First transaction Hash 000000000019d6689c085ae165831e934ff763ae46a2a6c172b3f1b60a8ce26f

https://www.blockchain.com/explorer/blocks/btc/000000000019d6689c085ae165831e934ff763ae46a2a6c172b3f1b60a8ce26f


First transaction between 2 persons> Satoshi to Hal Finney:

Hash ID f4184fc596403b9d638783cf57adfe4c75c605f6356fbc91338530e9831e9e16

https://www.blockchain.com/explorer/transactions/btc/f4184fc596403b9d638783cf57adfe4c75c605f6356fbc91338530e9831e9e16

First Bitcoin Sold

https://www.blockchain.com/explorer/transactions/btc/7dff938918f07619abd38e4510890396b1cef4fbeca154fb7aafba8843295ea2

The latest Block mined

Observe the BTC reward. And Fees.

https://www.blockchain.com/explorer/blocks/btc/864924

Exploring an Address

Look up an address that has been dormant for years, with lots of money in it. to discuss some features, differences from a transaction address, and the fact that nobody has moved the money, even if the fact that it contains millions of dollars is public.

Node Explorer:

Bitnodes.io

https://bitnodes.io/

Task> Number of reachable nodes on Bitnodes.io

Task> Nodes per country.

https://newhedge.io/terminal/bitcoin/node-map

Hashrate and price

https://newhedge.io/terminal/bitcoin/hashrate-vs-price

How to get Bitcoin: CEX

CEX, credit card, examples. KYC

Top Cryptocurrency Exchanges:

https://coinmarketcap.com/rankings/exchanges/

CMC Liquidity score 0 to 1000

Bitcoin Halving.

Trading View graph.

Task> Logarithmic Graph. Halvings.


Ethereum:

EVM

Smart contracts



Gas fees

https://milkroad.com/ethereum/gas/

https://etherscan.io/gastracker#chart_gasprice


EtherScan

https://etherscan.io/

DEX

https://coinmarketcap.com/rankings/exchanges/dex/?type=spot

Examples, explanations on Uniswap V3

Liquidity Pools:

Examples and explanations of features.

https://app.uniswap.org/swap

https://app.uniswap.org/pool

Price Impact

Try a swap and see.

Layer II

Polygon.

PolygonScan

Compare features to Etherscan

https://polygonscan.com/

Wrapped BTC

https://www.kraken.com/learn/what-is-wrapped-bitcoin-wbtc

Wrapped tokens

WEB III

Test Drive

Metamask

Website Integration

Ethereum / Polygon Chains (Explorers Transactions)

Token smart contracts.


Mint transactions.

Mining Pool

GPU

BlackMiners

Swaps

Uniswap liquidity pools

Token Pair Contracts

Price trackers

Buy Sell

Farming

Creating a farm position NFT

Polygon Bridge

Ways to make money with S.T

Trading Simulator Trade tokens for more tokens

Investors Club

Retrieved from "https://welcome.seasonaltokens.org/index.php?title=The_Beginners_Guide_To_Crypto&oldid=1264"