Crypto 101

“Do NFTs have to be purchased in crypto?? If so how does one acquire crypto?? What is a digital wallet?? What does it mean for an NFT to be minted??”

This was a text I got from my friend last week, who just left her private equity job to go to medical school (I give background to emphasize intellect and savviness). Now I love getting these messages because I love onboarding my friends to crypto. I spent the next hour and a half on the phone going back and forth both explaining and giving my investment takes. At the end of the call, she encouraged me to write up a guide to help more people. I know there is a lot of content out there, and I don’t want to add to the clutter. So, I really want to use this space to demystify crypto and explain who will benefit where and how.

First, let’s get some terms out of the way. Think of a blockchain as a publicly viewable ledger of transactions. Each recorded transaction is made in a cryptocurrency. An NFT is a digital asset that has a unique location on that blockchain. I will do my best to explain any crypto jargon along the way. Plus, I have also included a glossary at the bottom for further reference.

I am first going to chat a little about my background. Then I am going to layout how I evaluate NFTs. After, I want to go into the practical explanations of investing in crypto and what kind of investment is appropriate for who. I will wrap up with a step-by-step guide to buying your first crypto.

Background

The buzz and hype in the blockchain space cannot be overstated. I scrolled through TikTok, Twitter, and Discord content to hear how so many people are making more money in one month than their high school math teacher makes in the whole year. I felt chastised for not having taken advantage of this crypto boom and embarrassed to admit how little I understood about the space. Everyone got “it”, and I was being left behind.

I was supposed to graduate from Stanford in the spring of 2021, but I took the year off to avoid Zoom school. I spent the majority of my year working on a title management and authentication platform for physical works of art built on top of Ethereum. I returned to school in the fall of 2021 and took Dan Boneh’s Cryptocurrencies and Blockchain Technologies class. At the end of the quarter, each student was given an NFT as a token to commemorate their participation in the class.

CS 251 Polygon NFT
CS 251 Polygon NFT

(I, unfortunately, cannot embed a Polygon NFT on Mirror so hopefully the image and OpenSea link will suffice for now).

That is all to say that even though I had been so close to the blockchain and crypto space, I was still yet to set up a personal crypto wallet. I had not yet bought ETH or any other form of cryptocurrency. I didn’t get “it”. I decided in December that it was time for me to learn. I dove headfirst into Discord channels, Twitter feeds, and NFT drop calendars. I set aside some of my savings for “fun” money to explore the crypto world. I bought Solana, Cardano, and Ether cryptocurrencies pretty close to their all-time highs. Translated: I lost money from my initial investment. This leads me to my first piece of advice when advising friends and family. You have to be okay with the fact that any money you put into crypto today could go to zero tomorrow. Now that is not necessarily the case, and there are investments you can make to mitigate that risk, but crypto investment is, by its nature, high risk.

In addition to investing in crypto, I also decided I wanted to buy an NFT. I did some research, but at 2 AM on my family’s vacation (and whim), I bought my first NFT. I minted this NFT, which means that I bought it from the creator’s website and initialized the digital asset to be bought and sold. When you mint NFTs, you don’t get to choose which NFT you get. If you look at other examples of NFTs in this collection (like here, here, or here), my NFT becomes even funnier. After buying a few more NFTs and realizing that no one wanted to buy them from me, I realized that it wasn’t “so easy” to make my high school teacher’s salary.

How I evaluate NFTs

I am nowhere near an expert, however, I hope I can save you some strife (and money) by laying out how I look at an NFT. One of the most important things I learned is that NFTs in a vacuum are not valuable to me. However, NFTs can still hold personal value for three reasons.

  1. They are aesthetically appealing or interesting. (I like this, this, and this for the aesthetic).
  2. They provide access to real-life events or speaker series (like this and this).
  3. There is a compelling community around the NFTs (this, this, and this).

I am still figuring out which kinds of NFTs I want to invest in, but I use this framework to evaluate a project. The project can appeal to me in one or all of these categories. This list is obviously not exhaustive, and I am still exploring, especially NFTs with connections or advantages in the Metaverse or other decentralized games.

The other important distinction to point out is how NFTs relate to cryptocurrency. In most cases (some companies are changing this), you need cryptocurrency to purchase an NFT. However, you cannot use Bitcoin to buy an NFT that was created on top of the Ethereum blockchain. Additionally, you cannot use ETH (Ethereum’s currency) to buy NFTs on another blockchain like Solana. So now let’s chat about what makes sense to buy depending on your interest / situation.

Who Should Invest in What

Short answer: Everyone should invest in cryptocurrency. Not everyone needs to invest in NFTs.

I said earlier that you have to be ok if all the money you put into crypto today goes to zero tomorrow. That is true, to a degree. Buying Ether or Bitcoin is as safe of an investment in crypto as you are going to get. Like buying a stock, buying ETH or BTC will diversify your portfolio and investment assets. There are plenty of reasons why buying a stock is different than buying crypto, but to the day-to-day consumer, a diversified portfolio is the reason you should buy those two assets.

Other blockchains like Solana, Cardano, Tezos, Tether, Polkadot, etc run a higher risk of running your money to zero. That being said, each blockchain and associated currency are exciting projects in their own right (I will go into explanations of what differentiates blockchains in another post). If you are looking to further diversify your portfolio with riskier (and potentially even higher payout) investments, then these are currencies you should look into buying.

Now, if you do buy NFTs, you should think of this investment as a non-liquid asset. There is a high chance your NFT will not be worth any money in the future. When you are first getting into NFTs, it is imperative to think about what value that NFT is providing to you outside of the potential money (refer to the list above). Chances are you won’t be like this guy. But, who knows!

A common way for people to make a profit on NFTs is buying one at mint and reselling on secondary marketplaces like OpenSea or Rarible, which you can think of like an eBay for NFTs. However, to get access to the NFTs that can usually lead to a big profit on a flip, you usually have to spend some time contributing in the project’s Discord or get lucky and win a whitelist spot in a raffle. Being on a whitelist usually means that you can mint the NFT before everyone in the general public can. For example, I really wanted an NFT from the Woman Tribe collection, but I didn’t have time to get on the whitelist. I knew the mint was on a Saturday at 9 AM PST, so I figured I would wake up and mint right when it opened to the public. However, this project had gained enough popularity that bots managed to mint the majority of the publically available NFTs before I was able to. Now this project hasn’t yet taken off to the point where I would have made a ton of money, but I liked the aesthetic, the artist, and the discord community. To me, that would have been worth it.

Step-by-Step Guide to Buying Crypto

Ok, now let’s get into how to actually buy crypto. I will talk about two different methods to do so.

If you want a super-easy way to buy crypto and visualize your assets, then we are going to use Coinbase. The advantages here are that the Coinbase interface allows users to buy crypto with money from a bank account, PayPal, or debit card, the dashboard allows users to track their investments over time, and it is a one-stop-shop for dozens of different currencies. The disadvantages here are that you are going to pay Coinbase a fee each time you transact, and there is no way to utilize or buy anything with the crypto in your Coinbase account. This option is going to be best if you want to invest in crypto and leave it alone.

  1. Go to Coinbase.
  2. Create an account (you should receive $5 dollars in BTC for signing up).
  3. Follow the steps to verify your phone number and identity.
  4. Follow the steps to add a payment method (I use my bank account).
  5. Press the Buy / Sell button in the top right corner.
  6. Decide whether you want to start with buying Bitcoin or Ethereum and enter the amount you want to buy of each. It is completely up to you how much money you want to put in. One thing to note here though is that each time you buy or sell cryptocurrency, you will pay a gas fee. A gas fee is a sum of money that you pay to the “miners”, the people who validate and manage the blockchain, for authorizing the blockchain transaction. I encourage people to minimize the number of transactions you are going to make. Everyone’s financial situation is different and this is a high risk investment, but I recomend at least buying a little of these cryptocurrencies.
  7. Click “Preview Buy”.
  8. If everything looks like how you would exepct, click “Buy Now”.
  9. Congrats! You bought your first crypto!

If you want to buy cryptocurrency with the power to interact with NFT marketplaces, then we should use MetaMask. The advantages of using Metamask are that you can use one wallet across multiple NFT platforms and marketplaces, buy NFTs, and interact with other decentralized applications like Unstoppable Domains or RocketPool (I will go into more of these in a later post!). This disadvantages are that you cannot directly cash out, there is no dashboard for visualizing your assets over time, and there is only a Google Chrome extension and mobile app. This option is best if you want to avoid extra fees and interact with the crypto community.

  1. Download the MetaMask Chrome extension.
  2. Click on the orange fox avatar on the top right header of your browser.
  3. Click “Get Started”.
  4. Click “Create a Wallet”.
  5. Create a password.
  6. Get your secret recovery phrase and save it by either writing it down, downloading it, or using a product like 1Password.
  7. Confirm your phrase by typing it in the text box.
  8. Follow the steps until you reach your blank account page.
  9. Click “Buy”.
  10. Click “Continue with Wyre” if you want to buy using your bank account. Click “Continue to Transak” to buy crypto with your credit card or Apple Pay.
  11. Use an ACH transfer on Wyre to minimize fees. If choosing this option, verify your ID and add your bank account.
  12. Press “Confirm”. You might have to wait a couple business days, but we can do an early congratulations.
  13. Congrats! You bought your first crypto!

Another important note here is that if you buy crypto via either of the above methods, you can transfer your ETH, Bitcoin, or other currency between the two sites. Each time you move your ETH you will incur some fees, but that flexibility is great. If you buy crypto on Robinhood (which I don’t recommend), that crypto is locked up and cannot be moved around.

Conclusion

I hope you can learn something from my mistakes and explorations. Overall, everyone should buy some crypto to diversify their investment strategy and the blockchain space has some really interesting projects. Tweet at me @blakeshapr for more thoughts, questions, ideas, or feedback! WGMI (crypto call to action for “we’re gonna make it”)!

Glossary

NFT - Non-fungible token. Unique digital assset. Can be a photo, image, PDF, audio, powerpoint, or literally any digital file that has a unique address on the blockchain. This might still be confusing, so here is a video to help.

Wallet - Allow you to store the keys to your crypto and facilitates buying, sending, and receiving crypto.

Airdrop - An NFT is put into your wallet, and you did not have to pay gas fees or pay for the actual NFT.

Bitcoin - Both a blockchain and cryptocurrency.

ETH - Cryptocurrency for the Ethereum blockchain.

Ethereum - Second largest blockchain. The main reason it is different from Bitcoin is that developers and companies can build on top of it.

Discord - A public messaging forum for companies and creators to interact with their users and buyers. I think of it as a Slack group anyone can join.

Mint - The first time an NFT is bought. This purchase initializes the digital asset.

NFT drop - When an NFT project becomes available to buy, the collection “drops” or is now buyable

NFT flip - Buying an NFT then reselling it for more than you bought it

Opensea or Rarible - Secondary marketplace for buying and selling NFTs.

Metaverse - Think of this as like a Club Penguin or Minecraft world but hosted on a blockchain instead of private servers.

Whitelist - A list of wallet addresses that are allowed to mint an NFT before the general public. A great way to ensure you can buy an NFT from the collection. Whitelists occur on a project-by-project basis.

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