Where to Begin
Besides Bitcoin, Ether is the most well known and widely used cryptocurrency in the world. If you want to get into crypto, these two blockchains are the ones to start with, but they are also quite different from each other.
Bitcoin is mostly a store of value: You buy it like you would buy gold, and stash it away to see the value grow. Bitcoin is the oldest and most established cryptocurrency in the crypto market.
Things you can do with Bitcoin right now: buy, sell, hold, and speculate.
Just like Bitcoin, Ether can be used as a cryptocurrency, but it also powers a platform for smart contracts, which are essentially programs written in a special Ethereum blockchain language called Solidity.
Things you can do with Ethereum right now:
- buy, sell, hold, speculate
- play games
- create and buy unique collectibles
- write contracts that automatically execute predetermined actions
- obtain verifiable documents like licenses, diplomas and proofs of ownership
- get loans and earn interest
- vote and exercise governance
- track provenance and shipment of goods
The freedom to accomplish these things without the control or interference of third parties like governments, lawyers, and bankers is the ‘why’ of getting into cryptocurrency for many people. Now, let’s move on to the ‘how’!
Welcome to Ethereum
Because the Ethereum blockchain use cases are so varied, the Ethereum community of developers is the largest among blockchains, and the community of users is among the most active. This article explains how to become a participant in this community, and by extension the entire crypto space, from zero knowledge to full awareness.
It does say ‘Absolute Beginner’ right on top, so if you’ve made and lost thousands of dollars in crypto, rode the wave, HODLed*, FOMOed**, FUDed***, DYORed****, invested in dozens of ICOs*****, and wrote a bunch of smart contracts – it’s probably not for you.
However, if you really are new to the space, this article can help you feel (almost) instantly comfortable with crypto and save you the considerable hassle of learning from your own mistakes.
Yes, it’s long and there’s no TL;DR, but you are allowed to read it in more than one sitting. It’ll be here tomorrow. Use a bookmark and come back to it – like actual books used to work, remember?
And honestly, if you TL;DR crypto, you’ll get robbed and no one will be able to get that money back. This is not a ‘how to get rich in crypto in 3 steps’ article. It’s a ‘what is it’ and ‘why should I’ and ‘how do I go about it’ article. However, you will be directed to excellent step-by-step guides on the way, and there are a couple of excellent cheat sheets at the end, so - onwards!
*HODL: hold on for dear life
**FOMO: fear of missing out
***FUD: fear, uncertainty, and doubt
****DYOR: do your own research
*****ICO: initial coin offering, the regulation-free IPO of crypto, now mostly replaced by more regulated STOs (security token offering) and IEOs (initial exchange offering)
Introducing the Marketplace
It’s helpful to think of the Ethereum ecosystem as a big marketplace, where many kinds of goods and services are available, and all transactions are carried out on a power grid, fueled by the ETH currency.
This means that any action on the Ethereum blockchain requires a small fee called gas (usually, a couple of US cents at the current prices). Whether you are sending ETH or tokens, or interacting with any contract, game, or service – you will need a little bit of ETH in your wallet. You do not need ETH to receive transfers, though.
The Ethereum marketplace is separate from, let’s say, Bitcoin, Ripple, Litecoin, EOS or Tether – those are all different and separate blockchains. The Ethereum environment does cover many of things you may have heard about in relation to crypto:
- smart contracts
- ICOs and STOs
- digital scarcity
- rewards for watching advertisements
- micro-tipping online content creators
- decentralized finance,
and much more.
In fact, Ethereum might be the perfect ‘starter’ blockchain for a crypto beginner. Why? Because it allows you to try many different blockchain applications on one platform, setting up just one type of wallet and having an easily accessible, active community of users that you can turn to for answers.
Where can this community be reached? Twitter and Reddit tend to be the platforms where most crypto news and discussion takes place. If you use MEW, it’s highly recommended that you follow the Twitter account for updates, tips, and alerts. Decentralized crypto services like MEW will never email users first and will not send out newsletters to avoid creating vectors for phishing attacks, so it’s important to stay tuned to social channel announcements.
Subreddits like Ethereum and CryptoCurrency can be very helpful, but can also be daunting, because members’ level of expertise varies widely. You can always receive targeted support in the MEW Reddit community and look for groups that are specifically address beginner concerns. Truly, there are a lot of people out there willing to help Ethereum newbies.
If the Ethereum ecosystem sounds like something you’d like to explore, getting a wallet is the essential first step.
The Wallet: Your Key to the Blockchain
What's a wallet
Before you can do anything in the crypto market, on any blockchain, you need a wallet.
Every participant of the ecosystem must have at least one, but it’s common for people to have a few, just as one can have a few different bank accounts and different financial instruments.
When you enter the Ethereum market, whether you are there to buy, sell, or use services – you need money and some form of ID. In the crypto space, your wallet is both (but does NOT necessarily reveal your actual ID beyond the crypto market – more on this later). It’s like an online account, but with the important difference that you are the only person accessing and managing it.
For any interaction with the blockchain – sending or receiving money, playing a game, casting a vote or exchanging information – there are no email sign-ups or profile setups, much less logins with Facebook… Your point of entry, connection, and reconnection is always your wallet. Different blockchains will require different blockchain-specific wallets. We will focus on Ethereum wallets here.
Choosing a wallet
There are many varieties of wallets out there, and they fall into 5 general categories:
Choice of wallet depends a lot on individual needs and goals, but for your first wallet, try to avoid being impetuous or lazy. If someone dropped a chunk of gold in your lap and asked “How would you like to store this?”, you would probably say “I’d like your best, state-of-the-art, long-term security solution, please.” You wouldn’t say, “That shed over there seems ok, although I may have given my neighbor Joe a key at some point…”
Crypto may not be a chunk of gold yet, but you are putting in your own money into it, so choose the best security for your hard earned cash right from the start. Get a hardware wallet (reputable ones start at around $50) or use the MEWconnect app.
The principle of Do Your Own Research applies here, as it does – very strongly – in the rest of the crypto space. You can read more about how different types of Ethereum wallets work here, and why using a secure wallet solution is important here.
Creating and Accessing Different Wallets
The procedure for creating a wallet will vary depending on the method and service provider you are going to use, but in all cases you will be required to copy some information and then keep it very safe. Usually, the information will consist of two items:
1. a phrase of 12 or 24 words, called ‘mnemonic’, ‘recovery’ or ‘seed’ phrase, which is used to restore wallet access under emergency circumstances
2. an additional password or pin used for logging into your wallet on a regular basis.
Let’s view specific examples.
Hardware wallet with web interface
The hardware wallet manufacturer will provide specific instructions, but generally you will make a pin or password to access the device on a daily basis, and write down a 24-word recovery phrase to use if the device breaks, an update goes wrong, or you lose it.
The recovery phrase will always lead back to the same addresses, as long as you use the same HD derivation path (What path, now? Read about it here). The HD path looks something like this: m’/44’/60’/0’/0 – that’s the default one for Ethereum, by the way. Just take note of which path you are using at the very beginning. It’s usually the default one, but you might choose a different path by accident or the hardware wallet settings may vary. In an emergency, you want to have all the information about how you created the wallet.
Once you have the hardware wallet set up, you will need to use it in combination with a web interface like MEW. Some devices have native application interfaces, but they usually offer fewer functions. You’ll connect the device to a computer via a cable or Bluetooth, go through the interface prompts, and confirm transactions first on the hardware device, and then on the computer screen.
MEWconnect app with MEW web interface
The MEWconnect app is a hardware wallet-like solution for your smartphone, so setup and use is very similar to an actual hardware wallet. You will make an app password for daily wallet access, and you will write down a 24-word phrase to restore wallet access in case you lose or break your phone and have to reinstall the app on a different device.
MEWconnect is the next best thing to a hardware wallet. It’s quick to use, you don’t need a separate device, and it’s much more secure than software access because it keeps your private information away from the internet. If you really don’t have the time or the resources to purchase a hardware wallet, this is the best alternative.
Detailed instructions for setting up MEWconnect and using it with MEW’s web interface can be found here and here. The concept is similar to the hardware wallet – you will connect the phone app to the web interface and confirm transactions on the phone first. Also like a hardware wallet, you will always need to use MEWconnect in combination with the MEW website.
Direct software access (private key, keystore file, mnemonic phrase)
When blockchains and cryptocurrencies were first introduced, there were no hardware wallets or wallet interface apps to help people interact with the blockchain. It was accessible only to developers familiar with the command line, and wallet generation was not adapted for regular users and good security practices.
At that point, most users created wallets via private key or encrypted keystore file, and more rarely via mnemonic phrase. In such cases, all the user receives is the ‘naked’ wallet information of a private key, phrase, or encrypted file, and they enter it directly when accessing the wallet. If this ‘naked’ information is transmitted via the internet (as it is when you use it online), it allows anyone who intercepts it to immediately access your wallet just like you are doing.
These software wallet creation methods are still available, but using them online means greatly increasing the chances of being phished. In fact, some wallet interfaces and services are planning to discontinue access via these methods altogether. So, don’t do it. If you need more convincing, read this.
P.S.: There is an option of accessing a wallet via software methods offline. It’s a bit complicated, and for best results you will need a second ‘air gapped’ computer that is always offline. You can read about the offline procedure (as used in MEW) here. The general purpose of offline access is to keep your private keys away from the internet. Hardware wallets will do this for you without the complex setup.
Browser wallet solutions
Increasingly, as more applications are built on Ethereum, web browsers and browser extensions are providing integrated wallet and Web3 services. What does this mean? By downloading a specific browser (like Opera or Brave) or installing a browser extension (like MEW CX or MetaMask), you will be continuously connected to your wallet while using the browser so you can interact with blockchain services and decentralized applications seamlessly.
When creating an account using these services, you will usually make an app password for regular access and receive a recovery phrase of 12 or 24 words, just like with hardware wallets. Still, the hardware wallet is the most secure solution for holding large amounts of currency for long periods. Browser wallets are more suitable for holding small amounts for the purpose of daily interaction with applications.
As previously mentioned, mobile wallet applications come in many different ‘flavors’ – depending on whether they are associated with an exchange or not, whether anyone is taking custody of your funds while you are using the wallet, and how your private keys are stored and handled.
For example, the MEW web interface and the MEWconnect app are non-custodial wallet solutions. That means MEW does not handle your funds or manage your blockchain account. MEW provides a way to interact with your crypto, but it’s your job to keep your wallet information secure and to follow news updates in the space. On the other hand, this also means that MEW can’t ‘default’ and lose your money, or ‘freeze’ your account, or in any other way interfere with what you do with your coins.
Here, the expression “Not your keys, not your crypto” is very relevant. Most of the time, a non-custodial wallet will give you your private key or seed phrase and will not require KYC. A custodial wallet, like Coinbase, will let you create a password only, will not give you the private key or seed phrase, and will require you to submit identification for KYC. Before using a mobile wallet app, figure out what kind of custodianship is involved, and make your decision according to the setup which works best for your needs.
On paper wallets and cold storage
It seems that a fair number of crypto beginners have heard of paper wallets as a safe method for cold storage, as well as a good way to gift crypto to someone.
We’d like to point out here that putting wallet information on a piece of paper or a plastic card does not in itself make the wallet secure by some mysterious alchemy. What makes it safe is that after creation, the wallet is never accessed online. The public address can be used to deposit more funds to the wallet and to view the wallet balance on a blockchain explorer.
However, using that private key or seed phrase even once to access the wallet online and send a transaction will null its cold storage status and leave it vulnerable to being phished. Especially when gifting a paper wallet, it’s essential to make the new owners understand this: If they choose to use the funds actively, they must create a different, safer wallet and transfer the crypto from the original paper wallet to the new one.
Things To Do When in Ethereum
Now that you have a wallet set up, what are some things you can try doing?
Once you have an Ethereum address, you can start receiving ETH and tokens. Copy your public address only (it starts with 0x and has 40 more alpha-numeric characters, like this: 0x29cAbc05c5F105ca8d8c9460Dd56bce697Fd826a) and give to people so they can send you crypto.
There is no harm in receiving free token airdrops, although most of them are obscure and will not have any real market value for a long time, if ever. An incoming token can’t give your wallet a ‘virus’, but if someone says ‘send me 2 ETH, and I’ll send you back 20 ETH’ – it’s a scam. No one ever gives away valuable currency.
For anything besides receiving funds, you will need some ETH in your wallet to pay for gas. You don’t need a lot – 0.01 ETH is usually enough to cover at least 2-3 transactions, probably more. One way to get ETH is to buy it with a credit card through an exchange. You can do this from your MEW wallet via the Simplex exchange, or on other exchanges like Coinbase.
Take note that when you do this, you will have to go through the KYC (Know Your Customer) procedure which will essentially connect your Ethereum wallet to your real identity. That doesn’t mean that your wallet service or anyone on the blockchain will know your name when they see your Ethereum address – they won’t. But it does mean that your government and bank can know your cryptocurrency history, if they choose to take interest and investigate. More on this later…
There is an alternative way of getting ETH: receiving it from another user (a friend, a client, an employer paying for services, or even a stranger on Reddit who sends you a few cents to pay for gas and help you move your funds).
Believe it or not, there are even ETH ATMs which will take cash and deposit ETH into a provided address. For now, these are not widely available, and their reliability is not well-established. It’s something to consider though, if you don’t want to provide your personal information for the purchase.
Of course, ETH can also be mined, but that requires sophisticated blockchain knowledge and equipment. It is not a very practical way of obtaining the currency for a beginner, but you are more than welcome to do the research and see if it’s something that you are willing to try!
Use blockchain explorers
Regardless of which wallet interface you are using, if you are ever in doubt about your balance or unsure about the status of a transaction, there is one source of blockchain truth you can always turn to – the blockchain explorer. Wallet interfaces may have errors that prevent seeing correct balances, or they may fail to show the most recent transaction details. The block explorer will always have that information up to date.
At the moment, the most popular explorer for Ethereum is Etherscan. Put simply, it’s an application that shows all activity on the blockchain. If you put your public address in the search field, you can view your ETH and token balances, as well as the full transaction history. You can also explore token prices, average gas fees, latest block information, transaction volume, miner rewards, and lots of other data. Learning to use the block explorer is very helpful for navigating the crypto space with confidence.
Buy or swap tokens
Frequently, people come into crypto after being inspired by a particular blockchain project and deciding to invest in it. Good news! Most of the time, the tokens of such projects are in the ERC-20 format, based on Ethereum.
Sometimes projects distribute tokens for free (airdrop them), in which case all you need to do is provide your public address. If the tokens have market value, you can use an exchange to swap ETH for the token of your choice.
If you are using a custodial wallet like Coinbase, your funds are probably already on the exchange, so you just have to check which tokens are supported. Even though MEW is a non-custodial wallet, it is partnered with the exchanges Simplex, Kyber, Bity, and Changelly, which can be used within the interface. When you use non-custodial wallets that do not integrate any exchanges, you will have to move your funds to a wallet on the exchange first, conduct the swap there, and then move the swapped coins back to your non-custodial wallet.
Swaps are not limited to ETH for tokens. You can even swap ETH for Bitcoin, or vice versa, but keep in mind that Bitcoin can’t be sent to your Ethereum wallet – they are different blockchains, and you’ll have a different wallet for Bitcoin.
Giving Decentralization a Try
It’s time to talk about decentralization as the structuring principle of blockchain and cryptocurrency.
The main idea is that with decentralized networks, there is no third party that validates network transactions – which means there is no gatekeeper that can dictate rules that might prevent you from using the service, and there is no central point of failure which can be used to ‘take out’ the entire network.
In practical terms, decentralization removes barriers to entry and puts control into the hands of the network participants rather than a single governing body. A government can restrict citizen movements and rights, a bank can deny a loan or freeze funds, and a centralized service like Google or Facebook can change terms and impose any set of rules on the users. Decentralized tools aim to provide the same functions and services, but without the limitations and threats of centralized organizations.
Decentralized applications (DApps) are just what they sound like – computer programs and online services that are built on a decentralized blockchain like Ethereum. Quite a few DApps are in the works, but most of them are admittedly in their infancy. Nevertheless, some are certainly worth a try. You can browse lists of currently active DApps on websites like DApp.com, State of the DApps, and DappRadar. There are games, gambling, social networks and collectibles like CryptoKitties. You can also explore Dapps with the help of MEW CX: there is a list of Dapps to try right in the extension. If you’re not really interested in whimsical blockchain uses, there is decentralized finance.
DeFi is one of the most promising recent developments on Ethereum. Adding a decentralized structure to financial instruments makes them available for those who don’t have access to traditional banking –a significant part of the world’s population outside of North America, Western Europe and Australia.
Stablecoins – cryptocurrencies tied to the value of a fiat currency like the US Dollar – are an essential component of the DeFi environment. They offer many of the benefits of cryptocurrencies while counteracting the crypto market’s considerable volatility. You can read more about stablecoins here.
To get a better idea of the specific benefits of decentralized finance, read about the MakerDAO MCD, a DeFi application integrated in the MEW wallet interface. MakerDAO allows anyone who owns ETH to take out a loan or earn interest without the necessity of applications, credit checks, excessive fees, or commitments. It’s a good place to start to get a feel for what decentralization can practically do for you, in your life.
Security and Compliance
Just like a busy marketplace, Ethereum has its share of pickpockets, con artists, and authorities attempting to keep things under control. Whether the players vying for power in the space are genuinely concerned about the safety of the public, or they are more interested in hijacking the entire operation, is a matter of opinion and nuance.
Be that as it may, as a participant of the cryptocurrency marketplace, you must be mindful of people trying to steal your money, people promising to take care of your money and people attempting to supervise your money. Let’s see what we’re dealing with.
Phishing and scams
Even a very casual foray into the world of cryptocurrency will immediately bring you into contact with all kinds and formats of security warnings and, for lack of a better word, disclaimers. As a prime example, MEW’s vintage interface still has a very substantial and rather intimidating set of warning cards for the user to read through before creating a wallet.
While no service in the space wants to scare users off, there is still a lot of phishing in crypto, and reports of crypto security concerns are not that exaggerated. In fact, while crypto UX designers work on bringing you soothing colors and 2-click onboarding procedures, it’s still your job to protect yourself from scams. As it always has been in this life, by the way.
Non-custodial crypto solutions like client-side wallets are not like banks.
They do not: manage accounts, collect your data, monitor your IP addresses, or store histories on servers.
They can not: reset your password, cancel transactions, or investigate scammers.
They will never see your password, private key or seed phrase (so they can’t help you bring those back if you lose them).
Blockchain technology is a one way street without red lights – the chain is growing continuously and can not be rolled back. A transaction is knit into the fabric of the ledger, and once it’s sent, it’s gone. Whether they happen as a result of a phishing scam, a misunderstanding about the way blockchains work, or a wrong address entered by accident, ‘wrong’ transactions can’t be frozen or reversed, by anyone.
So, crypto security is heavy on prevention. This collection of tips on avoiding phishing is a good start, and there is a handy Security Memo at the end of this article. This piece provides a nice visual explanation about why some wallet access methods are safer than others. Really, there is plenty of information out there about best crypto safety practices, the trick is to actually read it before jumping in…
If non-custodial, decentralized solutions are so scary and labor-intensive, with no one to help you fix mistakes, perhaps a traditional centralized approach is best? It’s really a matter of personal choice.
Are you passionate about being free from the restrictions of third parties and being in full control of your funds? Are you concerned about the possibility of bank defaults, policy changes, and authoritarian governments? Then perhaps staying in charge of your own security would not be such a burden.
On the other hand, are your reasons for exploring crypto less ideological? Are you just exploring a new investment opportunity and would rather have someone taking care of your funds, like a bank does, even at the price of full independence and agency? Then custodial, centralized services may be a better choice.
Whether or not centralization in finance and governance is a bad thing is the subject of an extensive political, social, and philosophic discussion actively ongoing in the Ethereum community (and beyond it). As in any good discussion, there are great arguments on all sides. Still, there is no getting away from one fact – either you are the sole custodian of your funds, or you are dependent on someone else, fully or partially. The choice is entirely yours – make sure that you are comfortable with it.
Regulators and Taxmen
Where there is money, there will always be regulators and taxes.
You may have heard about the ‘ICO craze’ of 2017. What happened is this: a large number of blockchain projects decided to pursue the Initial Coin Offering model of financing, which is like a traditional IPO crossed with crowdfunding.
The companies created their tokens on the blockchain (which is not difficult to do and does not require any permissions from anyone) and sold them like stocks to interested investors, despite the tokens having no real value at the time of the ICO.
Neither the companies nor the investors had to undergo any regulatory checks. Some of the projects used the money for developing their product, raising the value of the token. Most, however, never created anything and/or ran away with the funds, leaving investors without any recourse for recovering their money.
The opportunity for speculation and the possibility of anonymous payments are two reasons why regulators are beginning to look closely at cryptocurrencies. Whether they are justified in doing so is arguable, given that plain old cash is still the currency of choice for evil deeds, and investment scams existed long before cryptocurrencies, or even calculators, were invented.
The very qualities that are making blockchain useful for people who don’t have access to centralized finance and governance are also the qualities that threaten the power of those financial institutions and governments. It’s unlikely that cryptocurrencies will just be ‘left alone’ by regulators and tax agencies. It’s also impossible for cryptocurrencies to be ‘shut down’, due to their decentralized structure. At this time, there are no clear regulations or taxation procedures for most cryptocurrencies, in most countries.
Regulatory compliance, both for companies and retail investors, requires a very individual approach, taking into account various factors like:
- whether decentralized or centralized services are used
- whether KYC is/has been part of the process
- specific types of tokens or currencies involved
- national and international laws affecting relevant jurisdictions
Venturing Into Other Marketplaces
It’s important to keep in mind that the crypto space comprises many different blockchains, and they will often have different rules and functionality.
We mentioned Bitcoin in the beginning of the article. It’s the most established and highly-valued cryptocurrency at the moment, so it is seen by many as the best store of value in crypto.
What are some other well-known blockchains, and what do they do?
EOS and Tron provide alternative platforms for decentralized applications. Ripple, BitcoinCash, Litecoin, and Stellar aim to facilitate transactions and establish fast global payment networks. Zcash and Monero emphasize strong privacy features. There are permissioned and permissionless blockchains, as well as public and private blockchains. There are also a number of distinct consensus algorithms including proof of work and proof of stake.
Don’t worry, for most purposes, you don’t need to know all the details of blockchain differences. Just be aware that
- specific conditions may apply (like gas fees on Ethereum, for example), so do your research before diving in
- you may need to create blockchain-specific wallets for corresponding coins
- you can’t send funds between blockchains, but you can use exchanges to swap one kind of crypto with another
Be adventurous and have fun, but remember to keep track of all your various wallets’ information and follow the news about all your investments. A lot of services and projects will not contact users directly because of security concerns, and some may simply lack the resources for consistent community support. At this point, it’s mostly your job to keep track of their developments.
ERC-20 tokens that were originally launched on the Ethereum blockchain may transition to their own mainnet – that’s a big change, it often requires some action on the part of the investor, and you can read about that here.
Blockchains can fork, which means splitting off to form two distinct chains with possibly different rules and histories. Sometimes the new chain becomes the default chain, sometimes it becomes a whole different project. It’s another big change to pay attention to, and you can read more here.
Finally, stay mindful of the crypto market’s volatility and immaturity. Don’t invest more than you are prepared to lose, and check back often on projects you invested in.
Bonus: Take These With You When You Go
We are impressed and excited that you made it through the article! Cheat sheets can’t replace real understanding and awareness in crypto (which is why we wrote this massive piece in the first place), but they can be handy as a reminder of the most important concepts.
These are things that many long-time users wish they knew and/or bothered to do from the start. Reading and copying them for reference is your chance to be ahead of the curve from day one.