CRYPTOCURRENCY 101:

THE ULTIMATE
BEGINNER’S
GUIDE FOR NEW
INVESTORS
HOW IT WORKS, WHY IT HAS VALUE, AND
HOW YOU CAN GET STARTED TODAY
INVESTOR’S REPORT

Cryptocurrency 101:
The Ultimate Beginner’s Guide
for New Investors
How It Works, Why It Has Value,
and How You Can Get Started Today

Cryptocurrency has ushered in a revolutionary change to how

people use money – so much so that understanding what it is and
how it works is no longer optional.

In a nutshell, the crypto revolution is taking traditional financial

concepts and making them digital and decentralized – outside the
control of banks and the government.

Over the next decade, cryptocurrency will disrupt finance in the

same way that the internet disrupted the publishing industry and
Amazon.com disrupted retail.

Cryptocurrency represents one of the greatest investment

opportunities we will ever see in our lifetime.

And while it’s true that many cryptos such as Bitcoin (BTC) and
Ethereum (ETH) have already soared many thousands of percent,
this revolution is still in its early stages – which means it’s not too
late to make your own fortune in crypto.

But before you get started, you need to understand exactly what it
is you’re investing in so you can make the best possible choices.
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INVESTOR’S REPORT

Educating yourself is the key to success in crypto investing. It can

mean the difference between generating life-changing wealth and
losing it all.
We put together this guide to introduce you to the basic concepts of
cryptocurrency – everything from how it works to why it has value
to how you can get started investing today.
Don’t worry – it’s not as daunting as it might seem… especially
with American Institute for Crypto Investors in your corner.

A Wealth Creator for the Ages

For most people, the first thing about crypto that grabs your
attention is the incredible gains.
When Bitcoin started out, it was worth less than a penny.
It took two years to reach $1.00, but even that represented a gain
of 10,000%. Two years later – in 2013 – Bitcoin reached $1,000 for
the first time. That’s a staggering 100,000% gain. In 2017, Bitcoin
zipped past $10,000 and nearly hit $20,000.
And over time, it just keeps powering higher – surpassing $68,000
in November of 2021.

Bitcoin (BTC) Price Over Time

$60K Nov. 2021: Hits all-time

high at $68,789.63

$40K
Nears $20K

$20K Hits $1K for

the first time

0
2013 2014 2015 2016 2017 2018 2019 2020 2021
CoinMarketCap.com

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INVESTOR’S REPORT

It’s no wonder cryptocurrencies have attracted the interest of such

investing gurus as Stanley Druckenmiller, Cathie Wood, and
Paul Tudor Jones.
Of course, crypto’s huge price rallies are often followed by nasty
plunges of 30%, 50%, or more. But over the long term, the prices
of the top cryptocurrencies like Bitcoin and Ethereum go up.
Bear in mind that this is an extraordinarily volatile asset class. And
that volatility hasn’t stopped hundreds of billions of dollars from
pouring into this asset class over the past few years.
In 2016, the total value of all cryptocurrencies was about $12
billion. When crypto prices were at a peak in early 2021, that
figure climbed to $2.5 trillion – more than a 200X increase.
All that said, it’s fair to question why this is happening. Or more to
the point, what makes cryptocurrency valuable? Exactly why are
people investing so much money in them? Let’s find out – starting
with the basics of how it all works…

How It Works
Cryptocurrency is digital money. It only exists on the internet,
which each crypto uses to link the computers, exchanges, and
wallets that connect to its network. Each one is controlled by its
own code, which contains the set of rules that govern:
• How new units of the crypto are created…
• How many of those units can be created…
• How transactions on the network are verified…
• And management of the blockchain – a digital ledger that
keeps a record of all the transactions.
The answers to those questions depend on the purpose for which
the cryptocurrency was designed.
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INVESTOR’S REPORT

Bitcoin was designed to be scarce (only 21 million will ever

exist) and requires the use of an ever-increasing amount of
energy to keep the network secure. Ethereum and other platform
cryptocurrencies are designed to serve as global computers that
can run smart contracts. (More on this in just a moment.)
Within the Bitcoin blockchain, there are a bunch of computers (or
entities) called miners who are constantly trying to solve complex
mathematical puzzles. Just about every 10 minutes, one of these
miners wins this race to solve the puzzle.
As this miner wins, it receives a benefit which is currently 6.25
bitcoins. That’s about $240,000. Yes, you read that right. Every 10
minutes, there is someone obtaining $240,000 worth of bitcoin.
There are also different methods of securing a network, such
as proof of work (PoW) and proof of stake (PoS). These are the
primary mechanisms that allow cryptocurrencies to operate apart
from banks and brokers to verify transactions. And there are some
key differences that you need to understand between the two.

Proof of Work (PoW)

As computers mine cryptocurrency, Send Puzzle
they expend computing power
(measured by their hash rate) in an
effort to be the first to solve a math Network Puzzle
problem. The winner verifies the next Server y=f(x) x= ?
block in the blockchain and receives
a reward. The computing power
expended is the “proof of work” that
tells the network the winning miner
has earned that reward. The Send Solutions
x1 x2 x3
punishment for miners submitting
false information – or blocks – is the Check
immersed cost of computing power, Solutions
energy, and time. The proof-of-work y=f(x1)
mechanism was first pioneered by Send Award
y=f(x2)
Bitcoin (BTC) and built upon by
Ethereum (ETH). y=f(x3)
ledger.com

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INVESTOR’S REPORT

Proof of Stake (PoS)

This is an alternative system for securing a network and maintaining a blockchain in which
users put up collateral tokens of a crypto (their “stake”) in return for becoming a “validator”
of its blockchain – the same function as miners in a proof-of-work system. For each block,
the network chooses a validator at random to record and verify the data. The chosen
validator earns fees for performing that task; the larger the stake, the higher the odds
of being selected to validate a block. The validators’ staked crypto funds assist as a
financial stimulus to perform in the network’s best interests. This mechanism is employed
by most cryptos including Cardano (ADA), Polkadot (DOT), and Cosmos (ATOM).

C Validator Pool
(lottery)
cryptographics.info

The good news is that the code does all the work of running the
network. While it can be amazingly sophisticated, what goes on
“under the hood” is all invisible to the user.

Why It Has Value

Critics of crypto like to say it has “no intrinsic value” – that the
true value of all cryptocurrencies is zero. But these critics are
judging crypto by outdated rules.

Cryptocurrency is a technological innovation with capabilities beyond

that of any previous form of money. Here’s what makes it unique…

 Decentralization

Most cryptocurrencies are controlled by code – unlike fiat currencies

like the U.S. dollar that are controlled by a government or central
bank. It means users can transact directly with each other – peer
to peer – without the need for a third party like a bank.
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INVESTOR’S REPORT

 Transparent

All transactions are broadcasted over the network and become part
of a public digital ledger known as the blockchain. Anyone can view
these transactions on one of many blockchain explorers on the internet.

 Privacy/Anonymity

Although each transaction is public and linked to a wallet address,

each user’s personal data is not linked to that address. This provides
a much higher level of privacy than the U.S. banking/credit card
system.

 Borderless

Since crypto uses the internet, national borders have no

meaning. Users can transact directly with a person in another
country without jumping through the hoops of the global
financial system. This is especially useful for cross-border
transactions like remittances.

 Deflationary

Most cryptocurrencies have a fixed total supply like Bitcoin or

have a way to “burn” tokens to control supply. These rules prevent
cryptocurrencies from becoming devalued by the creation of more
coins. Compare that to the endless money printing of central banks.
Since 1913 – the year the U.S. Federal Reserve was created – the
U.S. dollar has lost 96% of its buying power.

 Verified Ownership

Because blockchains are secure digital ledgers, they give

cryptocurrencies the ability to provide proof of ownership
of an item in either the digital or physical world.
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INVESTOR’S REPORT

 Smart Contracts

Some cryptocurrencies such as Ethereum are programmable. That

means they can run smart contracts – a program that executes
on the network when specified criteria are met. It runs on the
blockchain as if the blockchain were a giant global computer.
The smart contract checks with a trusted online source called
an “oracle” to determine how to settle the contract.

This may all seem a bit “techy,” but crypto companies and
exchanges are making it easier every day for folks to access
this information and invest.

Investing in Crypto Using an Exchange

To start using crypto, you need only open an account at a crypto
exchange where you can buy, sell, and store cryptocurrencies.
Currently, there are 9,000+ cryptos being actively traded in over
450 exchanges across 50,000 or more market pairs.

Exchanges operating in the U.S. fall under anti-money laundering

(AML) and Know Your Customer (KYC) laws, which means they
must follow these rules to move money around and interact with U.S.
banks. It’s one of the rare instances where crypto activity is regulated.

But these rules mean you will need to surrender a lot of sensitive
personal information such as your birthday, home address, and
Social Security number.

Most also require you to upload images of personal identification

such as a driver’s license or a passport.

That’s why it’s so important to do your research before you open an

account with an exchange.
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INVESTOR’S REPORT

Make sure you understand everything about an exchange, the

terms and conditions, and what it has to offer before you agree to
give it access to your personal information.

Below, we’ve included a brief overview of the pros and cons of four
of the most popular – Coinbase, Kraken, Gemini, and Voyager.

Cryptocurrency Exchanges Pros and Cons

coinbase.com

Coinbase is our number-one pick for new crypto investors.

Pros: Cons:
4 Intuitive website 8 Charges above-average fees
4 Offers more sophisticated “pro” 8 Site known to crash when demand
version rises during major rallies or crashes
4 Offers recurring purchases on the crypto markets

4 Mobile app
4 Offers a way to generate an annual
report for tax purposes
4 Offers a “learn and earn” feature
where you can earn free crypto

kraken.com

Pros: Cons:
4 Large selection of coins 8 Less hand-holding for beginners
4 Strong security 8 Harder to move fiat money in and
4 One-click access to more out
advanced features
4 Lower fees than other beginners’
exchanges
4 Mobile app

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INVESTOR’S REPORT

Cryptocurrency Exchanges Pros and Cons

gemini.com

Pros: Cons:
4 Best-in-class security 8 Higher-than-average fees
4 U.S. dollar balances are FDIC 8 Especially strict registration
insured requirements
4 Offers advanced options for
experienced traders
4 Excellent customer support
4 Mobile app

investvoyager.com

Pros: Cons:
4 Ability to connect to checking 8 No desktop version
account – rare among crypto-buying 8 Fees for withdrawals
apps 8 Not available in New York state
4 Higher-than-average interest
rates
4 No trading fees
4 High number of cryptocurrencies
offered
4 Publicly traded company

Storing Your Crypto in a Wallet

Cryptocurrencies have no physical existence, but your coins must
still be stored securely. More than $1 trillion of value is stored in
cryptocurrencies – and thieves have noticed.
Most of the larger exchanges (like Coinbase, Kraken, and Gemini)
have invested heavily in security and will reimburse customers
if funds get hacked. But the safest way to store crypto is to use a
wallet only you control on your PC or mobile phone.
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INVESTOR’S REPORT

Unlike a traditional wallet – which generally carries physical items

like cash, bank cards, and other items – crypto wallets act as the
storage for your cryptocurrencies. They come in two forms: hot
wallets and cold wallets.

Hot wallets are cryptocurrency wallets connected to the internet –

such as Coinbase or any other exchange; this type of security is
prone to attacks. Popular hot wallet options are Exodus and Jaxx.

With cold wallets, your digital assets are stored offline using
hardware and only a very unique private key can help you
access them. This private key represents your ownership of
the cryptocurrencies that are present in your digital wallet.

Safety tip: Never, ever share your private key with anyone. Ever.

Leading cold wallet brands are Ledger and Trezor, which offer a
variety of options for any price point.

Ledger Nano X Trezor Model T

(US$149.00) (US$215.00)

ledger.com trezor.io

To send a cryptocurrency from one wallet to another, you need to

insert the address of the destination wallet.
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INVESTOR’S REPORT

A crypto address is just a long string of letters and numbers. But

it’s important you get it exactly right (Most folks use the copy-and-
paste function.) because sending crypto to a wrong address usually
results in the permanent loss of those funds.

Should I Invest in Crypto?

Cryptocurrency is truly a new asset class. You should think of it
as a different category of investing – just as stocks, bonds, and
precious metals are all different categories of investing.

It’s also very new, and much of it is unregulated. That makes

crypto riskier than other types of investments.

But as is often the case, higher risk can bring higher rewards. And
with cryptocurrencies, the long-term rewards will be extraordinary.

In fact, we believe that cryptocurrencies will be the biggest

investment opportunity of the 21st century.

And you don’t need to go “all in” on crypto to benefit from it. Most
retail investors should start out by allocating about 1% to 2% of their
portfolio to crypto. As you learn more about this asset class, that can
increase – but unless you become an expert, you probably shouldn’t
devote more than 5% or 6% of your investments to crypto.

And then there’s the issue of what to buy. With 18,000 coins and
counting, investors have no shortage of options.

To help you get started, American Institute for Crypto Investors

has put together a starter crypto portfolio with seven picks that
should be in every portfolio and how you can buy them.

That report is available 24/7 – completely free – for American

Institute for Crypto Investors members at aicinvestors.com.
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