10 things you need to know to use crypto Changelly e-book for beginners Crypto essentials for traders & investors Free expert tips and trends 2019 About Changelly Founded in 2015 Up to 5 000 transactions daily 150+ cryptocurrencies listed 350+ partners using API 1+ million visitors monthly 2500+ affiliates How it works 1 2 3 Choose the crypto you want to buy Confirm the transaction and sign in/ Send the exact amount to the with any other crypto * sign up with an email only to save the address provided and check the history of your transactions purchase on your wallet within minutes * for fiat-to-crypto the flow is different Intro Investing in cryptocurrency exposes to a novel and promising, yet highly risky, technically challenging and requiring knowledge and focus on details asset class. There are several ways to purchase and store crypto assets. Although cryptocurrencies were originally intended to be a tangible/ hard asset class based on technical specifications (predefined fixed emission with no further expansion or contraction), reality is a bit more complex as prices fluctuate wildly based on market conditions and user sentiment. Bitcoin is seen as the industry forerunner and has the highest brand value, while its analogs have more practical use (i.e. payment, funds transfer). Bitcoin existed even before the modern cryptomarkets - one of the early and notorious transactions occured on May 22, 2010 when Laszlo Hanyecz paid 10,000 Bitcoins for 2 pizzas. 3 https://changelly.com/?utm_source=ebook&utm_medium=social&ref_id=blogebook Later, Bitcoin became a method of payment for Silk Road, a dark web marketplace for drugs, which helped its popularity in certain social circles. Another key BTC milestone was the launch of Mt. Gox crypto exchange in Tokyo. All that iconic and damaging PR helped crypto industry go mainstream and the genie was out of the bottle. Сrypto industry as we know it today, took years to develop, with the last push coming in 2018 making crypto assets easily accessible all over the world. New crypto exchanges and services are popping up daily and serve all kinds of investors. There are one-stop services like Changelly which offer instant coin or token swap, OTC (over-the- counter) market, and public exchanges. Trading crypto assets has become easier in some aspects and harder in others - almost all reputable exchanges will require going through a comprehensive KYC procedure that includes providing proof of identity such as a valid passport and participating in a live chat interview. Also, trading crypto is subject to AML which restricts withdrawals and may call for additional verifications. Yet, all these rules and limitations could be easily bypassed by someone with malicious intent and enough knowledge and experience. The world of digital assets evolves constantly and offers a wide range of products. Research and Due Diligence as well as good understanding of technology will help users keep crypto assets safe and secure. Changelly will help you easily get into it with this handy e-book. Part 1. What are you buying? Ownership and Control: A Special Notice In 2018, most digital assets were out of Regulators’ reach, i.e. they could not be seized, frozen, or revoked. However, centralized or semi- centralized control of the assets is welcomed. 4 https://changelly.com/?utm_source=ebook&utm_medium=social&ref_id=blogebook Tokens based on Ethereum can be frozen or revoked, and this has happened to a handful of projects, such as Bancor and Kick Coin. Those projects froze funds taken by a hacker and regenerated the missing tokens. Other tokens may also be frozen or revoked, which some believe is a positive feature, while others see it as a chance for centralized control. Depending on the objective for buying crypto assets, it is best to be aware of the potential of token freezes. For most mined coins, there is no chance of coin freezing. For projects like EOS, there is a procedure that may freeze accounts under special circumstances. Other tokens, like PAX, have a way to block funds, especially when required by law. When you send in cash to acquire a crypto asset for the first time, what is it that you are getting? Even regulators are now uncertain what is the definition of sending and receiving Bitcoin or other assets. When you are making a purchase of crypto coins or tokens, usually you are setting off a series of transactions, which end up as a final balance of assets and a form of ownership ensured by technology, including applied cryptography. 5 https://changelly.com/?utm_source=ebook&utm_medium=social&ref_id=blogebook In most general terms, when buying crypto assets, you are receiving as a unique record in a ledger, and that record is encrypted and stored in a distributed manner across many computers across the globes. When using an exchange, or an exchange service, the first phase of your purchase will show the balance of coins or tokens displayed as a database entry. Initially, your tokens will be held by the exchange, usually in a common hot wallet, and will become officially yours only when you receive it after a withdrawal. Exchange Wallet: Your personal balance of coins and tokens, which are stored by a third party. Also used for storing funds of an exchange, which is an easy, but relatively insecure way to store crypto assets Once you withdraw the coins or tokens, depending on which asset you have purchased, the ownership consists of several features. First is the ownership of a private key, which gives access to the balance of assets. The second element is the balance of assets itself. In Bitcoin, this balance is known as Unspent Transaction Output (UTXO), a special transaction that re-sends the unspent coins from every transaction. Other coins, such as Ethereum, use the account model, which traces the balance changes in every wallet. UTXO vs. Account Model: The UTXO model is intuitively understood as paying with cash, and receiving the unspent amount as banknotes of different denominations, or change. The account model for crypto transactions works like a bank account, where a single sum is altered. Hence, when you are receiving a crypto asset, either the Account gets funded, or you have an UTXO record. 6 https://changelly.com/?utm_source=ebook&utm_medium=social&ref_id=blogebook But how do you access this balance and transact? The balance itself is kept on the blockchain, but you can alter the distributed ledger by using the private-public key technology. Private Key: A cryptographically protected phrase which unlocks the balance of a cryptocurrency. A private key is a tiny set of symbols that is paired with a public key to set off algorithms for text encryption and decryption In the end, the ownership of crypto assets is a lengthy process that ends up when the final transaction is made from the originating wallet - an exchange, an individual - into your wallet, to which you hold the private key. The record of the balance of digital assets can always be viewed through a blockchain explorer, a tool created to preview transactions. Preserving the transaction hash, it is always searchable and accessible. Buying digital assets leaves a semi-anonymous trace on the blockchain, which is in no way related to your name and identity. However, buying the coins is not anonymous, and exposes your identity, bank accounts, and in some cases, personal documents. We will discuss the issue of privacy later in this book. Part 2. Types of Crypto Assets As Bitcoin started to gain mainstream fame, there was a tendency of calling any digital asset “a bitcoin”. Assets were conflated with one another, rarely making a distinction. This made many users blindly buy up everything in sight, believing the asset to have very similar qualities to Bitcoin, just by virtue of being based on cryptography, containing a blockchain, and a distributed ledger. 7 https://changelly.com/?utm_source=ebook&utm_medium=social&ref_id=blogebook There are many ways to classify digital assets. There is a basic distinction between coins and tokens - coins exist with their own blockchain, while tokens exist on another blockchain, and do not rely on separate mining. Coins include Bitcoin, Litecoin, DASH, Monero, ZCash, and many others. Coins have a simple role of serving as money - a liquid asset for exchanging it for goods and services. Coins have no additional functions or use beyond serving as “digital cash”. Proof-of-stake coins are a special class of assets that do not require the process of mining to achieve cryptographic protection. Those types of coins rely on individuals holding a certain amount of coins, while providing viable hardware that performs cryptographic computations, but at a rate much lower compared to minable coins. In effect, owning the coins gives the right to secure the network and receive rewards. Proof-of-stake can be complete or partial. Some coins rely on both mining and staking for increased security. Anonymous coins are a special subset of coins that allow for obscured transactions which hide sender and recipient. 8 https://changelly.com/?utm_source=ebook&utm_medium=social&ref_id=blogebook Coins by Mining Algorithm Coins could also be classified based on the mining algorithm used. There is a notable distinction in families of coins, and the choice of mining algorithm can affect the usage, popularity and market price of a coin. Bitcoin is a SHA-256 coin, mined by one of the most complex algorithm. Bitcoin is mined predominantly by ASIC, specialized machines that are optimized for performing the specific types of mathematical transformations in the SHA-256 hash function, and generate multiple numbers until the right block number is discovered. Litecoin, Dogecoin, Viacoin, and others are Scrypt-based coins.