Beginners guide to cryptocurrency
What is a cryptocurrency?
A cryptocurrency is a digital currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized networks based on blockchain technology. Blockchain is a decentralized technology spread across many computers that manage and record transactions. Cryptocurrencies let you buy goods and services, or trade them for profit.
What does "decentralized" mean?
- Independent of a central authority – it is controlled by the community.
- No intermediary - cryptocurrencies are managed by users of the blockchain, who transfer coins to each other (peer-to-peer) without the need for middlemen like a bank or any third party.
- Decentralized Cryptocurrency provides а high level of security for transactions in the system. It’s secure because all transactions are vetted by a technology called a blockchain.
What is Blockchain?
Blockchain is a system of recording information in a way that makes it difficult or impossible to change, hack, or cheat the system. A blockchain is essentially a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems on the blockchain. Each block in the chain contains a number of transactions, and every time a new transaction occurs on the blockchain, a record of that transaction is added to every participant’s ledger.
The Cryptocurrency Transaction Process
- A new transaction is entered.
- The transaction is then transmitted to a new network of peer-to-peer computers scattered across the world.
- This network of computers then solves equations to confirm the validity of the transaction.
- Once confirmed to be legitimate, the transactions are then clustered together into blocks.
- These blocks are then chained together creating a long history of all transactions that are permanent.
- The transaction is complete.
Blockchain vs. Banks
||24/7, 365 days a year
||9:00am - 5:00pm on weekdays
||Being variable, this fee can range between $0 to $50, with the users being able to determine how much they are willing to pay.
||This fee varies based on the card and is not paid by the user directly. Fees are paid to the payment processors and are usually charged per transaction. The amount of this fee can sometimes make the cost of the goods and services rise.
||Bitcoin transactions can take as little as 15 minutes and as much as over an hour depending on network congestions.
||Card payments: 24-48 hours. Checks: 24-27 hours. Bank transfers are typically not processed on weekends and holidays.
||Anyone can participate in Bitcoin's network with no identification.
||Bank accounts require KYC procedures. So it is legally required for banks to record a customer's identification prior to opening an account.
||Bitcoin can be as private as the user wishes. All Bitcoin is traceable but it is impossible to establish who has ownership of Bitcoin if it was purchased anonymously. If Bitcoin is purchased on a KYC exchange then the Bitcoin is directly tied to the holder of the KYC exchange account.
||Bank account information is stored on the bank's private servers and held by the client. Bank account privacy is limited to how secure the bank's servers are and how well the individual user secures their own information.
The larger the Bitcoin network grows the more secure it gets. The level of security a Bitcoin holder has with their own Bitcoin is entirely up to them. For this reason, it is recommended that people use cold storage for larger quantities of Bitcoin.
|Assuming the client practices solid internet security measures like using secure passwords and two-factor authentication, a bank account's information is only as secure as the bank's server that contains the client account information is.
The Bitcoin network itself does not dictate how Bitcoin is used in any form. Users can transact Bitcoin as how they see fit but should also adhere to the guidelines of their country.
|Banks reserve the right to deny transactions for a variety of reasons and to freeze your account.
How does cryptocurrency work?
Cryptocurrencies let users make secure payments and store money without the need to use their name or go through a bank. Units of cryptocurrency are created through a process called mining.
What is cryptocurrency mining?
Crypto mining means gaining cryptocurrencies by solving cryptographic equations by using computers. This process involves validating data blocks and adding transaction records to a public record (ledger) known as a blockchain. The first miner to encrypt the block, making it safe to be shared across the internet, is awarded Bitcoin for their work. The winner shares their results with all the other miners, who verify that the encryption is safe and the work is done. This is called “proof of work.” Once verified by the other miners, the winner securely adds the new block to the existing chain.
Benefits of cryptocurrency
Cryptocurrency is slowly but surely becoming a popular form of payment.
- No middle man - Cryptocurrencies don't use middlemen, so transactions are easier, faster, and require less or no additional transaction fees.
- More confidential - Each cryptocurrency transaction is a unique exchange between two parties, which protects users from issues. Cryptocurrency can do this because of the blockchain technology it uses.
- Easier international exchanges - Cryptocurrency offers an opportunity for people to make one-on-one exchanges online without added fees that traditionally come with international currency exchanges that involve third parties.
Is cryptocurrency safe?
Cryptocurrency got its name because it uses encryption to verify transactions. This means advanced coding is involved in storing and transmitting cryptocurrency data between wallets and public ledgers. Encryption aims to provide security and safety. Buying and selling cryptocurrency does not always have to be risky if the trader thoroughly understands the market and treats his coins with care. At present, there are numerous cryptocurrency options available to us but not all options are safe. Taking a certain amount of precaution is mandatory before investing your money into cryptocurrency. It is exceedingly essential to conduct strong research on the creator of the coin, whether they are at all affiliated with well-known brands or traded on safe exchanges.
What is the difference between “Coin” and “Token”?
There are very big differences between crypto coins and crypto tokens. The digital coin is an asset that is native to its blockchain, like Bitcoin, Ethereum, Litecoin. They are generally used in the same way as money, so you can transfer or store them. Tokens are created on the existing blockchain. Once created, tokens are used to activate features of the application they were designed for. Some tokens are created to represent a physical thing. For example, if you want to sell your car using a smart contract, you can not put your car into the smart contract, so you can use a token that represents your car.
What happens to bitcoins if the wallet is lost?
They would be impossible to recover. A wallet is a tool enabling you to make a transaction entry on the blockchain. Without the wallet's private key any bitcoins sent to you just remain stuck at the last blockchain entry, unspendable by anyone.
- Block - A record in the blockchain that contains and confirms many pending transactions.
- Blockchain - Public register of all Bitcoin transactions in chronological order. It confirms transactions and prevents duplication of expenses.
- Block Reward - Bitcoin block reward refers to the new bitcoins that are awarded by the blockchain network to eligible cryptocurrency miners for each block they mine successfully.
- Confirmation - Confirmation is a measure of how many blocks have passed since a transaction was added to a coin’s blockchain.
- Cryptography - It is a method of storing data in a particular form so that only those whom it is intended for can read and process it. Cryptography not only protects data from theft or alteration but can also be used for user authentication.
- Decentralized - A decentralized cryptocurrency has independence from a central authority, no intermediary, a high level of security.
- Double Spend - When a malicious user tries to pay different recipients with the same bitcoins at the same time.
- Halving - On average, every four years (or 210,000 blocks) the "reward" given to miners for adding a block to the blockchain is halved. Halving is designed to keep Bitcoin inflation under control.
- Hashrate - A “hash” is a fixed-length alphanumeric code that is used to represent words, messages, and data of any length. Crypto projects use a variety of different hashing algorithms to create different types of hash code.
- Mining - Bitcoin mining is the process of creating new bitcoins by solving computational algorithms.
- Private key - this is a secret piece of data that proves the right of a particular portfolio to spend money through a cryptographic signature.
- Public address - А bitcoin address is similar to the physical address or email. This is the only information you need to provide for someone to pay you online.
- Satoshi Nakamoto - Satoshi Nakamoto is the anonymous name used by the creator/s of the Bitcoin cryptocurrency.
- Transaction - Тhe process by which sent or received coins are recorded and verified on the blockchain.
- Wallet - Each Bitcoin is stored in a digital wallet on a computer or smartphone. People can send Bitcoins to your digital wallet, and you can send Bitcoins to other people.