What exactly is cryptocurrency?

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Cryptocurrency is a configuration of digital currency that allows a person to broadcast value in a digital environment.

You might be curious as to how this system differs from any other you might have used in the past. At first glance, they absolutely work for the same use cases – paying buddies, making purchases from your favorite online website – but under the bonnet, they don’t have a chance to be any more different.

Why crypto is unique?

Bitcoin as a member of the new generation of currencies has gained its unique characteristics through its crypto-digital form, as well as the decentralized nature of the system and its high flexibility.

The idea of the creators of cryptocurrencies was to try to build a decentralized monetary system that was independent of governments. Initially, cryptocurrency was intended to develop within a distributed system in which multiple nodes agree on results. The history of records is available to all participants, but participants are anonymous.

The subsequent development of Bitcoin has followed the same pattern of trying to “detach” itself from standard money, from states as issuers. People became more and more aware of cryptocurrency and its main quality – the ability to make transactions without intermediaries and anonymously. Gradually, they became more and more interesting to the audience: first, as a means of payment, then as a means of capital withdrawal.

What is cryptography and private key?

Public key cryptography, also known as asymmetric cryptography, is a system that uses key pairs to encrypt and authenticate information. One of the keys in the pair is the public key, which, as the name implies, can be widely distributed without compromising security.

The second key in the pair is the private key, which is known only to the owner. In symmetric cryptography, all keys are private, which requires a secure channel for the transmission of keys and secrecy by all parties about all keys. Both of these requirements have proved difficult to maintain. In asymmetric cryptography, on the other hand, public keys can be distributed freely.

Who invented cryptocurrency?

Of course, it all started with Bitcoin. No one really knows where Bitcoin came from. The author is thought to be Satoshi Nakamoto, who created the cryptocurrency protocol. In 2009, he published an article about Bitcoin, posted a client implementation, launched the Bitcoin network, and… disappeared without a trace. There have been attempts to identify the true identity (or group of individuals) hiding under his name, but they all failed. Incidentally, the smallest part of Bitcoin is named after its creator – one Bitcoin equals 100,000,000 satoshis.

Cryptocurrencies and tokens: difference

A token with purchasing power is very similar to a cryptocurrency.

A cryptocurrency is the digital currency of a blockchain. Cryptocurrency always has its own blockchain platform and is used as a reward for miners – the people involved in mining. Cryptocurrency is also used to conduct transactions on this blockchain network.

A token is a financial instrument given to an investor during an ICO for financially assisting a project. Depending on the project, the token can be a company share for which the investor receives a dividend (this type of token is rare) or a token that can be paid for in the company’s internal market.

This kind of token acts as a digital signature for the user to access information on the blockchain network. The most common first meaning of a token is as a financial instrument. For example, Ethereum considers ether (ETH) to be the native monetary unit, and it must be used to create and transfer tokens on the Ethereum network. These tokens are sold according to stereotypes such as ERC-20 or ERC-721.

What exactly is a wallet?

In order to interact with the blockchain network – to send, to receive cryptocurrency – you need a crypto-purse. Storing assets directly in a crypto-wallet is a well-established misconception.

Cryptocurrency itself is not contained in a wallet, it is in the blockchain of a particular coin, its project. It is simply software that stores a list of addresses for various crypto-assets.

They can be divided into hot and cold by the type of interaction with the Internet. The former are those that are constantly connected to the web, the latter are those that only connect when the owner wants them to.

In terms of how they interact with the owner, wallets come in software, hardware, and paper wallets. The latter is no longer common in today’s crypto world – a bad tone, an outdated method. Hardware wallets are no less secure, but more practical as an alternative.

What exactly is a blockchain?

A blockchain is a distributed database in which the storage devices are not connected to a common server. This database stores an ever-growing list of ordered records called blocks. Each block contains a timestamp and a link to the previous block.

The use of encryption ensures that users can only modify those parts of the blockchain that they “own” in the sense that they have private keys without which they cannot write to the file. In addition, encryption ensures that copies of the distributed blockchain are synchronized across all users.

Imagine a digital history: each record is such a block. This record has a label: the date and time it was made. Initially, it is considered mandatory to prohibit retrospective modification of records, because it is necessary that records of diagnosis, treatment, etc. are not subject to different interpretations and remain in their original form. The records can only be accessed by the doctor who has one private key and the patient who has another. This information will then only be accessed by those to whom one of these users has provided their private key (e.g. the hospital as a whole or an individual specialist). This is how, for example, blockchain technology can be used in a medical database.

How blocks work?

When a block stores new data, it is added to the blockchain. A blockchain, as the name implies, is made up of several blocks linked together. However, for a block to be added to the blockchain, four things must happen:

  • A transaction must occur.
  • This transaction must be verified.
  • This transaction must be stored in a block.
  • A hash must be assigned to this block.

When this new block is added to the blockchain, it becomes publicly available for all to see – even you. If you look at the Bitcoin blockchain, you will see that you have access to the transaction data as well as information about when, where and by whom the block was added to the blockchain.

What is mining?

In simple terms, mining is about earning cryptocurrencies using the power of equipment (be it a personal computer or specialized mining farms). It is not always important and interesting for a beginner to know the “insides” of mining, it is important for him to understand how much he can earn with a certain piece of equipment. Or how much can be earned by buying certain equipment? Either way, the average miner usually does not get to the bottom of what is going on during the mining process itself.

Cryptocurrencies were initially regarded very skeptically, but they have been able to prove their validity, their independence from external regulators (banks, states), and the demand from major investors. The success of Bitcoin has led to more and more new cryptocurrencies with new encryption algorithms. Among other cryptocurrency mining options (foraging and ICOs), mining is the most accessible to the average user.

Do cryptocurrencies have a good chance of scaling up?

As you probably know, these networks are not entirely efficient. Unfortunately, cryptocurrencies only have a chance to be dangerous and censor-resistant if all nodes have a chance to synchronize a copy of the blockchain. The fewer requests to keep up, the easier it will be for people to join.

You might wonder why a blockchain that only adds a small block any 10 min than one that adds a large block any 5 min. The latter would require nodes to run powerful computers to stay in sync and target the least powerful computers for the shutdown. This would lead to more centralization because there would be fewer peer-to-peer nodes on the network.

But with the shortest blocks, we cannot achieve the highest number of transactions per second (TPS). This also means that during active periods it may take some time to add transactions to the blockchain. This is awkward if you want to make a steep charge, but it is a payment for decentralization.

We call this issue the scalability challenge. An immaculately scalable system is capable of adapting to scaling capacity in an elementary fashion with a minimum of drawbacks. Blockchains do not scale well – as we have explained, easily scaling up capacity with large blocks undermines the entire distributed network.

To scale up TPS in this way, so that it does not harm network decentralization, autonomous scaling is seen as a viable conclusion. This includes a wide range of solutions – centralized and decentralized – that enable transactions to be executed without registering them on the blockchain.

Cryptocurrency software: wallets and their types

Cryptocurrency networks are considered voluntary. No one is forcing you to run software that you do not want. A good protocol will keep the code completely open so that users can be confident that the system is trustworthy and secure.

Typically, cryptocurrencies allow anyone to participate in their development. Fresh features or configurations in the code are reviewed by the community of creators before being agreed upon and posted. From there, users have a chance to review the code themselves and choose whether or not to run it.

Some updates will become backward-compatible, which means that refreshed nodes will still interact with older ones. Others will not become backward compatible – the old nodes will be “unplugged” if they are not refreshed. Find out the Strict and Soft plugs to comment on this.

What you need to know before trading

Where do we start in general? There are a large number of techniques to analyze money markets, and as a rule, the bulk of professional traders will apply completely different strategies. However, at the highest level, there are 2 major averages for evaluating investments: the basic test (FA) and the technical test (TA).

Basic Analysis is a method of evaluating the price of an asset, based primarily on financial and monetary reasons. Professionals who use this method evaluate both economic factors, industry circumstances, or the business underlying the asset.

With that in mind, it is important to remember that cryptocurrencies are a fresh and thriving asset class. The basic test contains not enough room to determine their valuation. Simply put, there is no standardized ground to determine the price of cryptocurrencies, and most of the models in place cannot be trusted to the highest degree. The triumph or misfortune of a cryptocurrency plan has the possibility of being dependent on a large number of all sorts of things, which no current structure has all the chances to provide.

Technical specialists hold a different view. Unlike basic specialists, technical specialists do not attempt to qualify the intrinsic price of an asset. Instead, they look at the trading and investing abilities based on trading. They do this by focusing on price movements, indicators, and other charting tools to evaluate the power or otherwise of the market. In fact, technical experts believe that the past price movements of an asset have all chances to be useful in predicting its future price movements.

Because the technical test can be applied to literally any market with historical data, it is used extensively by cryptocurrency traders.

Like which one do you have to learn? Well, why not both? The bulk of market analysis tools work in conjunction with other tools more than anything else. In any case, it is definitely fundamental to take economic risk and risk management and never invest more than you can afford to lose.

Where to buy

Exchanges

The theory of centralized exchanges a bit confusing because cryptocurrencies are often thought of as only decentralized. Centralized exchanges are online platforms that simplify trading by connecting clients and sellers.

This works by having users invest their own fiat money or cryptocurrency into the exchange and trade on its internal systems. If you are familiar with how cryptocurrency wallets work, your cryptocurrency will be saved on the exchange. But it should be easy enough for you to exclude your own ways and keep it in your own personal wallet if you wish.

Some people may choose to save their own money on the exchange, either because of the fact that they periodically trade or for convenience. However, if the exchange becomes compromised, your users’ methods may be at risk.

Decentralized exchanges are set apart from the buddy. When you use DEX, no custodians are involved. In fact, a more clear method of designating this in a similar exchange would be an exchange not involving a saver.

This is actually what happens when you trade on decentralized exchanges. Instead of putting your own ways into an exchange purse, you trade from your own personal wallet. When a collision occurs, the methods are transferred to the blockchain by applying the magic of smart contracts.

Because there is virtually no organization acting as a custodian, some consider it more of a harmless choice than CEXs. Another plus point may be that most DEXS do not ask you for any information other than the blockchain wallet address. At the same time, saving your personal funds requires a specific technical skill, and you are entirely responsible for it.

A peer-to-peer exchange is still considered to be a space that brings together clients and sellers, but it is differentiated from both centralized and decentralized. In this case, the exchange does not prepare anything other than bringing together the clients and sellers, and they have all chances to settle the position by any method which they have agreed on. Therefore, the method of deposit and settlement can be determined by clients and traders for each individual transaction.

What are cryptocurrency and blockchain in simple words?

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