The evolution of magical Blockchain Technology and Crypto has opened the door to decentralisation and opportunities.
To keep up the pace with the change, we should keep expanding our knowledge about Cryptocurrency and the Blockchain.
The first-ever cryptocurrency was created back in 2009, the Bitcoin, and the first-ever Blockchain created is the Bitcoin Blockchain.
It was proposed and invented by a super-genius mysterious person or entity with the pseudonym of Satoshi Nakamoto who had disclosed the theory a year earlier.
Bitcoin’s smallest fractional unit is called a satoshi, named after its inventor.
With the creation of Bitcoin and the Blockchain, the revolutionary era of digital assets has started. A majority of the world population feels that the inflationary conventional money system should be over now.
In simple words, Cryptocurrency [or Crypto] are tradable digital assets or a virtual form of money which are faster to transact, and not controlled by any government or authority.
Its existence is in the form of data secured in a network of computers and databases that forms a blockchain. Crypto can be held like assets for the long term or can be used as money to purchase goods and services.
Cryptocurrencies are created upon cryptography and mathematical algorithms. A mathematical algorithm is a finite sequence of well-defined instructions that are used to solve a class of specific problems or perform computation and data processing.
Each Cryptocurrency’s algorithm is different from the other. A Bitcoin is exactly similar to another Bitcoin but is totally distinguishable from another currency such as Ethereum or Litecoin in their coding.
There are no provisions for a Crypto to be faked, or get mixed into another.
Blockchain: How does it work?
A Blockchain is a wide network of computers that works automatically as electronic ledgers for keeping unalterable records of Crypto transactions and ownership.
It comprises various software and smart contracts [specially programmed codes] for defined functions and crypto transactions.
Blockchain data is public, everyone can look up any transactions as the data there is not vulnerable to alteration. Bitcoin, Ethereum, Litecoin, and many other Crypto have their own blockchain.
Some Crypto doesn’t have their blockchain though, and their operations are carried out via other blockchains. The Ethereum blockchain supports most such Cryptocurrencies.
The present technological advancement allows cross-chain transactions too by sending Cryptocurrency from one Blockchain to another.
Utilities of Cryptocurrency
Thousands of Cryptocurrencies have been created following the success of Bitcoin. Known as altcoins, most of them have similar utilities.
Ethereum, Litecoin, Dash, Bitcoin Cash, Tether, and BNB are some of the major Cryptocurrencies of today.
Besides being used as money or assets, Crypto has other utilities such as trading, investments, and obtaining passive income by staking. There are several online Exchanges and trading platforms that allow Crypto to be swapped from one to another.
Trading, using the difference in the price of Crypto between Exchanges and Trading Platforms, profit can be achieved. This may need extensive study and research.
Among the various notable forms of trading are arbitrage, long-term, short-term, spot, and P2P trading. Trading needs a lot of Technical analysis, and observation of the market fluctuations, preferably through graphs or candlestick patterns.
Staking; by holding a certain amount of Crypto into the pool and becoming a part or node of the blockchain, profits can be achieved from the transaction fees whenever transactions get validated through the node.
The feature staking is an important part of blockchain functionality where many existing and potential problems of the Blockchain are solved by the Proof-of-Stake [POS] method.
Investments are also favoured by Crypto; with the greater adaptation and increasing utilities, the prices of Cryptocurrencies are rocketing; Bitcoin’s price in 2017 was $ 10,000 per coin and went to the all-time high [ATH] of $ 69,000 in 2021.
Lending; many legitimate Crypto wallets and trading platforms allow lending of Crypto to other members of the platform on a daily or long-term basis, at fixed or variable interest rates that might vary from platform to platform.
Some Cryptocurrencies also serve as :
- Governance tokens: gives governance power to holders over the related blockchain.
- Privacy tokens: Some Cryptocurrencies such as Monero [XMR] use ring signature protocol; numerous addresses are used for mixing so the sender’s identity and receiver’s identity remain in complete privacy.
- Security tokens: These types of Cryptocurrency are issued by companies and represent a stake, bond, or stock in an external asset.
What are Proof-of-Work and Proof-of-Stake?
These are the 2 widely used methods for Blockchain functionality: PoW and PoS.
- Proof-of-Work [PoW] mechanism Blockchains run transactions through computational proof spread over a wide network of computers, and the owners of these computers are called the miners. These miner-blocks’ job is to validate and record transactions through the software of the Secure Hash Algorithm [SHA]. SHA-256, SHA-512, and SHA-1 are some of the algorithmic software used. PoW Blockchains are energy-consuming as power is needed to keep the computers and computations running.
- Proof-of-Stake [PoS] mechanism Blockchains are run by the stakeholders of a Cryptocurrency. A group of people freezes a certain amount of Crypto as their stake. These stakeholders are chosen by randomised block and Coin Age selection as transaction validator nodes. PoS needs less equipment, less energy consumption, and is more decentralised.
Validation of transactions bears a certain fee commonly known as gas fees. Both PoS and PoW validators receive these gas fees as their profits. Bitcoin Blockchain is an example of Proof-of-Work and Binance Smart Chain is a Proof-of-Stake Blockchain.
Assets need greater security
Cryptocurrencies are assets and virtual money; there is always the risk of losing them to scammers and thieves who are way too smarter than general people. The wallets and Exchanges are safe and they have various protective measures to fend against malicious attacks. Usually, mistakes are at the user’s end. The risk at a user end can be reduced by some protective measures.
- Usage of TOR: or The Onion Router which makes browsing experience anonymous through the usage of a distributed network of peers so tracing of browser activity is not possible except by the website or platform we log in.
- Fingerprint Reduction of device: passively and actively by less engaging in downloads or clicking files from unknown sources. Usage of different browsers and skipping websites that might seem suspicious help reduce data leaks too.
- Identifying and staying safe from Phishing attacks: to be able to identify phishing sites and scammers is very important for safeguarding digital assets.
- Using End-to-End encryption Softwares like Google Duo and WhatsApp use encrypted protocols that are safer than non-encrypted services such as SMS, and emails.
Although many nations are yet to legalize Cryptocurrency in the fear that their conventional finance system might get redundant, or they might lose their authority over the economy, there are many which have embraced crypto and legalized it.
Kiosks have been set up, similar to the money ATMs; salaries are being paid in crypto, and more and more people including investors, celebrities, venture capitalists, and Tech giants are stepping into Crypto now. The increasing growth and adoption of cryptocurrency is the doorway to a new world.
Also read: How to get started as a crypto beginner