Cryptocurrency -A beginner's guide
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CryptoCurrency is a digital currency that uses cryptography and blockchain technology to secure transactions. It aims to be decentralized and not controlled by any central authority. The blockchain prevents the "double spending problem" by securely verifying transactions. Popular cryptocurrencies include Bitcoin and Ethereum. People can obtain cryptocurrency by purchasing it on exchanges, mining it by verifying transactions, or participating in Initial Coin Offerings of new cryptocurrencies. Wallets are used to store, send and receive cryptocurrencies.
Cryptocurrency -A beginner's guide
- 1. CryptoCurrency A Beginners Guide to CryptoCurrency By Manny Fernandez, Founder of BlockChain Angels
- 2. What is a Currency? - A currency is a system of money (monetary units) in common use. The United States Dollar, British Pound and European Euro are some examples. A currency has 2 main functions: - To represent stored value - The ability to transfer value Also known as “fiat” currency (USD, Euro, Pound, etc.) A currency requires the trust of an organization to hold its value.
- 3. CryptoCurrency CryptoCurrency is a digital or virtual currency that uses cryptography on the blockchain for security. A cryptocurrency is difficult to counterfeit because of this security feature and prevents the problem of double spending. + A defining feature of cryptocurrency, and arguably its most enduring allure, is its organic nature, since it is not issued by a central authority, rendering it theoretically immune to government interference or manipulation. + The security features of cryptocurrency essentially acts as its central organization, preventing fraud and maintaining the value of the currency.
- 4. Trust (Double Spending Problem) Double Spending Problem: People can trust traditional, ‘fiat’ currencies because they are not able to be duplicated. This prevents me from paying you $100, then paying two of my other friends the exact same $100 I paid you. + The blockchain prevents this double spending problem by using Cryptography to securely verify transactions and control the creation of additional units of the currency.
- 5. The Origins of CryptoCurrency In 2008, for the very first time, there was an 8-page white paper, like a research paper that was released by a person, or by a group, no one knows. This person called themself Satoshi Nakamoto and sent the white paper to a group of people in late 2008. It said that they had identified a way to have a so called “decentralized currency” that works on a peer-to-peer level. They said that they found a way to avoid a double spending problem. This was revolutionary in 2008 and is still revolutionary to this day.
- 6. Blockchain A Blockchain is a digitized, decentralized, public ledger of all cryptocurrency transactions. Constantly growing as ‘completed blocks’ (the most recent transactions) are recorded and added to in chronological order, it allows market participants to keep track of digital currency transactions without central recordkeeping. Each node (a computer connected to the network) gets a copy of the blockchain, which is downloaded automatically.
- 7. ICO An ICO, or Initial Coin Offering is essentially a fundraising campaign on the blockchain that raises money through digital currency. Companies looking to raise money on the blockchain utilize different marketplaces and currency types to achieve this. Ethereum is an example of such a marketplace, which allows companies to create their own currency for investors to purchase.
- 8. White Paper A white paper is essentially a business plan for cryptocurrency that outlines a company’s plan for an ICO (Initial Coin Offering). It is provided to investors who are looking at investing in companies on the blockchain.
- 9. Wallets In order to store, send and receive cryptocurrency, you must first download a wallet. A wallet is basically an electronic version of the wallet you keep in your pocket. All cryptocurrency coins are stored in the wallet and will allow you to send and receive money. Coinbase and MyEtherWallet are two popular and free wallets.
- 10. Security Security on the blockchain is paramount to the success of cryptocurrencies. When you download a wallet, you receive a randomly generated, unique private key (account number). Security is provided by cryptographic mechanisms to safeguard your account.
- 11. Sending & Receiving Cryptocurrencies You can send and receive currencies through your wallet by providing the sender with your public key. This key is different from your private key and is used to identify where the currency will be sent. You should never share your private key with anyone else. The key is a string of letters and numbers that is backed by a series of complex mathematical equations, making it next to impossible to crack.
- 12. Mining Mining is the process by which transactions are verified and added to the public ledger (blockchain). Mining is also the process through which new cryptocurrencies are released. ‘Miners’ are programmers who help the system approve and confirm transactions. When a transaction is “pending” it means that a miner is working to verify the transaction on the blockchain. Anyone with internet access and proper hardware can participate in mining.
- 13. Currency Markets & Exchanges As with all ‘fiat’ currencies, the backing is freely tradable on currency markets and exchanges. The same goes for cryptocurrencies, like Bitcoin (BTC), Ethereum (ETH), and many others. Also similar to traditional ‘fiat’ currencies, currency exchanges are required to convert traditional money into cryptocurrency. Think of them as a Forex exchange for cryptocurrency. Ex: Converting dollars (USD) to Bitcoin (BTC) through a currency exchange like Coinbase.
- 14. Ethereum Ethereum is more than a cryptocurrency, it is an open source platform that allows for the decentralized verification of transactions. This means that sub- currencies can be created that are all secured by the blockchain and Smart Contracts. Ethereum allows bitcoin operators to create their own currency.