Cryptocurrencies are radically changing our lives, but you don’t need to be an expert to understand the impact of these coins. You can start learning and gaining knowledge with Enkronos here.
You’ve probably heard of crypto, given the media and popular culture attention it’s received over the past few years. But you may be struggling to fully understand what it is and what it represents.
Today, 16% of Americans use crypto (source: https://www.pewresearch.org/fact-tank/2021/11/11/16-of-americans-say-they-have-ever-invested-in-traded-or-used-cryptocurrency/), and many more people around the world are buying and selling coins. No matter what aspect of the crypto world interests you, it’s important to learn the basics of crypto.
This article will help you get started the right way by explaining the basics of crypto to beginners.
What is Cryptocurrency?
Cryptocurrency is a peer-to-peer type of digital asset that can be used as digital money. In other words, they can be used to store and exchange value.
Cryptocurrencies are built on blockchains or distributed ledger technology. A blockchain or distributed ledger is a record of all transactions that take place on a network. These transactions can be verified by anyone, and the ledger is maintained by decentralized networks of computers. These networks create an open and auditable account of the state of the cryptocurrency network. This allows blockchains to operate without any centralized intermediaries or banks.
Launched in 2009, Bitcoin was the first cryptocurrency and created blockchain technology.
How Do Blockchains Work?
The first step to understanding the basics of crypto is to learn about blockchain technology. Blockchain is a public, distributed ledger that records all transactions on a given network. This ledger is constantly growing as cryptocurrencies are transferred, whether through buying or selling. Parties in a blockchain network, such as a node or validator, ensure that only legitimate transactions are added to the chain. This distributed network replaces centralized authorities for important functions such as validating transactions and preventing users from using crypto that does not belong to them.
How are Transactions Executed?
In traditional financial networks, the validity of transactions is guaranteed by banks and other financial institutions. Cryptocurrencies, on the other hand, use “consensus mechanisms” to verify transactions, add them to the blockchain, and create new tokens. The two most common consensus mechanisms are Proof of Work and Proof of Stake.
In proof of work, people known as “miners” compete to be the first to solve complex math’s problems to have the right to update the blockchain. The first miner to reach the solution receives a predetermined number of tokens as a reward. Mining is an energy-intensive process, but it has proven successful and offers a high level of security and decentralization.
Proof of stake replaces the computational power of miners with a financial commitment from stakers. In this mechanism, users’ stake (i.e. lock) their tokens for the chance to verify new transactions, update the chain, and earn rewards.
How Many Cryptocurrencies Are There?
There are currently over 18,000 different cryptocurrencies. Some of the most prominent ones are Bitcoin, Ethereum, Solana, and even memcoins like Dogecoin.
On the one hand, the reason why there are so many cryptocurrencies is that the technology is open-source and can be easily copied. On the other hand, the past decade has shown us that cryptocurrencies can only grow and thrive if they can attract a network of enthusiastic developers and token holders.
How Secure is Crypto?
Most major cryptocurrencies are highly secure due to the sheer number of resources used to secure these networks through mining or staking. This means that it is very, very difficult for malicious actors to fake transactions in major cryptos.
At the same time, cryptocurrencies are self-sovereign digital assets. In other words, attacks and thefts can occur due to user errors. In recent years, high-profile attacks have resulted in the loss of millions of dollars’ worth of cryptocurrencies.
You can achieve the highest security to protect your coins by using a cold wallet that is not connected to the internet. If you trade your crypto frequently, it’s important to make sure that the exchange or wallet where you hold your tokens has an impeccable reputation for security (and even then, there is risk).
Is Crypto Regulated?
One of the most common misconceptions about crypto is that this world is the Wild West where there are no rules. This has nothing to do with reality. There are numerous legal regulations around the world that cryptocurrencies must comply with. In certain jurisdictions, it is even common to find different regulators focusing on different areas of the crypto industry. Crypto has become an important priority of countries around the world, and this development is welcomed by the industry.
Learn the Basics of Crypto and Catch the Change
Learning crypto can seem daunting at first. If you are still trying to learn the basics of crypto, you may be relieved to know that the crypto industry is still a young industry that is constantly evolving. As Enkronos, we are happy to be a part of your learning journey.