Cryptocurrency Guides for Beginners
The cryptocurrency industry is fast growing and with it a lot of innovations, in over a decade, the industry has seen over $1 trillion dollars market capitalization making it to be the fastest-growing industry so far.
As the industry evolves, due to the constant influx of capital and people, the need for knowledge in the crypto industry also becomes increasingly necessary.
In this article, we would be looking at some basic knowledge needed to easily navigate the cryptocurrency industry for beginners, as it would serve as a great foundation as you begin your crypto journey.
Firstly we need to thoroughly understand the meaning of the term cryptocurrency and how it works, its purpose, advantages, and uniqueness
Meaning of cryptocurrency
Cryptocurrency is known as digital assets used as currencies created to serve as a medium of financial exchange between two users and uses cryptography to secure financial transactions.
This is a process of using secure communication techniques to pass information in an encrypted manner. In this process, the data is encrypted by the Sender and can only be decrypted by the targeted receiver.
The major advantage of the cryptocurrency over traditional currency is the fact that no one has control over your transactions or is able to control when your unique account should be disabled or blocked. In summary Instead of using a centralized currency and central banking system, cryptocurrencies maintain decentralized control.
The decentralized control of each cryptocurrency works through distributed ledger technology, known as the “blockchain”, which serves as a public financial transaction database, which can also be called the crypto decentralized bank.
The data on the blockchain is publicly available and stored on many computers, hundreds of thousands of transactions can be seen and monitored from the blockchain, but these transactions are extremely difficult/impossible to manipulate since there are so many copies being simultaneously maintained, the transaction and banking data is very safe.
The decentralized structure allows them to exist outside the government’s control.
Another advantage of cryptocurrencies is the fact that it is completely free from professional manipulation as you would always see in financial institutions today whereby transactions carried out in the past can be changed and tampered with by those who have access.
In the case of crypto, the transaction is difficult and even impossible to tamper with or change as they instantly become read-only and unchangeable as soon as the transaction is executed, this is because each blockchain entry relies on the hash (a computed value including part of a previous block as part of its hashing calculation for the current block).
This means that if a previous block is somehow modified or corrupted, its hash value will change and therefore the values after that point become broken, making the tampering evident for all to see.
So, in simpler terms cryptocurrencies are make-shift alternatives to the typical traditional currencies, while the blockchain can be also called the ledger for crypto transactions as every transaction that takes place is stored on the chain through a unique #Hash, which helps identify the transaction on the blockchain network.
Now that we understand what cryptocurrencies mean and some of their advantages and uniqueness, we would go on to look at the technology that cryptocurrencies use which we all know as blockchain technology, it is this technology that gives most cryptocurrencies their unique feature which is basically known as cryptography. Now let’s look at the meaning of blockchain technology.
Meaning of Blockchain
The blockchain is a list of transactions that anyone can view and verify. The Bitcoin blockchain, for example, contains a record of every time someone sent or received bitcoin. Cryptocurrencies and the blockchain technology that powers them make it possible to transfer value online in digital form without the need for a middleman like a bank or credit card company.
On the blockchain network transactions, hundreds of thousands of transactions are constantly been computed and processed, and as stated earlier due to the cryptographic nature of the blockchain, transactions carried out are secured.
A simple analysis of how blockchain technology works is this, just picture a chain you use for a ship’s anchor. But in this case, every link on the chain is a chunk/string of information that contains transaction data for every cryptocurrency transaction. At the top of the chain, you see what happened today, and as you move down the chain you see older and older transactions.
And if you follow it all the way down to the anchor sitting at the bottom of the harbor? You’ll have seen every single transaction in the history of that digital asset. This gives the blockchain powerful security advantages: it’s an open, transparent record of a cryptocurrency’s entire history. If anyone tries to manipulate a transaction it will cause the link to break, and the entire network will see what happened.
Also, the blockchain can be seen as a distributable ledger which means it records all the digital assets/money going into, out of, and through the chain network just like it is done in the typical banking system.
But unlike the bank system where these transactions are centralized and recorded by single entities thereby giving room for manipulations, the blockchain is totally decentralized in the sense that transactions on the blockchain network cannot be tweaked or manipulated.
Jan Lansky stated that blockchain technology is a system that meets six conditions
- The system does not require a central authority; its state is maintained through distributed consensus; which means it should be decentralized.
- The system keeps an overview of crypto units and their ownership, in essence, the system keeps an updated record of all cryptocurrency transactions that take place.
- The system defines whether new crypto units can be created. If new crypto units can be created, the system defines the circumstances of their origin and also how to determine the ownership of these new units. This means the system determines if new coins can be minted or if there can only be a fixed amount of crypto units on the blockchain technology. If more crypto units can be minted then it is properly verified and the creative source validated.
- Ownership of cryptocurrency units can be proved exclusively cryptographically. The ownership of crypto assets can be verified individually by the two parties involved only, that is because every transaction carried out on the blockchain is given a unique identifier known as the Transaction ID or the Transaction Hash, which is used to check records of the transaction.
- The system allows transactions to be performed in which ownership of the cryptographic units is changed. A transaction statement can only be issued by an entity proving the current ownership of these units. This goes further to prove the secured mode of operation of crypto transactions as only the person in possession of the crypto units can give a description of the digital assets.
If two different instructions for changing the ownership of the same cryptographic units are simultaneously entered, the system performs at most one of them. This is done to ensure that the blockchain technology is not spammed with multiple entries for the same crypto unit as only one command can go at a time for the same digital assets.
The cryptocurrency industry is very broad, therefore, this article has only given some basic knowledge, however, it would be helpful for beginners who are just getting started with crypto industry.