Crypto Basics

What is Cryptocurrency?

Cryptocurrencies are digital currencies that are encrypted (secured) using encryption methods, also known as cryptography. Cryptography makes it nearly impossible to counterfeit or double-spend. Cryptocurrency is unique for a lof of reasons. Its main function, though, is to serve as an electronic cash system that isn’t owned by any one party. Cryptocurrency is powered by a public ‘ledger’ that records and checks all transactions chronologically. This is known as the ‘blockchain’.

Perhaps the most famous, and first cryptocurrency is bitcoin, created in 2009. The success of Bitcoin has led to the creation of a large number of other cryptocurrencies which are similar but serve different user cases. There are now thousands of cryptocurrencies available such as Etherium, Ripple and Litecoin, also known as ‘altcoins’. Much of the interest in these unregulated currencies is to trade for profit, with speculators at times driving prices skyward.

Whats is Blockchain?

A blockchain is a type of database, based on a peer-to-peer (P2P) topology. The difference between a traditional database and a blockchain is the way the data is structured. A blockcain is also referred to as a distributed ledger technology (DLT). A blockchain collects information together in blocks, that hold sets of information. These blocks have certain storage capacities and, once filled, are chained onto the previously filled block. Toether they are forming a chain of data known as the ‘blockchain’. This makes it so that all blockchains are databases but not all databases are blockchains.

When a block is filled it cannot be changed anymore and becomes a part of this timeline. Each block in the chain has an exact timestamp when it is added to the chain. The timeline is therefor irreversible.

What is Bitcoin?

Bitcoin is a decentralized digital currency that you can buy, sell and exchange directly, without an intermediary like a bank. Bitcoin’s creator, Satoshi Nakamoto, originally described the need for “an electronic payment system based on cryptographic proof instead of trust.”

Each and every Bitcoin transaction that’s ever been made exists on a public ledger accessible to everyone, making transactions hard to reverse and difficult to fake. That’s by design: Core to their decentralized nature, Bitcoins aren’t backed by the government or any issuing institution, and there’s nothing to guarantee their value besides the proof baked in the heart of the system.

What is Ethereum?

Ethereum is an open-source platform that uses blockchain technology to create and run decentralized digital applications, or “dapps” that enable users to make agreements and conduct transactions directly with each other to buy, sell and trade goods and services without a middle man. For instance, users can bypass banks to transfer money, skip using a lawyer to draw up a sales contract and launch their own fundraising site for project crowdsale rather than going through a crowdfunding Internet site, among other uses.

Ethereum operates via a global network of computers that work together as a supercomputer. The network assembles and runs smart contracts – applications that are, in theory, independent from any third party interference or censorship, as the blockchain is resistant to tampering. Smart contracts run exactly as programmed, greatly reducing the risk of fraud, and are self-executing, like an automat or vending machine that carries out the contract terms digitally. Once certain conditions are proven to have been met, such as the transfer of a payment, then the merchandise is conveyed or made accessible to the buyer.

What is a bull market?

A bull market is the condition of a financial market in which prices are rising or are expected to rise. The term “bull market” is most often used to refer to the stock market but can be applied to anything that is traded, such as bonds, real estate, cryptocurrencies and

Because prices of securities rise and fall essentially continuously during trading, the term “bull market” is typically reserved for extended periods in which a large portion of security prices are rising. Bull markets tend to last for months or even years.

What is a bear market?

A bear market is when a market experiences prolonged price declines. It typically describes a condition in which securities prices fall 20% or more from recent highs amid widespread pessimism and negative investor sentiment. Bear markets are often associated with declines in an overall market or index, but individual securities or commodities can also be considered to be in a bear market if they experience a decline of 20% or more over a sustained period of time—typically two months or more. Bear markets also may accompany general economic downturns such as a recession.

What is staking?

At a very basic level, “staking” means locking your crypto assets in a proof-of-stake blockchain for a certain period of time. These locked assets are used to achieve consensus, which is required to secure the network and ensure the validity of every new transaction to be written to the blockchain. Those who stake their coins in a PoS blockchain are usually called “validators.” For locking their assets and providing services to the blockchain, validators are rewarded with new coins from the network.

What is DeFi?

Decentralized Finance or “DeFi” (deef-eye) is a novel financial system that operates independently and does not rely on centralized financial intermediaries like banks, credit unions, or insurance funds. Instead, users have the ability to transfer, trade, invest, and transact peer to peer using cryptocurrencies and digital assets via automated smart contracts, eliminating the need for these slow and costly intermediaries.

DeFi is underpinned by advanced distributed ledger technology (DLT) – or blockchain – that aims to disrupt the current financial order and allow for a more transparent and equitable financial system.

What is a smart contract?

A smart contract is a self-enforcing agreement embedded in computer code managed by a blockchain. The code contains a set of rules under which the parties of that smart contract agree to interact with each other. If and when the predefined rules are met, the agreement is automatically enforced.

What is cryptography?

Cryptography provides for secure communication in the presence of malicious third-parties—known as adversaries. Encryption uses an algorithm and a key to transform an input (i.e., plaintext) into an encrypted output (i.e., ciphertext). A given algorithm will always transform the same plaintext into the same ciphertext if the same key is used.

Algorithms are considered secure if an attacker cannot determine any properties of the plaintext or key, given the ciphertext. An attacker should not be able to determine anything about a key given a large number of plaintext/ciphertext combinations which used the key.

What is a Crypto Wallet?

A cryptocurrency wallet is a secure digital wallet used to store, send, and receive digital currency like Bitcoin. Most coins have an official wallet. In order to use cryptocurrency, you’ll need to use a cryptocurrency wallet.
Some wallets are built for a single cryptocurrency, some can be used for more than one coin, some wallets you’ll manage yourself, and some (like those found on exchanges) will be custodial. Suffice to say, there is a range of wallet types to choose from.

What is a fork

Blockchain forks are essentially a split in the blockchain network. The network is an open source software, and the code is freely available. This means that anyone can propose improvements and change the code. The option to experiment on open source software is a fundamental part of cryptocurrencies, and also facilitates software updates to the blockchain.

Forks occur when the software of different miners become misaligned. It’s up to miners to decide which blockchain to continue using. If there isn’t a unanimous decision, then this can result in the creation of two versions of the blockchain. There can be periods of increased price volatility around such events. 

What is a bitcoin halving?

Bitcoin halving is the process of halving the rewards of mining bitcoin after each set of 210,000 blocks is mined. By reducing the rewards of mining bitcoin as more blocks are mined, bitcoin halving ensures that the amount of bitcoin in circulation does not increase exponentially, which also tends to put upward pressure on its price.

For every 210,000 blocks that are mined, the reward for mining a block falls by half. For the first 210,000 blocks in bitcoin’s early days, the reward was 50BTC per block. As more blocks were mined and more bitcoins went into circulation, the first set of 210,000 blocks were mined by 2012, and the reward was cut in half to 25BTC.

By 2016, the second set of 210,000 blocks were mined, and the reward was cut to 12.5BTC. The latest halving occurred in May 2020, upon the completion of 630,000 blocks (the third set of 210,000 blocks), and the reward is now 6.25BTC per block.

It takes roughly four years for 210,000 blocks to be mined. Consequently, bitcoin halving usually occurs in four-year intervals. The next halving is predicted to take place in 2024.

What is inflation

Inflation is the decline of purchasing power of a given currency over time. A quantitative estimate of the rate at which the decline in purchasing power occurs can be reflected in the increase of an average price level of a basket of selected goods and services in an economy over some period of time. The rise in the general level of prices, often expressed a a percentage means that a unit of currency effectively buys less than it did in prior periods.

Inflation can be contrasted with deflation, which occurs when the purchasing power of money increases and prices decline.

What is Market cap?

Within the blockchain industry, the term market capitalization (or market cap) refers to a metric that measures the relative size of a cryptocurrency. It is calculated by multiplying the current market price of a particular coin or token with the total number of coins in circulation.

Market Cap = Current Price x Circulating Supply

What is Mining?

Mining is the process through which cryptocurrency transactions are gathered, verified and recorded into a digital ledger known as blockchain. The work done by miners is essential for maintaining the integrity of the network and is also responsible for introducing new coins into the system.

What is a token?

Tokens, generally speaking, are non-mineable digital units of value that exist as registry entries in blockchains.

Tokens come in many different forms – they can be used as currencies for specific ecosystems or encode unique data (see A Guide to Crypto Collectibles and Non-Fungible Tokens). Additionally, some tokens might be redeemable for off-chain assets (i.e., gold, property, stocks).

Tokens are generally issued by companies using existing third-party blockchains such as the Ethereum blockchain, as exemplified by the many ERC-20 tokens that were issued and sold through ICOs in 2017. Strictly speaking, tokens are not cryptocurrencies like Bitcoin or ether, but transferable units of value issued on top of a blockchain.

What is a node?

Since cryptocurrency is distributed many computers around the world have to run the software. Any computer running a copy of the software is “a node.” A full node runs a full copy of the blockchain.

What is a Cryptocurrency Exchange?

Cryptocurrency exchanges are online platforms in which you can exchange one kind of digital asset for another based on the market value of the given assets. The most popular exchanges are currently Binance and GDAX. It is important not to confuse cryptocurrency exchanges for cryptocurrency wallets or wallet brokerages. Cryptocurrency wallets and wallet brokerages generally allow you to buy and sell a small range of popular digital assets (Bitcoin and Ethereum), which you can then send to a different exchange to trade for other digital assets like altcoins. This statement is not entirely exclusive though; most cryptocurrency exchanges will usually limit their users to only trade digital assets for digital assets, but a few allow trades of fiat currencies such as U.S. Dollars for cryptocurrencies. An example of such an exchange is Kraken, which currently accepts funds in the form of USD, JPY, CAD, and GBP, and supports trades with Monero, Ripple, and Litecoin as well as Bitcoin and Ethereum.