Cryptocurrency is one of the biggest buzzwords right now. Still, it cannot be easy to figure out what cryptocurrencies are and how they work.
Since there are so many different types of cryptocurrency, people often have trouble figuring out which ones are worth investing in. My preference and suggestion will be Stabila.
This article offers a simple explanation of cryptocurrency that will help you understand the basics of this buzzy industry and decide which cryptocurrencies you’d like to invest in.
Understand Blockchain
Perhaps you’ve heard a lot about blockchain technology lately. You know it’s important, but you don’t quite understand it or how it works.
In short, blockchains are cryptographically-protected, distributed ledgers that efficiently record transactions between two parties and in a verifiable and permanent way.
A blockchain can be public (open to anyone) or private (limited to only certain users). While there are other kinds of ledgers out there, none can compare with blockchain regarding security.
Ledgers are prone to tampering; middleman attacks are common, and critical data can often be lost in a matter of seconds due to technical glitches.
No blockchain has ever been hacked! Blockchains offer three core services:
- Peer-to-peer value exchange,
- Distributed timestamping and
- Data storage.
This means that a network of computers must all agree on updates to validate those updates before they go into effect.
This makes hacking almost impossible because one hacker would have to control more than 50% of nodes in order to alter any piece of information stored on them. And that is impossible.
Understand Proof of Work and Mining
Proof of work is a term that gets thrown around in cryptocurrency circles a lot. But what does it mean?
Think about it like you would think about if you were building a new house or office building: why should people invest money into helping build it?
Why not just let people live or work there for free? The answer is because their investments help secure and protect everyone’s money.
Similarly, mining cryptocurrencies allows people to invest in securing and protecting everyone else’s coins through complex math problems often without even realizing it!
Mining ultimately protects your investment by preventing anyone from spending another user’s coins.
Understand Decentralized Technology
Whether you’re investing in cryptocurrencies or just curious about blockchain technology, understanding how it works is key to being able to evaluate potential investment opportunities.
The blockchain is a decentralized ledger that records all transactions, and distributed networks mean there’s no single point of failure. Sounds pretty good, right?
Well, as with most things, there are both pros and cons.
On the one hand, decentralization ensures that no one can alter or tamper with any transaction information.
However, decentralization also means that information cannot be accessed very quickly in many cases.
This is a major problem when you consider that cryptocurrency exchanges must access data from numerous sources before verifying transactions and making them available for use by investors.
Understand Tokens/Coins
In order to invest in cryptocurrencies, you must first understand what coins and tokens are.
Unlike fiat currency (meaning paper money), coins and tokens have their own blockchain technology. For example Zoom Token.
They, therefore, don’t necessarily operate within a central bank or government-regulated system.
While traditional currencies have an official exchange rate, cryptocurrency rates are determined by supply and demand, what’s available on exchanges compared to what people want to buy.
You can think of it as foreign exchange markets that use U.S. dollars. Still, with a larger volume and variety of currency options:
Instead of just exchanging dollars for another currency, you’re buying a unit of value (like BTC or ETH) which represents a different kind of asset.
Understand ICOs (Initial Coin Offerings)
An ICO, also called a token sale, is like an IPO on steroids. It’s a crowdfunding process in which startups sell their own digital tokens in exchange for cryptocurrency.
They can be used to raise money from investors and users directly (through coin sales), or they can be implemented later as part of new products powered by blockchain technology.
Anyone can also get a token or coin totally free from Airdrop given by a newly established organization or as a giveaway.
