In 2008, Satoshi Nakamoto wrote a whitepaper about a decentralized, peer-to-peer (P2P) currency they called Bitcoin (BTC). Released in 2009, it became the standard for cryptocurrency and is often referred to as “digital gold”
Cryptocurrency Explained “Crypto 101. — Dreamstime #223469416. In this article, I have embedded the explanation for many of the terms common to cryptocurrency so that you can read without interference and click on the terms for which you need clarification.
Cryptocurrencies are virtual or digital coins and tokens that are decentralized and permissionless . That means there is no central bank or government interference or manipulation. “Decentralized finance (DeFi) is an emerging alternative ecosystem of financial products. It builds on blockchain technology, the underpinning of cryptocurrencies, and relies on networks of computers around the world.” — Titan . Cryptocurrency In 5 Minutes | Cryptocurrency Explained | What Is Cryptocurrency? | Simplilearn
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Well, many governments have at least some regulations on cryptocurrencies, and China has flat-out banned cryptocurrency exchanges. China introduced the digital Yuan, considered a Central Bank Digital Currency (CBDC).
It’s rumored that 86% of the world’s economies are looking at developing a CBDC , and two countries have adopted BTC as their national currency.
BTC and alternative coins (altcoins) are encrypted, verified, and placed on the blockchain. Digital currencies use complex cryptography.
A blockchain is a block of data on a distributed ledger , and crypto placed on the blockchain must be verified for authenticity to prevent counterfeiting, fraud, or double spending. Cryptocurrency Explained for You — Dreamstime #115051092. Many governments believe cryptocurrency is a “hot bed” for criminal activity.
To fight that, exchanges must enforce the Anti-Money Laundering (AML) Act of 2020 and Know Your Customer (KYC) requirements.
However, many exchanges have gotten a bad reputation because they don’t enforce identity verification when you sign-up but wait until you try to make a withdrawal.
Many cryptocurrency platforms have projects like centralized applications (DApps) , Smart contracts , money transfers, non-fungible tokens (NFTs) , etc. The exception is likely BTC and meme coins like DOGE, Shiba Inu, and others.
Many altcoins and even BTC’s prices can be volatile. In fact, BTC lost nearly $10,000 in price in a single day . Therefore, these are not good for money transfers because when you send money, particularly across borders, you usually have a reason for doing so, such as paying bills, family maintenance, purchasing goods and services, etc.
In this vein, stablecoins, customarily pegged to the local currency, were created .
XRP, created by Ripple Labs for money transfers and other decentralized “banking” activities, has a maximum supply of 100 billion coins. Therefore, it would be an excellent tool for money transfers as it only cost 25 cents to send any amount. However, Ripple Labs and the Security & Exchange Commission (SEC) are in the middle of a civil suit , and XRP cannot be purchased in the USA.
Verification is accomplished by a consensus mechanism known as Proof-of-Work (PoW) “miners” who use massive computer energy to verify the data, or by coin owners who perform Proof-of-Stake (PoS) verification by “locking” their coins for staking. PoS uses much less energy or computer power than POW.
Miners receive a reward for performing the verification, often called gas fees. Staking , on the other hand, typically pays an “in kind” (if you stake ETH, you get ETH) reward as an annual percentage yield (APY). This process is like a certificate of deposit from a bank.
Cryptocurrency has many tokens used primarily for rewards for staking and play-to-earn (P2E) games . When games first came to the internet, we could buy items for in-game play but couldn’t take them out of the game, so technically these items weren’t ours.
Now, with NFTs we can buy the items, and they are ours. Many of these NFTs are sold for millions, not necessarily in-game items (though some of these are fetching high prices too) but other original artworks, etc.When you buy cryptocurrency or NFTs, you have three choices, you can keep those items on the exchange where you bought them, put them in an online wallet, like MetaMask , Zelcore (heavily involved with FLUX), ZenGo , and others, or purchase and use a “cold wallet.” The first two options are not as secure as a cold wallet. There have been many instances of exchanges getting hacked and investors losing their cryptocurrency.Likewise, online wallets are more secure than leaving your crypto on an exchange but not as secure as a cold wallet that takes your coins offline and onto a […]
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