What are the basic concepts of cryptocurrency?
There is a whole world of knowledge to explore within the term cryptocurrency that may overwhelm you as a beginner. But don’t worry. We’ll help you get down to the nitty-gritty of the important concepts of cryptocurrency.
Let’s get started.
Cryptography. Cryptography is a secret writing enabling the exchange of messages or information that the intended recipient can only view. Such security is made with a combination of mathematical formulas, computer science, and engineering.
Decentralization. A decentralized structure doesn’t need a third party to work, allowing two users to connect directly. This is also known as peer-to-peer or P2P.
In cryptocurrency, having a decentralized structure means that transactions are distributed across multiple machines without relying on one main server. So if one machine fails, the transaction can continue without any issue.
Blockchain. A blockchain is a shared, unchangeable ledger holding lists of records, also called blocks, of digital asset data which are stored and chained together. Every new block that is added contains information about the previous and current block, such as time, price, and wallet address.
Wallet. You certainly need a wallet if you start trading cryptocurrencies. A crypto wallet is like your bank account, where you can keep digital currencies.
You can choose a hardware wallet, which is a physical USB that you connect and disconnect from your computer. Or you can use a software wallet, which is a program you can install on your preferred personal device. Between these two, the hardware wallet is usually the safer choice.
Mining and staking. Last but not least, crypto mining and staking are two ways to participate in the crypto network’s consensus and earn cryptocurrencies passively.
Staking involves locking up your crypto holdings for a certain period to aid in the blockchain’s operation, while mining is the process of adding a new cryptocurrency which would require you to run specialized hardware to solve complicated math problems and confirm transactions.
And there you have it. Now you’re equipped with the basic concepts to understand the complex world of cryptocurrencies.