Understanding Cryptocurrency - Store and transact Bitcoin

Table of Contents

In this tutorial, we will explore the original and best implementation of blockchain technology—cryptocurrency. Cryptocurrency is much more than just a blockchain application; it makes use of cryptographic primitives such as digital signatures to achieve asset management by using atomic events called transactions.

Cryptocurrency is a type of digital payment system that does not rely on banks to validate transactions. It is a peer-to-peer payment system that lets anybody, anywhere, send and receive money. Cryptocurrency is a payment method that exclusively exists on the Internet. It does not have a paper expression, and its value is not affected by the state. The first digital token, bitcoin, debuted in 2009, and the number of cryptocurrencies has grown steadily since then. Read the history of Bitcoin

Cryptocurrency derives its name from two words, namely, cryptography and currency; a digital currency controlled by cryptography.

Cryptocurrency Types

Decentralized: These are cryptocurrencies that are obtained by mining. For example, Bitcoin and Ethereum.

Pseudo-decentralized: The issuance and circulation of such currencies is controlled by a small number of people who may also decide to ban the owners' accounts. At the same time, it is difficult to obtain electronic money by mining; instead, they purchase pseudo-decentralized currency. These cryptocurrencies include Bitcoin Cash, Ripple, TRON, and EOS.

Stablecoins: Because the cost of such a currency is linked to some value, rather than another cryptocurrency, its price fluctuates more often than other currencies. For example, the Gemini Dollar is equivalent to one US dollar, while the DigixDAO is equal to one gram of gold. Stablecoins, which are backed by national currency, are totally centralized. Tether Limited, for example, has launched the Tether cryptocurrency, which is backed by 20% of the organization's US dollar holdings.

Coins and tokens

Coin: It is a cryptocurrency monetary unit that works on its own blockchain. It may be gained via mining, which involves providing the system with your computer's CPU power. Coins may be exchanged and sold to other blockchain users for ordinary cash. Some businesses accept them in exchange for products and services.

On the revised bitcoin blockchain, there are coins that operate. Alternate versions of Bitcoin are known as "altcoins."

Token: This digital monetary unit is built on top of an existing blockchain. They cannot be gained, but they may be purchased or obtained for use in activities. They are utilized to provide the user with access to the platform's features. It may be traded for ordinary currency at the current exchange rate.

Token vs Cryptocurrency

Sometimes, the terms token and cryptocurrency are used interchangeably, which is not correct. Tokens are a different concept from cryptocurrency.
A cryptocurrency is a native coin for a standalone blockchain.
In contrast, a token is a representation of the value of some asset. It is usually built on top of an existing blockchain. For example, ether is the native cryptocurrency or coin of the Ethereum blockchain.
Similarly, Bitcoin is the original (inherent) coin or cryptocurrency of the Bitcoin blockchain.
On the other hand, a token is created on top of an existing blockchain and does not have its own native and dedicated blockchain.
For example, Binance token, 0x, Tether, and Basic Attention Token (BAT) exist on top of the Ethereum blockchain and do not have their native blockchain.
There are thousands of tokens that exist on Ethereum and other blockchains.

Why is cryptocurrency safe to use?

To transfer funds, unique addresses are used: they are generated by the system for each activity.
Transactions are open and transparent, yet data cannot be linked to a specific person or place.
The actions are carried out instantaneously and cannot be intercepted; the addresses' legitimacy is checked using encryption keys.

ALSO READ: What is Web 3.0 and How does it work?

What factors influence the price of a cryptocurrency?

The supply and demand of network members impacts the price of a cryptocurrency. It is not affected by the state or national currency. The greater the popularity of a cryptocurrency, the more users it draws. This indicates that the number of operations rises, as does the value. The price of a cryptocurrency declines when there are fewer users.

Is cryptocurrency equivalent to digital gold?

Are there any common elements that influence both cryptocurrency and precious metals such as gold, platinum, and silver? The answer is that there are no factors that are both essential for the precious metals market and have a statistically significant influence on cryptocurrency value. In this respect, cryptocurrencies are not digital gold since the variables influencing their prices are not the same as those influencing the exchange price of precious metals.

Risks

The usage of bitcoin is fraught with danger due to the fact that it is not controlled by the government. Here are some of the difficulties that may arise:

Instability and abrupt swings in the market;
the possibility of depreciation of cryptocurrencies with limitless emission, such as Ethereum;
the opportunity to lose all coins if the wallet key is lost.

Where can I acquire cryptocurrency?

To store currencies or tokens, an electronic wallet is required. There are various ways to get bitcoin into your wallet.

Mining: the process of creating a new block in the network in exchange for a reward. To accomplish this, you must equip the system with computational power.

Staking: Staking income is determined by the quantity of existing cryptocurrency tokens. This is a type of investment in which the owner donates money to the blockchain's maintenance and receives a reward for doing so.

Purchase: You may purchase cryptocurrencies. There are exchanges where people may sell and purchase digital currencies for other cryptocurrencies or national cash. You must pay a commission for the trade.

ALSO READ: Learn about NFTs (Non-Fungible Token) & how they are changing Art world?

Trading: Trading in cryptocurrencies is comparable to trading in traditional markets. It is founded on the premise of "buy low, sell high." The significant volatility of cryptocurrency prices enables fast transactions. Trading takes place on trading floors.

How to Store Cryptocurrency Safely?

Keeping your bitcoin on the exchange is the simplest and most convenient option. You will be able to swiftly trade your assets for cash or stablecoins as a result of this. At the same time, it is considered that trading platforms are not the safest places to be, since they are all vulnerable to hacker assaults.

Digital assets may also be stored in browser-based crypto wallets or programs on your phone or PC. Some of them allow you to pay for products and services using cryptocurrencies or swap them for cash and other currency.

The most secure way to store bitcoin is a hardware wallet. However, in this instance, the user is unable to rapidly dispose of their bitcoin if unanticipated circumstances arise. To sell your coins, you must employ the services of a crypto exchange or exchanger, which takes time.

Bitcoin Wallet and Transactions

To get ownership of bitcoins, users of the bitcoin network just need an address and a private key. As previously stated, a private key can be used to encrypt a digital signature.You will not be able to access bitcoins without a private key, and you will not be able to confirm that this is your bitcoin. Therefore, store the private key in the safest location possible.

You will receive the private key along with the bitcoin address. A key is a 256-bit character sequence that may alternatively be expressed in alphanumeric format. Some people choose to show it in hexadecimal. The Wallet Import Format (WIF) is the most often used format, with 51 characters (letters and digits) used for recording, the first of which is always the number 5.

ALSO READ: Understanding Blockchain Trilemma in Detail

Everything is quite straightforward here: if you need to transfer money to someone, all you need is that person's bitcoin network address, and the transaction can be completed using a bitcoin wallet.

Online retailers and services that take bitcoins for payment often have a specific button on their website that, when clicked, opens your bitcoin wallet, from which you may pay for everything. When wallets are installed on mobile devices, they frequently display a QR code that may be scanned.

Summary

Cryptocurrency is a peer-to-peer payment system that lets anybody send and receive money. The first digital token, bitcoin, debuted in 2009, and the number of cryptocurrencies has grown steadily since then. The most secure way to store bitcoin is a hardware wallet. Digital assets may also be stored in browser-based crypto wallets or programs on your phone or PC. To sell your coins, you must employ the services of a crypto exchange or exchanger, which takes time.