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CryptoShimbun: Cryptocurrencies and how they work

Cryptocurrencies or digital assets are one of the latest innovations in today’s generation. With the world rapidly entering the digital era, the advent of virtual currencies is something that further propelled the growth of technology. If before, people lined up in banks or payment centres to settle their transactions, now they can do all this with just a few clicks in a cost-effective and hassle-free manner.

In 2008, the first cryptocurrency, Bitcoin, was introduced to the world. Penned by an anonymous person under the pseudonym Satoshi Nakamoto, the Bitcoin whitepaper contained all the information that sparked a digital revolution in the banking and finance sector.

The idea behind this amazing invention introduced a counterculture to the traditional banking systems the world is used to. Its peer to peer concept allowed a seamless flow of payments between two parties without the need for middlemen to approve transactions. Due to this ingenious idea, expensive fees and red tape are eliminated.

If you’re curious to learn more about digital assets, here’s a basic rundown of how cryptocurrency works.

What is cryptocurrency?

A cryptocurrency is a digital asset that runs on a platform called the ‘blockchain’. Inside this network, cryptography processes the exchange of information between the nodes. That’s why cryptocurrency transactions are almost impossible to hack because a wall of codes and hashes protect the blockchain.

All the information about transactions is stored in a public ledger that people can access anytime.

The ‘coins’ used in cryptocurrency are created through a process called ‘mining’. This involves the use of high-powered computers to solve complicated algorithms that generate tokens. People who do this are called ‘miners’.

The blockchain is a decentralized platform. No one can change or alter the information stored inside it. Additionally, no one owns this ledger of information, so it’s free from laws, taxes and government interference.

How do transactions get verified?

Before a cryptocurrency transaction gets verified, a blockchain miner has to confirm it. Once your transaction is verified, the details will be recorded in the blockchain as permanent data.

As mentioned above, crypto transactions are possible because of the high-tech processors used by the miners. Since the network is open-sourced, everyone is open to join as a miner. After the transaction is finished, miners can add it to the ledger to create a ‘block’. This process is referred to as the ‘proof-of-work-system’.

For every block processed by miners, they are rewarded with incentives and it varies depending on the blockchain. For example, BTC miners are rewarded with 12.5 BTCs for their effort.

Where to store your cryptocurrencies

Unlike regular fiat currencies, digital assets can’t be kept in a regular wallet. Depending on what kind of user you are, there is a wide range of wallets available in the market. Your crypto wallet is not just a place to keep your tokens; it’s also the place where you can track and validate the existence of your cryptocurrencies.

A crypto wallet consists of public and private keys. These keys allow you to utilise your assets within the blockchain network.

Here are the type of wallets you can try:

Mobile wallets – Mobile wallets are the most accessible storage you can use for cryptocurrencies. You can download this on your phone or any device that you can connect to the internet. However, this wallet provides less protection from hackers. If your intent is to keep all your crypto savings in this wallet, it’s not recommended. Mobile wallets are only good for quick transactions such as paying bills or purchasing items.

Hard wallet – Also known as cold storage, hard wallets are the best option for people who want to secure their cryptocurrencies. Usually, hard wallets come in the form of USB sticks that you can plug into any device. You can increase the security by adding two-step verification and a PIN password.

If you want to invest in huge amounts of cryptos, you should opt for this wallet. Since it’s not connected to the internet, it’s not vulnerable to cyber-attacks.

Top cryptocurrencies you need to know about

After Bitcoin was introduced, different cryptocurrencies have sprung out in the market. Over the past few years, a lot of digital assets have been available and offered users and investors new ways to settle their finances. Here are some of the top cryptocurrencies you should know about!

Bitcoin – As the first-ever cryptocurrency in the market, Bitcoin ranks as the most used and reliable coin in terms of scalability and market capitalization. Often referred to as the ‘King of cryptocurrencies’, Bitcoin has one of the highest liquidity in the market.

Litecoin – Also known as the silver to Bitcoin’s gold, LTC is the brainchild of Charlie Lee. The aim of Litecoin is to fix the minor issues of Bitcoin such as the slow transaction time. While Litecoin has a smaller market capitalization compared to other currencies, it has a steady performance that crypto users admire.

Ethereum – Ethereum is a digital currency invented by Vitalik Buterin. Unlike other assets, Ethereum can be used to execute smart contracts, giving developers the ability to create decentralised applications or ‘Dapps’ using the Ethereum blockchain. Because of its versatility, Ethereum has garnered the attention of investors in various industries.

In addition, Ethereum is known as second only to Bitcoin in terms of market capitalization and utility in the crypto sphere.

Tron – Tron is another promising virtual token in the market. Invented by Justin Sun, the TRX is an ERC-20 coin that can be used by content to pay creators for using their content. With TRX, high fees charged by third-party platforms are eliminated.

Ripple – In terms of market capitalization and liquidity, Ripple comes third in the list. Unlike other cryptos, Ripple works a little differently. This digital currency is set on creating a digital village where banks and users can have a seamless transaction. This is possible through the solutions they offer, namely: XRapid, XVia, and XCurrent.

Now that you know the basics of how cryptocurrency works, you can dip your hands in the exciting and thrilling world of digital assets and start investing!

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