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Learn more about crypto-currency before going into real trading
What Is Crypto-currency?
The fundamental idea behind crypto-currencies is interesting and curious from the point of view of technology and data storage. This article is dedicated to the crypto-currency concept and explains how it works.
What is crypto-currency?
First of all, crypto-currency is a kind of digital currency, where data circulation and accounting are automatic in a decentralized system and is not administered by anyone. The basis of crypto-currency is a blockchain, a place where information is stored with the help of encryption and other cryptographic methods in order to ensure the validity of the work done in the blockchain network (transactions, calculations, etc.) or validate the ownership of crypto-assets (Proof-of-stake).
Features of Crypto-currency
Further, the main distinctive feature of crypto-currency includes the method of their creation or issuance. As you know, each crypto-currency is built on a blockchain system. Cryptocurrencies have no centralized authority and control institution. All operations and transactions that take place within the network are verified and validated by the participants of this network. In other words, the system is self-managed. Moreover, cryptographic blocks in the network are formed from operations that are stacked on top of each other.
All blocks are connected in a continuous chain, thus new blocks carry cryptographically encrypted information about previous blocks. Important to know, this method provides high crypto-currency security and reliability against hacks since it is impossible to enter information into one block without modifying all subsequent blocks. In general, the formation of new blocks in crypto-currency is called issuance.
This operation is a continuous process of generating new blocks in the crypto-currency network. Thus, there is a difference from traditional currencies where the emission is made by printing and stamping new monetary units, but the emission of crypto-currencies is executed by the mining process.
Important to know, crypto-currency emission occurs in several forms:
- one-time issuance of all crypto-currency coins, that prevents mining;
- limited issuance, with the possibility of mining;
- directly dependent on mining and unlimited issuance.
As you know, the most popular crypto-currency is bitcoin. A vast number of crypto-currency derivatives based on bitcoin source code. However, why are there so many crypto-currencies if they all function the same as bitcoin? A vast number of crypto-currencies took only the source code from the bitcoin project but then they were developed and improved for private goals and objectives. Thus, there are several generations of crypto-currencies that are aimed to improve such functions as the speed of transferring information, transaction speed, decrease commissions and fees, improving safety and privacy, etc. Besides bitcoin counterparts, there are many other crypto-currency projects, such as Ethereum that is second by capitalization position. Nowadays, Ethereum is an example of a crypto-asset with unlimited issuance.
Cryptocurrency transactions are based on unique payment methods. Since there is no administration in crypto-currency, it is impossible to reverse transactions as sometimes happens in banking systems. However, the uniqueness of protection provides the involvement of intermediaries, transactions in the crypto-currency network can not be carried out with the participation of only one party since you always need to involve several users-intermediaries to validate the transaction. Sometimes the participants of the network can block or freeze the funds until all parties come to a consensus.
Also, all crypto-currencies are based on a pseudonymous transaction method. It means that every user of the network can see all the information about transaction data or account address, but the information about the owner is not available. Despite the facts above, everyone should take care of the security of their crypto wallet. Using reliable platforms, setting 2FA and antivirus will provide an appropriate security level.
However, the development of crypto-currencies is directed towards switching from the pseudonymous method to a completely anonymous one. All the information above proves that the fundamental idea of the crypto-currencies features is based on their generating method, autonomy, reliability, and anonymity. Perhaps, the concept of crypto-currencies will be improved with many new features added in the future.