What is Blockchain, and What Other Technologies Exist in Crypto? 

So, you already know where unique cryptocurrencies came from, right? I covered that last time. Now, it's time to delve into the technical side!

Cryptocurrency is DIGITAL MONEY that uses cryptography to secure your financial transactions. But the most interesting feature of these coins is that they are ABSOLUTELY OWNED BY NO ONE! No government police or banking brokers. Instead, an army of computer enthusiasts that are mining, creating, and fueling this crypto.

Moreover, cryptocurrencies have CRAZY PRICE VOLATILITY! One price today, a completely different one tomorrow. These swings give speculators a chance to grab a big slice of the pie, but also come with HUGE RISKS for your money!

To smooth out these price craziness, savvy folks have created "stablecoins" – relatively stable crypto assets. Their value is pegged to other assets like fiat currencies, commodities, or securities.

Tether (USDT), for example – one of these stablecoins. It appeared in 2015 from Tether Limited. Its value is strictly pegged to the US dollar on a one-to-one basis. So, it’s more stable compared to its wild crypto siblings.

Market capitalization is the TOTAL VALUE of all cryptocurrencies of a specific type circulating in the market. It's a crucial indicator that shows how MASSIVE AND INFLUENTIAL a particular cryptocurrency is!

Now, let's dive into mining – the sacred process of creating new crypto blocks. Miners use ENORMOUS COMPUTING POWER to solve extremely complex mathematical problems. When the hash of a block meets a pre-set value, the miner receives a reward in the form of cryptocurrency.

It's like checking and recording transactions on the blockchain. For their efforts, miners are rewarded with new coins.

There are two main consensus schemes used in blockchain networks:

• Proof-of-Work (PoW): This is a CRAZY RACE among participants to solve unrealistic mathematical puzzles. The winner gets the right to add a new block and COLLECT ALL THE PRIZES! But PoW is a RESOURCE-HUNGRY MONSTER that devours computing power and electricity.
• Proof-of-Stake (PoS): Here, participants earn the right to add blocks proportional to the amount of coins they have "staked" (forgive the term). The more money, the higher the chances. PoS IS MUCH MORE RESOURCE-EFFICIENT compared to PoW.

Blockchain is the INNOVATIVE TECHNOLOGY behind all these digital currencies. It records information in a chain of blocks, making everything extremely transparent and reliable.

At the heart of blockchain is DLT (Distributed Ledger Technology) – a digital system allowing users to record and store transactions with assets like cryptocurrency. The key feature of DLT is that information is distributed across MULTIPLE NODES in the network in real time, providing UNBELIEVABLE levels of transparency, security, and reliability.

Unlike centralized systems, where a single entity calls the shots, DLT distributes information among ALL network participants. This makes the system MUCH MORE RESILIENT to hacks and manipulations. Each node keeps a COMPLETE COPY of the transaction ledger and constantly synchronizes with others, ensuring the AUTHENTICITY of data.

This marvel is widely used in crypto networks like Bitcoin. Each transaction is recorded in a block, which is then added to the chain of blocks. Each block is firmly linked to the previous one using hash codes. Altering information in previous blocks without disrupting the entire chain is IMPOSSIBLE. This ensures ABSOLUTE transparency and reliability of the system.

DLT is a REVOLUTIONARY FORCE that could DISRUPT many industries – finance, logistics, healthcare, and more. It offers much more efficient and secure ways to record and exchange data.

Now, let's talk about tokens! A token is a digital asset that acts like a CRYPTO SECURITIES in the digital world. It represents some value or unit of account in a blockchain.

Tokens can serve DIFFERENT FUNCTIONS – financial value, rights, access to services, voting, and so on. It depends on the context and the blockchain platform on which they are created.

In the blockchain, there are token standards – sets of rules governing their creation, issuance, and use. These standards ensure COMPATIBILITY between different tokens and applications.

There are MANY standards, each with its own nuances. Here are a few popular ones:

• ERC20: The king of tokens in Ethereum. Supported by most wallets and exchanges.
• TRC20: The Tron equivalent of ERC20.
• ERC721: Used for creating unique NFT tokens that cannot be exchanged one for another.
• BTC: Bitcoin standard – regular interchangeable tokens without additional functions.

Token standards are a CRUCIAL THING for transferring crypto from one wallet to another, as they determine the rules for processing and interacting with tokens across different platforms. Make a transfer on the wrong network, and you could lose your money forever!

Centralized Exchanges

For fans of decentralized currencies, these digital assets seemed like a TRUE GIFT FROM DESTINY. But when it came to integrating with the real economy, a BIG PROBLEM arose – how on earth to convert these crypto-assets into regular fiat money? That was the snag in trying to merge with traditional finance.

While trading was conducted on narrow forums like bitcointalk.org or in person, the spirit of decentralization still lingered. But as transaction volumes on the crypto market began to SOAR, the MAIN QUESTION arose: who will ensure FAIR PLAY, SAFETY of bitcoins for exchange, and conduct LARGE-SCALE OPERATIONS with regular money? That's when trading shifted to centralized online exchanges.

These centralized crypto exchanges (CEX) are set up like traditional stock exchanges. Managed by specific legal entities, they ARE RESPONSIBLE for the platform's operation, USER FUND SECURITY, and LEGAL COMPLIANCE.

However, such centralization became a TASTY TARGET for hackers, financial frauds, and future user bankruptcies. Over time and with the increase in exchanges, the collapse of one no longer shook the bitcoin price so much. But problems still remained.

Decentralized Exchanges

Decentralized crypto exchanges and cryptocurrencies play a KEY ROLE in the thriving world of decentralized finance (DeFi).

DeFi is a whole SET of financial services built on blockchain and smart contracts. These innovative tools allow users to interact directly with each other, completely BYPASSING traditional intermediaries like banks.

Decentralized crypto exchanges, also known as DEXs, are a LOGICAL STEP towards a system where the crypto community ACTIVELY FIGHTS centralization. These exchanges provide infrastructure for P2P trading of digital assets using a distributed ledger, while not storing funds and personal data of users on their servers.

Main advantages of DEXs include ANONYMITY and no need for user verification, as well as the ability to keep assets in YOUR wallets. Additional benefits include the absence of a single access point and maintaining DATA PRIVACY. Another plus is the LACK OF MANAGEMENT that authorities could pressure, adding to decentralization.

But despite these clear advantages, there are also DRAWBACKS, including limited trading options, smaller liquidity pool, incompatibility with some cryptocurrencies, lack of support for intervening in transactions, and SLOWNESS in closing deals due to a weak trading engine.

Despite these challenges, most traders still prefer to RISK on centralized but more stable platforms.

Storing Digital Assets

A crypto wallet is a digital tool for storing, sending, and receiving cryptocurrency. It’s like a VIRTUAL wallet for digital assets instead of real cash and cards.

There are two main categories: hot and cold wallets. Hot wallets are connected to the internet and used for DAILY transactions. Cold wallets operate OFFLINE and are meant for LONG-TERM storage of coins, outside the internet.

But actually, wallets do not PHYSICALLY store the crypto coins themselves. They store PRIVATE KEYS – secret codes that confirm that these digital assets BELONG TO YOU. Private keys allow you to securely send and receive crypto during transactions.

Imagine you want to send Bitcoin to a friend. Your wallet uses YOUR private keys to sign and conduct the transaction to their wallet. These private keys are the MAIN ELEMENT for accessing your bitcoins and conducting operations. Without them, you CANNOT manage your crypto assets at all.

A crypto wallet is an application or device that allows you to store, send, and receive crypto. But the wallet ITSELF does not physically store coins, only the KEYS to access them. Two main types of keys are used to manage crypto assets:

• Public Key: This is the address you give to others to receive coins from them.
• Private Key: This is a SECRET code of numbers and letters for accessing your wallet. It SIGNS transactions and confirms that you are the OWNER. It also helps recover access if you lose your wallet.

The private key is the MOST IMPORTANT for crypto security. If you lose or forget it – that’s it, access to the crypto is CUT OFF FOREVER. Therefore, it should be kept in a SAFE PLACE and never shared with anyone.

There's also a SEED phrase, a set of random words for recovering access to your wallet if you lose it. Usually, this is 12, 18, or 24 words in a SPECIFIC order.

In this article, you've learned about blockchain, exchanges, crypto wallets, and how to properly store and use your funds while keeping them secure!

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