Blockchain technology is the foundation of the cryptocurrency movement. Without blockchain, there is no way for cryptocurrencies to exist. Think of blockchain as the infrastructure that cryptocurrency flows through. If fiat money has centralized banks, then cryptocurrency has blockchain.
The “block” in the word blockchain refers to unique pieces of digital information. Whereas portmanteau’s “chain” points to the public database in which blocks are stored. Cryptography links these blocks together.
Each block in a blockchain contains the following:
- Transaction information (date, time and value)
- Identity of the participants in the transaction
- Unique distinguishing or hashing code for each block
Every time a transaction is made in cryptocurrency, a block is added to the chain. After verifying the exchange, a unique code is assigned to the transaction, which legitimizes its existence in the blockchain infrastructure.
Blockchain records remain transparent to stakeholders. Cryptocurrency traders can even link their computers to a specific blockchain so they can receive updates on new transactions.
When discussing blockchain, it is imperative not to ignore the topic of cryptocurrencies, which are the lifeblood of technology.
Why electronic money?
Cryptocurrencies are an inevitable result of developments in financial technology (fintech). For example, with the continued rise of e-commerce, it is understandable how difficult digital assets have become. After all, online financial transactions carry certain risks that fiat money is most susceptible to.
As a result, alternative payment methods become the first choice for those wary of such threats.
Another appeal of cryptocurrencies is the way they provide stakeholders with a certain degree of anonymity.
That’s not something fiat allows. First, banks know everything about your dollar vault.
Finally, cryptocurrencies offer a legitimate opportunity to accumulate assets through trading. If you buy at the right time and sell at the right time, you can easily increase the value of your digital assets exponentially.
However, it is important to note that cryptocurrencies are different. In fact, they can be classified into seven broad categories, as follows:
- Trading mechanism (Bitcoin, Litecoin)
- Distributed Computing Tokens (Ethereum, Tezos, EOS, Dfinity)
- Utility tokens (Golem, Storj, Sia, FileCoin)
- Security tokens (represents bonds, stocks, derivatives and other financial products)
- Fungible Token (ERC-20)
- Non-Fungible Tokens (Decentraland, Cryptokitties)
- Stablecoins
Stablecoins fall into four categories, including the following:
- Mortgage with fiat currency (Ex: Mongolian Candy, Venezuelan Petro, US Federal Reserve Fedcoin, European Central Bank Eurocoin)
- Mortgage with real assets (Ex: Digix Gold, TCX, Swiss Real Coin)
- Collateralized Cryptocurrencies (Ex: MakerDao’s DAI)
- Decentralized (Example: Basecoin by Basis)
Remember that these categories are by no means exhaustive. If anything, they’re just looking to provide reference points to help you navigate through the incredibly confusing crypto iterations out there. For example, Facebook’s Libra doesn’t fit into any of the aforementioned categories, and that’s perfectly fine.
The bottom line is that cryptocurrencies continue to evolve. If you plan to join the cryptocurrency movement, it pays to keep abreast of these many simultaneous changes and updates.
It also wouldn’t hurt to start with the most popular and trusted cryptocurrency on the market. Yes, we mean Bitcoin.
Bitcoin Economics
When you’re ready to get into crypto through Bitcoin, make sure to make the process as informed as possible. Here are the points to consider related Bitcoin Economics.
Buying
You can buy Bitcoin from centralized exchange platforms, charging per transaction fees ranging from 0.05% to 5.00%. Alternatively, you can buy Bitcoin through over-the-counter trading desks, which offer lower fees and better liquidity.
Less common ways to buy Bitcoin include paying for professional services and joining the network. For the latter, you need to be proficient in mining and staking.
Warehouse
Hide your Bitcoins in a secure wallet where only you have the keys. Here, you have two options for storage.
The first is through third-party services. A cryptocurrency exchange will automatically provide you with a digital wallet. To register, you will need to provide personal details, including your name and ID number. Additionally, you may have to link your credit or debit card information to pay for the service.
Another option is to store your Bitcoins in a self-hosted wallet. That will allow you to bypass the identification requirements imposed by third-party exchange platforms. This route requires specialized IT knowledge. If you are new, this may not be a viable option for you.
Investment Opportunities
There are different ways to invest in Bitcoin. Each is best suited to a particular type of stakeholder.
If you want to be in the middle of the action, buying Bitcoin, as it is, could be right up your alley. Meanwhile, if you want to join the movement in a roundabout way, you can invest through a Bitcoin trust, a Bitcoin mutual fund, or a Blockchain stock or an ETF.
Whichever path you take, make sure it’s a path that you fully understand.
Trading opportunity
You can do it Pay with Bitcoins for an ever-expanding range of consumer goods. Luxury brands, for starters, have welcomed Bitcoin payments. Think Rolex. The same goes for high-end cars like Tesla. Some insurance providers also allow Bitcoin trading, such as the Swiss company AXA.
Tax
Countries differ on how they impose taxes on digital assets. For example, in some jurisdictions, cryptocurrency conversions are taxable. That means if you buy a cryptocurrency with Bitcoin or vice versa, you will have to pay tax.
Even small purchases in Bitcoin can be taxed in certain states. Therefore, you must pay double attention to your bookkeeping. Buy coffee with Bitcoin? Keep tabs on pertinent information about that purchase so that when the tax officer comes to you, you’ll have documents to show.
Network security
As with any new trend in any industry, another inevitability is the emergence of scams that try to derail the entire project. As for cryptocurrencies, the most common methods include fake websites offering generous returns on small investments, virtual Ponzi schemes, and fake celebrity endorsements.
These are just some of the challenges facing the crypto world. In addition to these scams, there are cybersecurity concerns that need addressing.
Vulnerabilities at Blockchain Final point
Enthusiasts call blockchains virtually “unrepairable.” However, that cannot be entirely true of any digital infrastructure. There will always be vulnerable components that can affect the entire system.
In terms of blockchain, those show up at endpoints, such as when redemption transactions are stored in hot wallets. This exchange requires the involvement of third-party stakeholders and technology including payment processors and smart contracts, respectively. At those holes, hackers can get into the process and get into the process of smooth completion.
Regulatory Matters
Given the way blockchain technology is still an emerging financial system, clear regulations are yet to emerge. Although the growing popularity of cryptocurrencies in recent years has led governments to consider the movement more closely, there is still a long way to go for those representing formal institutions to take the lead. policies and protocols to protect all industry stakeholders.
For now, enthusiasts try to spot the signs from mistakes made by the order, if only so that they avoid taking the same potential risks.
Scalability issues
Current blockchain technology bigger than ever. And as more and more investors and stakeholders join the cryptocurrency movement, these digital infrastructures can only get bigger.
While growth is the ultimate goal of any financial business, it also carries undeniable risks. That risk is more obvious in this respect as blockchain of this magnitude has never been tested before. No one knows where the security holes might appear. No one can be sure how long the system can sustain itself given its exponential growth rate.
Not enough testing
To date, blockchain technology is no longer exclusive to cryptocurrency platforms. Now it has penetrated the organizational and corporate structure.
Businesses are exploring blockchain to streamline key processes. While this is another promising prospect for undeniably cutting-edge innovation, the lack of legitimate studies on how the system might deliver in other applications outside of cryptocurrency could problem. That is most true if you take into account the presence of hackers always ready to exploit vulnerabilities in emerging technologies and their diverse applications.
All these disadvantages can be mitigated by improving network security. And that is another consideration that you have to keep in mind when learning cryptocurrency insights.
End
If you plan to get into crypto as a trader, you must understand how blockchain works. Without a clear understanding of how the system works, you may not be able to manage your digital assets as well as you would like.
Meanwhile, if you are interested in blockchain technology as a tech buff or professional developer, you also can’t help but learn the basics of cryptocurrencies. That knowledge will ultimately inform how you navigate the various blockchain infrastructures out there.
Hopefully, this article can provide you with the basics of the topics discussed. Ideally, what you learn here will be enough to fuel your interest in cryptocurrencies and blockchain technology. Rest assured that this could be a worthy project to pursue, whether you are considering becoming an entrepreneur or a developer.
About the author
Kimberly Maceda
Kimberly is the content writer for BSV Devcon and has written insightful content for a variety of niches and platforms. She believes there is a clear line between right and wrong, with the Oxford comma comfortably in between.
