To understand the fundamentals of crypto, it is important to first understand what a blockchain is.
What is blockchain?
Blockchain is a system of recording information in a way that makes it difficult or impossible to change, hack, or cheat the system.
A blockchain is essentially a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems on the blockchain. Each block in the chain contains a number of transactions, and every time a new transaction occurs on the blockchain, a record of that transaction is added to every participant’s ledger. The decentralised database managed by multiple participants is known as Distributed Ledger Technology (DLT)
Types of Blockchains:
- Public: In a public blockchain, anyone is free to join and participate in the core activities of the blockchain network
Eg: Bitcoin, Ethereum
- Private: A private blockchain allows only selected entry of verified participants; the operator has the rights to override, edit, or delete the necessary entries on the blockchain
Eg: Hyperledger Fabric, Corda
- Permissioned: A permissioned blockchain has properties of both private and public blockchains.Such blockchains are built so that they grant special permissions to each participant. This allows participants the ability to perform specific functions such as read, access, and write information on the blockchains
Properties of a Public Blockchain:
- Immutable: Data on blockchain cannot be changed or manipulated
- Distributed: The blockchain data is owned by large number of people called nodes as opposed to a centralized company
- Secure : All blockchain transactions are secured by cryptography. Each block contains essentially a unique and private key that can be verified with a public key. If there is a change in transaction-related data, the block unique key becomes invalid. As a result, the block is discarded from the chain.
- Consensus: A consensus mechanism is a fault-tolerant mechanism that is used in blockchain systems to achieve the necessary agreement on a single data value or a single state of the network among distributed processes
- Transparent: Because of the distributed nature of blockchain, all transactions can be transparently viewed by either having a personal node or using blockchain explorers that allow anyone to see transactions occurring live
- Censorship resistant: Censorship-resistance implies that any party wishing to transact on the network can do so as long as they follow the rules of the network protocol. It also refers to the property of a network that prevents any party from altering transactions on it.
Now that you have an understanding of blockchain, let’s understand crypto.
What is cryptocurrency?
Cryptocurrency is a form of payment that can be exchanged online for goods and services. Many companies have issued their own currencies, often called tokens, and these can be traded specifically for the goods or services that the company provides.
The online transactions of cryptocurrency are secured using a blockchain.
Nearly 15,000 different cryptocurrencies are traded publicly, according to CoinMarketCap.com, a market research website. And cryptocurrencies continue to proliferate. The total value of all cryptocurrencies on Dec. 3 2021, was about 2.6 trillion
What is Bitcoin?
- Bitcoin is a decentralized digital currency that you can buy, sell and exchange directly, without an intermediary like a bank.
- Bitcoin currency exchange happens on the underlying Bitcoin blockchain network which is a public and decentralized blockchain.
- Bitcoin is open-source and not backed or controlled by the government or any organization or issuing institution.
What is Ethereum?
- Ethereum is a technology that’s home to digital money, global payments, and applications
- The Ethereum community has built a booming digital economy, and new ways for creators to earn online.
- Ether is the native cryptocurrency of the platform.
- Amongst cryptocurrencies, Ether is second only to Bitcoin in market capitalization.
Disclaimer: This content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.