1. Cryptocurrency Guide


What is Cryptocurrency?

Cryptocurrency is a digital virtual currency/coin designed for the global community or private groups and individuals to own and use as a secure online asset to trade for services or goods. Cryptocurrencies use blockchain as secure ledger and encryption technologies to validate transactions and regulate creation of new units. These virtual coins are reported to be very difficult or near impossible to be reproduced as counterfeits.


Newest cryptocurrency transactions are recorded and added to the blockchain in chronological order. To understand blockchain, think of it as a chain of blocks. Every single block on the chain has recent valid transactions, block timestamp, previous block hash and address of creator transparently recorded, viewable by anyone anywhere in the world.

Blockchain Block Diagram

Every successive block will contain the hash of the previous block, hence chaining all blocks together ensuring block cannot be modified without modifying all following blocks, meaning modifying the entire blockchain. The above cryptocurrency blockchain is thus widely believed to be impossible to be hacked due to the distributed consensus security process. [ Read Blockchain Guide ]


Decentralized Cryptocurrencies

Cryptocurrencies are typically decentralized. Transactions and transfers of decentralized cryptocurrencies are completed peer to peer (P2P) via a blockchain and do not go through any middle man nor any centralized organization. Transaction records are stored on a blockchain that can operate by itself autonomously without any central administration needed. Every node has a copy of the blockchain, hence decentralized blockchain network has no single and central point of failure. This is the reason why decentralized blockchain is believed to be theoretically immuned to manipulation or government interference.


Limited Supply

New decentralized cryptocurrencies are created by the entire cryptocurrency network collectively, with the production rate defined at the start when the system was created and publicly known. Decentralized cryptocurrencies are typically designed to gradually decrease production of coins, placing a cap on the total circulating supply globally. For example, Bitcoin has a supply cap of 21 million coins, once 21 million Bitcoins are circulating around the market, no more new Bitcoin can be created.


If supply remains around the same and demand grows, the value of the coins will increase to keep up. For example if today 1 unit of bitcoin is worth $4000 and you need to obtain 100 units of bitcoin worth $400,000 to buy a house. With new production of coins slowing down 10 years later, demand grows and bitcoin price rises to $40,000 each. You will only need to obtain 10 bitcoins worth $400,000 to buy a house, so the coin quantity supply will always be sufficient for the population and bitcoin can be divided down to as small amount a quantity as 8 decimal places, eg. paying for a cup of coffee in the future with 0.00000001 btc.


Fiat Currencies

On the other hand for Fiat Currencies (also known as government-issued currencies) have no supply limit. Central governments and banks can print and release as many fiat currencies as they want, and hence are able to manipulate the value of the currencies relative to others. Fiat currency holders, mostly citizens have little choice but to bear the cost if they do.


Centralized Cryptocurrencies

The other type of lesser known cryptocurrencies are Centralized Cryptocurrencies, similar to Fiat Currencies are centrally controlled and administrated. The above central authority has the power to decrease, increase the value of the cryptocurrencies that they are managing, even add or removing them completely. Example of Centralized cryptocurrency is Ripple (XRP) as of Jan 2019.


Cryptocurrency Mining

The integrity, safety of transactions and balance of ledgers in a decentralized cryptocurrency blockchain, for example, Bitcoin Cash, are maintained by a community of miners who validate and timestamp transactions, then add them to the blockchain ledger by solving complex mathematical cryptographic puzzles using mining node computers, the successful miner will then be rewarded with a new cryptocurrency for his/her work and effort. [ Read Cryptocurrency Mining Guide ]


Cryptocurrency Wallet

When a user send cryptocurrency to another user over the blockchain, he is actually sending the virtual coin to a hashed version of a “Public Key” representing the public address location typically of a cryptocurrency wallet, owned and used by user receiving the cryptocurrency. The receiving user will let the sending user know of his wallet public address, so that the sending user knows where to send his virtual coin to, it is similar to an email address except that instead of sending email, the user is sending cryptocurrency.


Private key is a set of randomly generated long string of numbers and letters, used as passcodes to authorize spending, withdrawing, or transfers of cryptocurrencies to others. The sending user needs to key in the passcodes of his private key to prove he/she is indeed the owner of the crypto coins before he/she can send the coins to the public address of the receiving user.


Cryptocurrency blockchains use Cryptography to ensure that every user can modify only parts of the blockchain that they own with their cryptocurrencies by using private keys. For security purposes to prevent theft, the randomly generated private key passcodes (mentioned above) should be privately known only by the owner of typically a cryptocurrency wallet. [ Read Cryptocurrency Wallet Guide ]


Example of private key:

Kzawmdzu99S6Qzki5YZSVSj31cQESnEtPCQ1D4cpJBPZNbpDxrBm

Example of public address:

19Exk5acQkMd8CtTb4o2J4GddVW59XvTfF

Cryptocurrency Exchange

The best place to trade cryptocurrencies is via a Cryptocurrency Exchange, not conventional stock exchange. At a Cryptocurrency Exchange, users can buy and sell cryptocurrencies for conventional fiat money, or trade cryptocurrency with other cryptocurrency, for example Bitcoin for EOS coin. [ Read Cryptocurrency Exchange Guide ]


Start Trading at the Largest Cryptocurrency Exchange in the World


Decentralized applications running on blockchain technology are open source, with codes transparent for everyone to view, use and even develop. Anyone can verify if the apps are really built as claimed or as per the whitepaper, and check for hidden functions eg. spyware, malware. Same goes for decentralized blockchain, with its ledger and transaction records verifiable by all participating users freely.


Since there is no middleman or centralized organization needed in a transparent decentralized network, the chance of someone committing fraud successfully is greatly reduced. There are news of crypto coins stolen from cryptocurrency exchange or wallets by third parties or owners themselves, those cases are because those exchanges and wallets are centralized, not decentralized as designed or claimed. As of March 2019, there are still very few truly decentralized completed cryptocurrency exchanges operating around the globe, probably around 2, although development is on-going and more will come sooner or later.


Initial Coin Offerings (ICO)

Some Cryptocurrency or DApps startups seek crowdfunding capital funds from external investors for early support by creating their own cryptocurrency coin tokens and selling those coins to investors through an ICO, or Initial Coin Offerings. It is similar to Initial Public Offering (IPO) except that company shares are issued to investors instead of crypto coins for IPO.


For ICO, startups usually will try to convince investors that they will be developing the cryptocurrency or application (that will work with the coin tokens to be issued) to eventually become an exceptional product that will bring outstanding returns with their investments.


Since ICO is minimally regulated as of March 2019, it is a controversial way to raise funds and critics denounce it as a fund raising method with the intention to avoid regulation.


There are considerable risks in investing in ICOs. After raising millions of dollars, many ICO startups are criticized for having no progress for years to their development work, workable product launch or releasing any product at all. It is hard to verify if some of those startups are putting any efforts to development after getting the funds. With minimal regulations for such markets, it is very difficult to bring such dishonorable companies to court.


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