Here are the most important Cryptocurrency FAQs.
What is a blockchain?
A blockchain is a transparent, time stamped, sequential series, of immutable records that is distributed through a peer to peer network. It is not managed by a single party or trusted authority but by a network or cluster of computers. It represents a true democratized and open system that others see as the new internet.
In essence, a blockchain is a serialized database that contains transaction records and other useful data and information. Modern blockchains can also contain more than just records—they can contain program code and other executable data and they can function like an operating system.
Who is in charge of blockchains?
A blockchain essentially has no central authority that governs it. The records (also known as ledgers) are open to the public making transactions completely transparent. Intermediaries are no longer essentials in a blockchain since trust is established naturally through the transparency and immutability of the records.
What are the pillars of blockchain technology?
The pillars or core features of blockchain technology are immutability, transparency, and decentralization.
What is blockchain technology used for?
Blockchain technology was originally designed for the development of cryptocurrency—bitcoin to be specific. However, there are other uses that can be derived from this technology that can be applied to other industries such as healthcare, real estate, legal, the stock market, and finance.
What is a cryptocurrency?
A cryptocurrency is a type of digital currency that requires cryptologic keys for validation and security. It is an electronic cash system that isn’t owned by any single government, country, or governing authority. In that sense it is a truly decentralized form of currency.
Cryptographic techniques are used to ensure the security of the transactions that are performed using cryptocurrency. Bitcoin is the very first usable cryptocurrency that is built on blockchain technology.
What is a private key and what is a public key?
A private key is like a password that is used to secure your cryptocurrency or blockchain network account. It uses cryptography to make the account or currency contained in it secure. Bitcoin and ethereum wallets make use of private keys. Trying to guess the value of a private key is impossible since the number that is assigned as the key is so massive.
A public key on the other hand is what users or nodes (i.e. those participating in a bitcoin network) will use to send or transfer cryptocurrency to other parties.
Who invented the bitcoin blockchain?
The bitcoin blockchain and cryptocurrency was invented by Satoshi Nakamoto. This name however, a pseudonym and to date no one knows the real identity of the person who used it.
That means no one really knows who invented bitcoin. It is also speculated that this pseudonym actually refers to an entire team of developers since the work of developing cryptocurrency and blockchain technology will be too much for only one individual to accomplish.
How are tokens different from cryptocurrencies?
Both cryptocurrencies and tokens are traded in crypto exchanges but they are different from one another. A cryptocurrency mainly serves as a type of money that you can use to make purchases or pay for services.
Tokens can also be used like a cryptocurrency but they can serve other purposes as well. A token can be used to represent a valuable asset and it can also be used to represent a reward or stake for performing certain tasks.
What are crypto wallets?
Bitcoin wallets and ethereum wallets are examples of crypto wallets. They work like real world wallets in that they contain currency, like the money in your physical wallet. However, a crypto wallet doesn’t have to be something physical.
In essence, a crypto wallet is a record of how many crypto coins you own. Since it is a record, a crypto wallet can also be just a paper record. It can also be a phone app, a computer program, and a device that is specially designed to serve as a crypto wallet (e.g. a USB drive with special software that secures your cryptocurrency).
Crypto wallets also contain your private keys.
How are blocks added to a blockchain?
New blocks are added to a blockchain using security protocols that prevent maliciously adding to database records, spamming, hacking, and the like. Satoshi Nakamoto used a proof of work protocol to provide security and a systematic method for adding new blocks to the main chain.
Cryptography is used to ensure proof of work so that no one can add records to the blockchain database at will. Consensus is also achieved through this process and it is necessary before a block can be added.
Newer developments in blockchain technology allows for faster and more efficient ways to add blocks to a blockchain. One example of which is the proof of stake protocol, which requires miners or validators to provide a stake during the validation or verification process.
The process of validating transactions by solving cryptologic (i.e. complex math) problems provides stability and security to the blockchain network. In order to extend the chain and add a new block with the transaction records in them, a special computer called a miner is required to validate the said records/transactions.
Before a validation is performed, miners must solve a complex mathematical puzzle. The miners that solve this cryptologic problem/puzzle will be the one to provide validation for the new record and will be provided a reward.
In the bitcoin blockchain, miners are rewarded with bitcoin. In the ethereum blockchain, miners are awarded with ether, a crypto token.
Which cryptocurrency should I buy or invest in?
Purchasing or investing in cryptocurrency will carry with it a certain amount of risk, just like any other type of investment. It is recommended that you should do your own research first before buying or investing in any type of cryptocurrency.
Where can I buy cryptocurrency?
When you buy or purchase cryptocurrency, you are exchanging your fiat currency (the money you use in your country) to purchase digital currency. Remember that just like any other currency, cryptocurrency doesn’t really hold any intrinsic value—it is just a record of transactions. Just like fiat currency, it is just a piece of paper that represents a promise to pay from a monetary authority (i.e. your bank).
You can purchase cryptocurrency from a variety of sources. You can get them from the following:
- Centralized exchanges (just like a foreign exchange)
- Decentralized exchanges (similar to a centralized exchange except that there are no custodians involved)
- Peer to peer exchanges (interconnected buyers and sellers with no governing authority or intermediaries involved in the exchanges)
How do I buy cryptocurrency?
To buy cryptocurrency you need to sign up for an account in the exchange of your choice (see options above). Registering will also open a crypto wallet that you can use. After registration, you will be required to select the cryptocurrency that you want to purchase and pay for an amount of that digital currency using fiat currency. Your cryptocurrency will then be stored in the crypto wallet that you’re using.
Are cryptocurrencies legal?
There are some countries where cryptocurrency is illegal. For instance, bitcoin is illegal to use and trade with in China—although they are developing their own blockchain and thus essentially are in the process of developing their own cryptocurrency.
There are only a few countries in the world that have outright bans on cryptocurrency trade. In the majority of countries worldwide, trading cryptocurrency is completely legal.
How can I get my company started on using blockchain technology?
The first step to incorporating blockchain technology into any business is a review and audit of your current systems. You will also need to evaluate your current business practices with regard to traceability and transparency.
You should also consider the investments that you will have to make to improve your company’s current IT infrastructure. You should also consider whether you want to have an in-house team or use the services of a consulting company that will help you transition your business to utilize blockchain technology.
How secure will my business information be when it is uploaded to a blockchain?
Blockchain records are transparent and immutable but this may raise concerns over the security of business information and data. Some business data should be kept private such as patented technologies and proprietary technology or products that your company may be developing.
Non-public and sensitive information can be uploaded to a blockchain and access to them can be secured through the use of smart contracts. So far, only financial institutions have been able to successfully implement this. The level of security that can be provided by blockchain technology in this regard still has to be seen in actual practice.
Does transparency in blockchain technology mean that anyone can view my information?
The answer is a qualified yes, since there are ways to keep sensitive and private information away from public view. Transparency is one of the hallmarks of blockchain technology but there are allowances for privacy especially where sensitive information is involved—like health records and other similar data. Smart contracts provide that type security and sensitive and private information can only be granted to a select few.
What should we expect in the next evolution of blockchain technology?
Blockchain technology is currently being used in tandem with other emerging technologies like artificial intelligence and the internet of things. The increased synergy between these new technological advancements can provide a lot of benefits for mankind in general. Industries such as robotics, image processing, and many others will benefit greatly from the future growth of blockchain technology.
