Bitcoin, Ethereum, blockchain, decentralization, smart contracts, mining … these words appear more and more, they arouse your curiosity and you want to know more? This beginner’s guide to crypto-money is designed to help you take your first step into the fascinating world of blockchain. From learning the basics to how to buy crypto-money, we will cover all aspects!
What is a crypto-currency?
Cryptocurrency is a currency based on the new blockchain technology. It appeared with Bitcoin in 2009. “Crypto-currency” is a word that refers to a range of digital currency systems. They rely on robust encryption technology to enforce exclusive rights and ensure secure transactions. They are not managed by a single party, but by a decentralized network of non-hierarchical participants who share and verify the authenticity of information or a set of facts.
What is the blockchain?
The blockchain is like an immutable decentralized database. This means that entries cannot be deleted or changed. In other words, we are also talking about distributed registers. Traditionally, the database is managed by a central operator and the blockchain does not rely on any other participant. It has many identical copies all over the world, which means that no one can control or modify it.
It also means that no entity can influence users’ transactions or finances. As a result, the technology can avoid counterparty risks (for example, banks freezing your funds for various reasons) and carry out transactions without authorization (a transfer prevented by your bank).
How does work the blockchain ?
For the blockchain to work properly, there must be participants who carefully keep it active and ensure that the blocks that make up the distributed registry are created. In this blocks, user transactions are recorded and when they become valid, are added successively. To prevent a malicious person from injecting beneficial transactions into the chain, the blockchain program ensures that a consensus is reached among all network participants.
These actors are called minors. To encourage their participation in the survival of the network, the blockchain will pay a compensation (reward) in native crypto-money for each block creation or “mining”. The requirements to become a miner vary from one blockchain to another. These requirements depend on the certificate used. For the proof of work of Bitcoin, it is simply a matter of providing (relatively large) computing power. As proof of interest, you must provide less computing power (hash value), but you must have a certain number of associated crypto tokens.
Major crypto currencies
Since the success of Bitcoin, an unprecedented number of new crypto-currencies have appeared. You can find everything from ambitious projects with solid funding to pranks. Here are the main crypto-currencies:
- Bitcoin (BTC): Despite its lagging behind the competition, the oldest crypto-currency is still the undisputed market champion. Because of its security and relative slowness, Bitcoin has gradually evolved from a payment method to a value method. Some people call digital gold.
- Ethereum (ETC): By integrating smart contracts into the blockchain, Ethereum has rapidly gained popularity, which has opened the door to many practical applications in the decentralized application register.
- Ripple XRP: c’est la crypto-monnaie de la société privée Ripple. Elle occupe fermement la troisième place en termes de valeur marchande. XRP fournit des transactions rapides et bon marché, la crypto-monnaie vise donc à être un moyen de paiement majeur
The crypto currencies’ exchanges
To buy and sell crypto-money, investors can use a variety of platforms. From established centralized exchanges to small, shady participants to decentralized platforms, today’s ecosystem is very rich. Here are some well-known and popular crypto-currency exchanges:
- Coinbase: ideal choice for beginners who wish to buy the 20 main crypto-currencies (Bitcoin, Ethereum, Ripple, Litecoin, etc.).
- Binance: for new and experienced traders with its wide range of products and services.
- BitPanda: very similar to Coinbase, with the difference that it is more focused on Europe (BitPanda is located in Austria)
When you invest in crypto-money, you have to choose how to maintain your funds, which portfolio you will use. The different options are :
- You can use a private key to access a single wallet on the blockchain via programs, applications or websites.
- Online portfolios managed by centralized players (e.g. if you deposit funds in Coinbase, Binance, etc.).
- Physical Wallet
The crypto-money has the defects of its qualities. You manage your own finances and transactions. This means that if there is a problem, it cannot be solved. The particularity of the blockchain attracts hackers. Due to many tricks (viruses, phishing, etc.) the owners of cryptos are stolen every day. That is why strict security measures must be taken. The most fundamental is to invest in physical portfolios. Basically, your key is encrypted in a small device (Trezor, Ledger, etc.) that looks like a USB key. This one is password protected. If it is used correctly, there is no danger.
Cryptos glossary: definitions of commonly used terms
In the world of crypto-currencies, the vocabulary is rich. Here are some definitions of terms that you can find :
- Alt or altcoin: secondary crypto-currency. Initially, everything was related to Bitcoin. Today, some people don’t think that Ethereum and Ripple are alt because of their weight, but there is no consensus on this definition.
- Public key: the address of a portfolio
- Private key: a secret sequence of characters allowing access to the wallets of crypto-currencies
- Smart contract: an electronic contract whose terms are linked to a computer code. Smart contracts can manage gambling, leasing systems, interest payments, etc.
- Fork: a continuation of the existing blockchain, but with new rules. The fork can be initiated by the initial project to make technical modifications (increase the block size, adjust the difficulty, modify the verification algorithm, etc.), or a third party wishing to create a new crypto-currency based on the existing blockchain.
- Hodler: a long-term crypto-money investor, not a trader aiming for short-term profits.
- Mining: consists in participating in the blockchain network to verify its transactions and receive tokens in exchange.
- Wallet – This tool allows you to access your finances and make transactions. It can be a physical wallet.
If you want to know how to trade crypto-currencies, have a look at our article on the 3 rules to follow to successfully trade crypto-currencies.