Kitabı oku: «The Book about Cryptocurrency №1. Second edition expanded», sayfa 2
Important information and disclaimer!
The authors of the book are not responsible for the content of the material from the sources mentioned in the book, for any damages or losses associated with any products or services mentioned in the book.
We encourage readers to do their own research about the product or service mentioned in the text with due diligence.
How to use this book?
You can read the whole thing from cover to cover if you are used to working thoughtfully and systematically with information.
You can start at the end. In the appendices you will find checklists for a beginner in the crypto market with a list of necessary actions. And also a small test that will help you understand what type of trader you belong to.
If you already know what Bloxxhain, Bitcoin, Ethereum are and how it all works, you can flip through the first chapters and read right from the part on portfolio formation and exchange trading.
The glossary of terms at the end of the book will help to structure the information and better understand the main material of the book.
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Part 1.
Blockchain and cryptocurrencies.
What are they and how to handle them?
Cryptocurrency is
21st century money
This industry is a newcomer among other types of economies, businesses, and human hobbies. It was in 2008 that bitcoin.org was officially registered and the first coins appeared.
However, as much hype as appeared around the crypto from the very first years of its existence, perhaps, was not with any other instrument in the field of finance and mutual settlements.
If you look into the essence of the term, its roots go back to the Greek language. Translated from the language of Antiquity (Greek) kryptos means «secret, hidden». Cryptocurrencies work thanks to data encryption technology, or cryptography.
Distinguishing characteristics of cryptocurrencies:
• decentralized data that is stored on multiple computers at the same time;
• anonymity (you don’t know who transferred money to you, you don’t know who owns the wallet where you transfer money);
• security (the record of the transaction cannot be forged or changed).
We believe that cryptocurrencies are the new generation of assets that will change our lives.
Although there are still many skeptics who believe that the value of bitcoin and other coins is exaggerated, that their rate will sooner or later collapse, that this money is useless…
This is normal resistance to the new. Once people did not believe in bank cards and were afraid of ATMs. Once upon a time, a smartphone with its simple functions seemed like science fiction. But a little more time will pass – and cryptocurrencies will become a familiar means of payment for all segments of the population.
This book, among other things, will help you understand the essence of new money, learn how to handle them and not lose your blood fiat money on cryptocurrency transactions. But about that next…
The revolutionary feature of cryptocurrencies is that transactions take place directly between users, without the involvement of anyone else.
For example, if you want to order a memory card for your phone or a trendy t-shirt on Aliexpress, you will need a bank card to pay for it. Thus, there is an intermediary between you and the online store – the bank. Soon Aliexpress and other monsters of online commerce will accept crypto-money on par with bank cards, Webmoney and PayPal.
The basis for the development of cryptocurrencies was the invention of blockchain technology (Blockchain).
Blockchain, or «block chain» in English, is a system of distributed information storage. In the Blockchain system there is no single server where the entire database is stored, information can be simultaneously recorded on several devices.
All data in the Blockchain network is recorded in blocks that are linked to each other.
All transactions take place in the blockchain. Each transaction is written to a block and cannot be changed anymore. In order to form a new block, certain calculations must be done. That computer, which has managed to do the task, receives its reward in bitcoins. This process is called mining, and accordingly, the owners of the computers that do the calculations are miners.
The more miners there are in the world, the faster the transactions can go and the more stable the whole system is.
What is Bitcoin? It is essentially the name of a network that began operating in 2009 and which utilized Blockchain technology.
To break these concepts down, let’s define it once again:
Blockchain is a technology that can be applied to more than just cryptocurrencies; bitcoin is a cryptocurrency, the first cryptocurrency, the progenitor of all other coins and by far the most valuable of currencies.
The term «cryptocurrency» gained traction in 2011 thanks to a Forbes magazine article on Bitcoin. Subsequently, the term «cryptocurrency» began to refer to any crypto-money.
The word Bitcoin is formed from two English words: bit – unit of information and coin – coin. The literal translation into Russian is «minimal coin».
It is the first most expensive and has the largest capitalization today cryptocurrency.
The purpose of bitcoin is to create a universal global decentralized payment system that is not under the control of banks, governments and other intermediaries. Bitcoin, like other cryptocurrencies, helps to make p2p (person to person) payments.
The pros of bitcoin compared to traditional (fiat) currencies are:
● A bitcoin account can never be blocked by anyone. These are your funds forever. Only on the condition that you follow digital security techniques. We’ll talk more about security techniques later. And more than once.
● Account transactions are both anonymous and transparent. The list of transactions can be tracked in a publicly available log. It is not known who sent the money and to whom.
Unlike a classic bank account, a cryptocurrency account is not tied to personal data.
But not everything is so rosy. Bitcoin and other cryptocurrencies also have disadvantages:
● If you make a mistake with your wallet number (it’s not hard to make a mistake here – the ID of each wallet consists of 34 characters, including numbers, lowercase and uppercase letters and other characters), it will be impossible to cancel the transaction. Attention and thoroughness are the keys to success in working with cryptocurrency.
The cryptocurrency market is highly volatile due to its rapid growth and the nature of cryptocurrencies themselves. (Volatility is the level of price changes in the market. High volatility is when the price can change significantly in a short period of time). This is why inexperienced and novice crypto traders lose money, because it is very difficult to predict how the market will behave in the coming months.
If your wallet has been hacked or lost, if you have forgotten the password or passphrase of your wallet, it is impossible to get back the lost funds.
How is blockchain better than a database?
This question was answered comprehensively and succinctly by Matthew Chan, entrepreneur, designer, cryptocurrency enthusiast, and creator of MatrixPortfolio.com, a mobile app for crypto investors.
The original article was published on Hacker Noon, translation on our portal https://pro-blockchain.com.
I want to convince you why blockchain is necessary, why we need to motivate people to pursue decentralization and its benefits, and why tokens are needed and what underlies their value. Now that the cryptocurrency market is increasingly saturated, it is important for us to understand the underlying technologies and principles behind digital money, as this understanding will allow us to make smart investments and separate the important from the non-essential.
In fact, blockchain borrows a lot from game theory and motivational models. For a blockchain network to be valuable and/or useful, it must have participants. It will be useless if only you and I are blockchain users.
In order to attract participants, some form of motivation is required. The most common means of motivation is a reward in the form of a token. The more participants there are, the more decentralized the network becomes.
Why not just a database? Why do projects need blockchain?
A decentralized system has several advantages over a centralized server / database:
● immutability;
● security;
● backup;
● cost reduction;
● accountability and transparency.
Immutability
When data and records are decentralized and hosted on a blockchain, they are virtually impossible to falsify or change. If you store data on, say, a personal computer, you can easily alter a file before sending it to another person. How can you be trusted in this case?
Security
Traditional servers or data tend to be centralized, making them an attractive target for attacks. The Equifax security breaches and other recent cybersecurity issues are a case in point. A single server or a limited number of servers can easily fall victim to hackers, but decentralization through blockchain puts a serious damper on attackers. The more participants and nodes in the network, the more copies of data exist. Therefore, in order to modify data, it is necessary to attack every single node in the network and modify all the data at the same time. Blockchain not only serves as a defense against theft, but it has virtually no vulnerabilities. Each block on the chain contains a certain amount of data, and when that block gets full, like a USB flash drive, the data is encrypted and sealed forever. To get the whole picture, hackers would need to hack not only the current block, but every block preceding it. Not only is this nearly impossible technically, but it is also expensive. Thus, the incentive for criminal activity is reduced. I am now describing the concept in general: different blockchains use different security measures and algorithms.
Backup
If the dataset is distributed globally, you don’t have to worry about losing a single copy. Thanks to this, you can protect against corporations getting rid of data tampering, server failures, etc.
Cost reduction
A decentralized network of nodes supporting a registry helps companies reduce hosting, security and maintenance costs. In addition, decentralization saves on salaries for IT professionals, developers, and infrastructure managers. For example, Apple’s servers are literally under constant attack, forcing teams to monitor them 24 hours a day, 365 days a year.
Accountability and transparency
With the above in mind, you can rest assured that all information recorded on the blockchain is authentic. This allows one to do business in a transparent manner, freeing one from having to trust the opposite party. One can always turn to the blockchain, letting the data and facts speak for themselves.
Are today’s data infrastructures workable? Undoubtedly, but they are far from perfect. They worked as well as they could because there was no blockchain, a technology that enables significant improvements.
Okay, but what gives tokens value? Why are they in demand?
It depends on the project. 90% of all projects are worthless, but we’re going to talk about tokens that have real value and are actually applicable.
As I mentioned earlier, tokens are often used as a means of motivating network participants: a successful network implies many participants contributing to its decentralization and protection. The more participants there are, the more the network benefits. This is precisely the case of bitcoin. When Satoshi introduced it to the world, bitcoin had zero value. At that time, the only participant in the network was Satoshi himself. But now, as bitcoin becomes more widespread, people increasingly agree that the bitcoin token is useful as a currency and therefore has intrinsic value to the participants in the network.
In general, there are several classes of tokens, and each class has its own specific value.
Currency tokens: Bitcoin, Monero, Raiblocks, etc.
Utility tokens (utility tokens), which allow to perform some activity in the network, examples are ETH and ZRX. In the etherium network, ether is used for smart contracts.
Asset tokens, representing an actual asset or product.
Equity tokens (equity tokens), which function as securities. They give the right to vote and participate in decision-making.
The value of currency tokens, such as bitcoin, is determined primarily by their ability to function as currency and a store of value.
The value of service tokens is determined by the popularity and usefulness of the network: for example, the amount of data that is hosted on the blockchain and the amount of information that is processed, as there are parties willing to pay fees for processing, validation, transmission and protection of data. These could be decentralized exchanges or companies hosting supply chain data on the blockchain, etc.
Asset tokens can be linked to the value of the real assets they represent.
Asset tokens can be valued based on investor sentiment and the progress of the project itself. What plays a role here is whether they are used in commerce and accepted by the real world, what voting rights their holders have, the potential and direction of the company, etc.
So what influences the price of tokens?
Now that we know what the source of value of tokens is, it’s time to ask this question.
Different projects and tokens may have different incentives or economic models that affect the price. Speculation aside, there are certain technical factors that affect the price regardless of investor sentiment.
Demand and consumption. This is likely the most significant factor in the question of token value, especially these days when the market is purely speculative in nature.
Popularity/utility. This factor has to do with answering the questions of whether there is any activity on the network and how widespread the token is.
Burn rate. Do tokens lose value over time? At what rate?
Circulation and reserves. How many tokens are in circulation? Is there an «untouchable reserve»?
Generation of secondary tokens (such as NEO/GAS, etc.).
Mining/premining. How many coins have already been released and what is the release schedule? Or have they all been mined already?
Satoshi Nakamoto – human or artificial intelligence?
Satoshi Nakamoto is considered to be the creator of Bloxxhain and Bitcoin technology. Until now, no one knows whether it is one person, a group of programmers or artificial intelligence.
There are a lot of facts, rumors around this name. There were several attempts to find out who is hiding behind this name, but they were unsuccessful.
According to one version, Satoshi Nakamoto is from Japan, but currently lives in the northeastern United States. Periodically, someone tries to catch the hype on Satoshi’s name and declares himself to be him. In the US, journalist Leah Goodman spent months investigating and looking for traces of Satoshi. She eventually managed to find a man of Japanese descent named Dorian Satoshi Nakamoto. However, the accidental namesake of the genius of the cryptoworld himself admitted that he had never heard anything about bitcoins.
Periodically, the media published articles proving that under the name of Nakamoto hides professor of economics Nick Sabo (Sobo), a mathematician from Japan Motizuki Shinite, the owner of crypto exchanges Ross Ulbricht and many others. The press also suggested that Nakamoto is Ilon Musk.
However, all these investigations remained only versions, not supported by reliable facts. The Satoshi candidates themselves deny their involvement in the creation of blockchain and bitcoin.
What do we know about Satoshi Nakamoto now? It is known that he owns almost one million bitcoins, making him one of the richest people in the world. In 2008, when blockchain came into existence, he was 37 years old.
As of 2010, Satoshi Nakamoto has officially stepped aside. No new publications or statements signed with that name have appeared again.
Technically, when bitcoin was created, there was a limit of 21 million coins. Satoshi also stipulated this rule.
If Satoshi Nakamoto decides to sell all his bitcoins at once, it will crash the cryptocurrency market and devalue bitcoin to almost zero.
Hopefully this won’t happen in the near future, bitcoin will remain the flagship of cryptocurrencies and what helps the whole system balance.
Is it possible to touch cryptocurrency?
Bitcoin and any other currency cannot be touched in person, nor are they minted by any mint in the world.
Although the most widespread and stable cryptocurrencies have their own symbols, on par with the dollar ($), pound (£), euro (€), ruble, and so on.
Bitcoin and other cryptocurrencies exist only in virtual reality. That said, they can be exchanged for real money.
Another difference between crypto and fiat money is that they arise themselves in the digital space. And anyone can produce (mine) bitcoin. No central bank or state is needed for this.
Cryptocurrencies appear through ICO (investment), as a result of mining (maintenance of special servers) and forging (forging) – the formation of new blocks (branches) in already existing digital currencies.
Nevertheless, today bitcoin and other currencies are quite realistically turning into living money – into houses, apartments, trips, yachts and other pleasures.
By the way, in the first year of Bitcoin’s creation, a legendary transaction was realized – the first purchase of real goods for cryptocurrency. For 10,000 bitcoins were bought two pizzas totaling $41.
So «wastefully» spent his savings American programmer Laszlo Hanyecz (Laszlo Hanyecz). The thread on the forum is still available at the link – https://bitcointalk.org/index.php?topic=137.0.
Now convert that to the current exchange rate and grab your head. Today (July 2023 – ed.) 10,000 bitcoins are equivalent to $300 million US dollars, and the total capitalization of all cryptocurrencies is $1.2 trillion.
The most popular types of cryptocurrencies
According to https://coinmarketcap.com/, in July 2023, there are more than 10,000 cryptocurrencies registered in the world.
Of course, their value varies. And the fate of most small coins can turn out any way you want. Some coins will take off, some will disappear from the lists of exchanges. But nevertheless, the fact remains that blockchain technology allows you to create an unlimited number of types of crypto-money, the capitalization of which, depending on the exchange rate of major currencies (Bitcoin, Ethereum, etc.), the total approaching $ 300 billion (at the time of writing this material – this price is always fluctuating).
At the same time, the cryptocurrency market is characterized by high volatility. And this means strong fluctuations in the rate. In a matter of days, or even hours, the same bitcoin can collapse by several hundred dollars, and may even grow.
Hence, the potential of each new moment is quite high. It can grow by 50, 100 and even 1000 times. This is what makes it possible to move crypto markets and make money from them.
Each type of cryptocurrency has its own pros and cons, its own value and its own potential for growth.
But collectively:
● they are all universal,
● they can be exchanged for either other cryptocurrencies or fiat money,
● they can be saved,
● they can be used to pay for goods and services,
● their exchange rate is subject to supply and demand.
What are the most popular currencies today? Whose capitalization (the total value of all issued cryptocurrency coins) exceeds a billion dollars?
So far, the top 10 looks like this (data as of July 2023):
• Bitcoin.
• Ethereum.
• Tether.
• BNB.
• USD Coin.
• XRP.
• Cardano.
• Dogecoin.
• Solana.
• TRON.
Bitcoin (BTC) is the first and most widespread digital currency. All subsequent ones appeared on its basis.
Ethereum – the authorship of the currency is attributed to Vitalik Buterin. It is one of the most popular cryptocurrencies.
Tether is a cryptocurrency token issued by Tether Limited, which claims that its value is 80 percent provided by the stock of U.S. dollars in bank accounts or its equivalent. The main idea of the developers of this token is to provide cryptocurrency market participants with an opportunity to use a stable digital asset steyblocoin, the rate of which is tied to the U.S. dollar exchange rate and does not experience such strong fluctuations as the rates of other cryptocurrencies. Tether is issued on the Omni Layer platform, which is an add-on to the bitcoin blockchain.
Cardano is a decentralized public cryptocurrency project, a third-generation platform developed in the Haskell programming language. The project solves the problem of fast and cheap creation of decentralized applications and smart contracts in a secure and scalable way. It entered the market in 2015.
