Digital assets are digital representations of value, made possible by advances in cryptography and distributed ledger technology. These assets can be transferred peer-to-peer without requiring any intermediary involvement.
Several other terms, such as cryptocurrencies and crypto assets, are also used in this developing market. There are a plethora of stakeholders involved within the digital assets realm such as miners, traders, entrepreneurs, and even corporations. Although the concert is fairly new, it offers an abundance of uses to users of all social classes.
A cryptocurrency is a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds. Bitcoin is the most widely recognized cryptocurrency, while other, lesser known forms of cryptocurrency are referred to as altcoins.
Every cryptocurrency is issued on a blockchain, which is a system in which a record of transactions are maintained across several computers that are linked in a peer-to-peer network. For cryptocurrencies, supply and demand are the main drivers of their worth and the built-in limit to howmuch can exist, just like precious metals, should, in the long-term, prevent mass devaluation and inflation that's caused by central banks printing money that they don't have.
Most cryptocurrencies use decentralized control as opposed to centralized digital currency and central banking systems. With decentralized control, each cryptocurrency works through distributed ledger technology, a blockchain, that serves as a public financial transaction database.What is Cryptocurrency?
A Blockchain is a distributed ledger of transactions across thousands of computers at different times and it is the underlying technology that Bitcoin and most other digital assets use to record and validate transactions.
Using cryptographic languages, it is secure and transparent, and completely distributed and decentralized in its processing, which creates a decentralized database. For example, the Internet is centralized, which means that the power is under a central authority, making it not very secure and allowing for it to be hacked.
The blockchain, on the other hand, is decentralized, which means that the power is moved away from the central authority and makes it impossible to be hacked. Through this, items such as ownerships, authenticities, and transaction histories can be transferred without the involvement of third-parties.Blockchain. Simply Explained
Bitcoin (₿) is a cryptocurrency invented in 2008 by Satoshi Nakamoto. Bitcoin uses blockchain technology to create a digital asset that is entirely decentralized and managed across a wide network of computers rather than by a single entity.
Bitcoin is stored and transferred digitally in a virtual wallet and unlike cash, each bitcoin (lowercase b) has a public transaction history that makes it theoretically impossible to counterfeit.
Bitcoin addresses are easily generated using the peer-to-peer electronic cash system, which enables online payments to be sent and received. When a bitcoins transaction is initiated, a verification takes place to confirm that the transaction is legitimate and no double spending occurred.
This verification process is performed by Bitcoin Miners, who confirm the legitimacy of every transaction, which yields them a reward. People often purchase bitcoins due to desired anonymity, distrustment of banks, and the preference of transfering or storing their money in Bitcoin’s blockchain system. As time progresses, more and more retailers are starting to accept cryptocurrency.What is Bitcoin? Bitcoin Simply Explained
Mining is a process in which transactions for various forms of cryptocurrencies are verified and added to the blockchain’s digital ledger. Miners are people who use special software to solve math problems on the cryptocurrencies’ network.
The mining software that is run works by grouping recent transactions into blocks, which are only accepted by the rest of the network if the block is hashed correctly, which requires the computer to find correct numerical values; a time consuming and computer intensive process.
If the block is hashed correctly, the miner that successfully processed the block adds it to the blockchain and the system generates a new coin that goes into the miners digital wallet or as a reward.
Since miners are required to approve Bitcoin transactions, this provides a smart way to issue the currency and also creates an incentive for more people to mine because more miners means a more secure network.What is Bitcoin Mining?
Hash Function and Hashing
Hashing is the process of converting text of any length into a fixed-sized string of text using a mathematical function.
In simpler terms, a message (input) is put through a hash function that gives the output called the hash value. The message is converted into an array of numbers and letters through an algorithm and even a change of one letter creates a significantly different hash value.
Hash functions are considered to be a type of one-way encryption because keys are not shared and the information required to reverse the encryption does not exist in the output.What is Hashing? Hash Functions Explained Simply
A nonce, abbreviation for "number only used once", is a number added to a hashed block in a blockchain that, when rehashed, meets the difficulty level restrictions. The nonce is the number that blockchain miners are solving for. When the solution is found, the blockchain miners are offered cryptocurrency in exchange.
Double-spending is the risk that a digital currency can be spent more than once.What is Double Spending
A smart contract is a computer program or a transaction protocol which is intended to automatically execute, control, or document legally relevant events with the terms between buyer and seller being directly written into lines of code.
The objectives of smart contracts are to satisfy common contractual conditions, minimize malicious and fraudulent actions, and eliminate the need for trusted intermediaries. It can be built on top of these blockchains and in fact, is actually stored and executed inside the blockchain.
Smart contacts can help you exchange money, property, coins, or anything of value in a transparent, in a conflict-free way all while avoiding the services of a middleman. This assures the consumer will receive the item(s) they paid for or get their money back.Smart Contracts. Simply Explained
Fork (Hard & Soft)
A fork is a condition where the state of the blockchain diverges in two different chains where one chain operates by different rules and the other. This can occur due to a discovery of a bug, upgrading features of the blockchain, and changes to the node software.
Soft forks are software updates to a digital asset blockchain, which do not result in a physical split of the blockchain into two digital assets.
Hard forks are rule changes that force the creation of a new digital asset, such as Bitcoin and Bitcoin Cash. In a hard fork, the data on the new chain is a duplicate of the old chain.
This means if you owned one Bitcoin before the hard fork, you now still own that one Bitcoin and one unit of currency on the new chain, Bitcoin Cash, after the hard fork.What are Blockchain Forks?
Altcoins, an abbreviation for Alternative Coins, is any cryptocurrency besides Bitcoin. Some examples of Altcoins are Ethereum, Litecoin, XRP. Altcoins are created to build on Bitcoin’s weaknesses (eg. Litecoin processes 56 transactions per second, while Bitcoin processes 7 transactions per second) or establish new uses for the blockchain.
ICOs were once considered the crypto industry’s equivalent to an IPO. ICOs once were a quick route to raise funds. However the lack of legal entitlement to the capital structure of the enterprise saw a huge majority of ICO projects fail with losses to investors. The industry has matured much since the euphoria of ICOs and recent focus has been on Security Tokens that do bear legal entitlement to the ownership or assets of the enterprise.
ICO’s allow investors to put money in early-stage companies and they allow the founders of those companies to crowdsource directly from their users. People who believe in the project can invest in it early and profit over time; once increased demand drives the price up. The money collected from ICOs is then typically used to fund project development.Altcoins and ICOs Explained in Plain English