Home » Things to Know About Cryptocurrencies

Things to Know About Cryptocurrencies

by root

1. What is Cryptocurrency?

Cryptocurrencies, which we have heard about frequently lately, are digital currencies that emerged as a product of blockchains. These kinds of currencies do not exist physically and are secured using cryptography. Cryptocurrencies, which first entered our lives with Bitcoin in 2008, are of critical importance for the approval of transactions in blockchains and the implementation of projects. In order to understand the working logic of cryptocurrencies, it is necessary to know the working logic of blockchains.

One of the most important features of blockchains is undoubtedly their decentralization features. Cryptocurrencies are not monetized and managed by a central institution like the traditional currencies we are used to. In a blockchain, all nodes in the related blockchain reach a common consensus and make decisions. Thanks to this feature, blockchains offer a transparent and egalitarian approach. Due to decentralization, there is no hierarchy in this system and therefore all nodes in the system are of equal importance. Since blockchains are not managed from a single center, they do not
contain risks such as attacking a certain server, leading to creating a more secure structure. All you need is an internet connection to be able to use cryptocurrencies. These currencies are available for use 24/7. Cryptocurrencies enable fast and secure money transfers using blockchain technology. By disabling third parties, they both increase speed and keep transaction costs to a minimum. There are many different cryptocurrencies today, especially Bitcoin, Ether, ADA, BNB, and XRP. Although these different cryptocurrencies benefit from different technologies, they essentially aim for decentralized finance.

cryptocurrencies

2. Differences Between Cryptocurrency and Traditional Currencies

One of the biggest differences between cryptocurrencies and traditional currencies is that cryptocurrencies are digital and virtual currencies. In other words, we cannot take these currencies in our hands tangibly.

Another critical and perhaps most important difference is that cryptocurrencies are decentralized. Traditional currencies are managed by a specific organization. Authorities such as the central banks or governments have a say in fiat currencies. These authorities decide how much these coins will be monetized and how they will be managed. Cryptocurrencies are decentralized so they are not tied to a single person or institution. According to the consensus mechanism of the relevant blockchain, transactions are confirmed in the system. People who own the relevant currencies for the consensus have a say. This feature makes cryptocurrencies special. Because of their decentralization, cryptocurrencies are not open to manipulation. In addition, once a cryptocurrency transfer is processed into the system, it cannot be changed again, which allows these currencies to be safe.

Another difference in cryptocurrencies is that there is no need for a third party for the transactions to take place. When you want to send money to a user in classical currencies, it is sent to a third party such as a bank, and the money reaches the recipient through this bank or authorized institution. In cryptocurrencies, this money transfer process takes place only between the parties. This allows third parties to be ruled out. In this way, money transfers are carried out both quickly and at a very low cost. While transactions such as sending money abroad are both high-cost and require a few days via traditional currencies, they can be carried out within minutes and with much lower transaction fees with crypto money.

3. What is Bitcoin?

Bitcoin is considered the ancestor of all cryptocurrencies, as it was the first cryptocurrency. Introduced in 2008 by the person or persons an assume named Satoshi Nakamoto, Bitcoin is the native token of the Bitcoin blockchain. In Bitcoin, which is open-source, the security of accounts is carried out with encryption. Every transaction made with Bitcoin is listed on the Bitcoin Blockchain. Because blockchains are decentralized, every transaction made is visible to the entire network. Because of the information on thousands of computers at the same time, every transaction is transparent. Information is not stored on a single server, it is spread over the entire network. In order to change the transaction made in a blockchain, it is necessary to reach all computers in the network and change this information. It is almost impossible to reach anonymous computers in various parts of the world and change this information. Therefore, Bitcoin is transparent and almost impossible to manipulate.

While designing Bitcoin, the creator of Bitcoin kept the Bitcoin supply to a certain number. In this way, it is aimed that Bitcoin does not lose its value. Even though the price of Bitcoin is constantly changing, it is still the most valuable cryptocurrency, and Bitcoin price movements are also giving direction to other cryptocurrencies. When Bitcoin is mentioned, miners must also be mentioned. These elements have a critical role in the functioning of the system. Miners take part in verifying transactions in blocks. For this, very complex problems are solved by very powerful computers and miners are the first to solve these complex problems. The miner verifies the transaction in the block and in return, he earns a BTC reward. This process is also called Proof of Work (PoW). This reward earned by the miners varies depending on the Bitcoin halving. Approximately every four years, the Bitcoin mining reward is halved, and this process is called halving.

4. What is Ethereum?

Bitcoin undoubtedly revolutionized the financial world and brought the concept of decentralized finance into our lives; however, it was limited in what it could do in so many aspects. Founded by Vitalik Buterin in 2014, Ethereum has taken blockchain technology to a different level. Thanks to the Ethereum blockchain, not only money transfers but also many other operations could be carried out easily. With Ethereum, smart contracts could be created and decentralized applications could be developed on the Ethereum network. On the Ethereum blockchain, developers can produce their own applications or create decentralized applications on this system. Many blockchains that we are familiar with today also use the Ethereum infrastructure and implement their projects. In addition, with smart contracts, transactions can only be made between the parties of the contract without the need for a third party, just like in banking transactions.

You may also like

Leave a Comment

Feel free to send us a message if you would like to hear and learn more about #omchain

Powered by Open Money