WHAT IS CRYPTOCURRENCY?

Cryptocurrency is a digital or virtual currency based on a distributed network, called a blockchain. Cryptocurrency transactions are secured using cryptography, an encryption technique that ensures only the sender of a cryptoasset and its intended recipient can access it.

Cryptocurrencies are not issued by a central authority in the same way that fiat currencies are. Instead, crypto uses a decentralised system to record transactions and issue new units. Crypto utilises a peer-to-peer system, meaning anyone in the world can send and receive payments, as long as they have access to the Internet.

What is cryptocurrency mining?

There are three primary ways for cryptocurrencies to be obtained: as a reward for work completed on a blockchain; by purchasing them from a cryptocurrency exchange; or through mining. Crypto mining is one of the most widely known, but least understood, means of generating cryptocurrency, including new bitcoin.

To avoid using third parties, users are tasked with validating and adding transactions to the blockchain. Some blockchains, referred to as Proof of Work (POW) networks, use a system of “mining” to make sure the system is fully decentralised. 

Those interested in undertaking this work are called validators. Validators use computer resources to solve complex mathematical problems. The first person — or computer — to achieve the correct answer will automatically be eligible to validate the next block of transactions. Validators are called miners because the process leads to the creation of new coins, which are distributed to the successful individuals as a reward.

 Understanding the cryptocurrency market

Cryptocurrencies were not originally created to be used as investment vehicles. In 2009, Bitcoin was launched as a potential replacement for government-issued fiat currencies. Thousands of cryptocurrencies have been launched since then, with more being created every day. Most have a primary purpose, aside from acting as a potential investment opportunity.

The crypto market is split into two distinct sections: crypto coins and crypto tokens. Coins are native to their blockchains and are primarily used as a method of payment, making them more closely aligned with traditional currencies. Tokens are created on existing blockchains and are treated more like assets. Let’s take Ethereum as an example: ETH is the coin native to the Ethereum blockchain, whereas ApeCoin is a token hosted on Ethereum.

Key Technologies and Principles of Cryptocurrency

1.Encryption Technology

Cryptocurrencies are encrypted in a variety of ways using advanced encryption technology. Cryptozoology was developed during World War II out of the need for secure communication methods that aimed to convert human-readable information into encrypted codes. Today's cryptography has been developing for quite some time, and in today's digital world it is primarily based on computer science and mathematical theory, but also draws on communications science, physics, and electrical engineering.

2.Two main elements in cryptography apply to cryptocurrencies - hashing algorithms and digital signatures:

2-1. Hashing algorithm: Verifies data integrity, maintains the blockchain structure, and encodes people’s account addresses and transactions. It also generates cryptographic puzzles that make block mining possible.

2-2. Digital signatures: Allow individuals to prove that they own encrypted information and will not reveal that information. In cryptocurrencies, this technology is used to sign monetary transactions. It proves to the network that the account owner has approved the transaction.

Blockchain technology

Blockchain is a decentralized public ledger or list of cryptocurrency transactions. Completed blocks consist of the latest transactions recorded and added to the blockchain. They are stored chronologically as an open, permanent, and verifiable record. Market participants manage the blockchain through a peer-to-peer network and follow a set of protocols to validate new blocks. Every "node" or computer connected to the network automatically downloads a copy of the blockchain. This allows everyone to track transactions without the need for central record keeping.

Blockchain technology creates records that cannot be changed without the consent of the rest of the block. The blockchain concept, credited to Bitcoin's creator Satoshi Nakamoto, has inspired a range of other applications beyond digital cash and currency.

Block mining

Block mining is the process of adding new transaction records to the blockchain as blocks. During this process – in the case of Bitcoin – new Bitcoins are created, while also increasing the total number of coins in circulation. Mining requires specific software to solve mathematical puzzles, and the verified, legitimate transactions that make up a block are a block. These blocks will be added to the public ledger (blockchain) approximately every 10 minutes. When the software resolves a transaction, the miner is awarded a certain number of Bitcoins. The faster a miner's hardware can process mathematical problems, the greater the likelihood of validating transactions and receiving Bitcoin rewards.