Your most pressing Cryptocurrency questions answered
Although cryptocurrency has been around since 2009, there are still many who have questions about it. The concept of cryptocurrency can seem foreign and intimidating, but only when you are on the outside looking in. Once you begin to ask questions and get answers, cryptocurrency becomes less intimidating and more intriguing.
For that reason, we have compiled the 15 most frequently asked Cryptocurrency questions.
- What exactly is cryptocurrency?
A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend.
Many cryptocurrencies are decentralized networks based on blockchain technology, a distributed ledger enforced by a disparate network of computers.
A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation.
- What is bitcoin?
Bitcoin is a digital currency created in January 2009. It is the first successfully implemented cryptocurrency and follows the ideas set out in a white paper by the mysterious and pseudonymous Satoshi Nakamoto.
Bitcoin offers the promise of lower transaction fees than traditional online payment mechanisms, financial inclusion, financial freedom, and, unlike government-issued currencies, it is operated by a decentralized authority.
- What is blockchain?
According to The Daily Hodl, Blockchain is a new technology with far-reaching applications that can annihilate banking services, if not banks, and redesign transactions across a multitude of businesses and industries.
It is a digital ledger that records transactions publicly or privately, and sequentially. It can facilitate peer-to-peer transactions, eliminating or reducing the need for middlemen. Through encryption and decentralization, blockchain creates trust.
With Bitcoin’s blockchain, anyone can see all transactions.
- Who are the users of cryptocurrency?
Anyone can use cryptocurrency to perform financial transactions. These transactions can range from sending money home to family and friends to completing large volume trades, be it individuals or companies using a platform like Yellow Card.
- What does mining mean in cryptocurrency?
Cryptocurrency mining, or cryptomining, is a process in which transactions for a cryptocurrency are verified and added to its blockchain.
It’s also known as cryptocoin mining, altcoin mining, or Bitcoin mining (for the most popular form of cryptocurrency, Bitcoin), cryptocurrency mining has increased both as a topic of interest and activity as cryptocurrency usage itself has grown exponentially in the last decade.
- Who are the miners of cryptocurrency?
The miners can be anyone, including you! Though not advisable these days, you could download mining software, install it on your computer, and set your computer on its way to trying to “solve the block” by finding a valid hash that meets the work requirements.
Mining has mostly moved out of the garage and into professional facilities with huge numbers of Application Specific Integrated Circuit (ASIC) computing devices doing the mining rather than what it was before. ASICs are specialized equipment designed to process the hashing function as quickly as possible.
- Who controls the Bitcoin network?
The Bitcoin network is owned by no one. Bitcoin is controlled by all Bitcoin users around the world. While developers are improving the software, they can’t force a change in the Bitcoin protocol because all users are free to choose what software and version they use.
- Is Cryptocurrency a good long-term investment?
Investing in Cryptocurrency is a good way to diversify your investment portfolio. This is because cryptocurrency is not tied to any country’s currency and therefore is not subject to inflation and fluctuation like fiat money. This makes it a good store of value and thus a good investment.
Bitcoin is believed to gain value over the long term because the supply is fixed. Unlike the supplies of fiat currencies such as the U.S. dollar or the Japanese yen, the supply of Bitcoin is capped at just under 21 million coins, while central-bank-controlled currencies can be printed at the will of politicians. Many investors expect Bitcoin to gain value as fiat currencies depreciate.
- What happens when a wallet ID is lost?
Losing the wallet ID should not cause too many problems, as long as you still have your private key. The private key is used to generate the public key and the wallet ID. Most wallet software should let you import a private key.
However, if you lose your private key, you won’t be able to submit transactions into the Bitcoin network, making your Bitcoin completely inaccessible. Although Bitcoin from lost keys is still on the network, for all practical purposes, it is gone.
- Have any of the cryptocurrencies been hacked?
The main target for most attacks seems to be the cryptocurrency exchanges because blockchains are tamper-proof. For exchanges to work, they must protect the private keys of their customers.
If a private key is stolen or lost, the cryptocurrency is as good as gone. This happened in a very high-profile attack of Mt. Gox, a Japanese exchange, in 2014 when an attacker stole 740,000 Bitcoin from Mt. Gox customers! Read more here.
- What are Altcoins?
Altcoins are alternative cryptocurrencies that were launched after Bitcoin’s success. They generally project themselves as better replacements for Bitcoin.
Bitcoin’s emergence as the first peer-to-peer digital currency was paving the way for many to follow. Most altcoins are trying to target any perceived drawbacks that Bitcoin has and come up with competitive advantages in newer versions.
- Do Altcoins use the same processes to validate transactions as Bitcoin?
With over 4,000 AltCoins, engineers have developed some creative ways to validate transactions without the energy-intensive Proof-of-Work model used by Bitcoin and others.
It’s recommended to research Proof-of-Stake as an alternative to proof of work. This is the model being pushed in Ethereum 2.0. There are also the interesting approaches taken by Stellar, Ripple, Cardano, and others.
- How do Miners make money off Transactions?
Miners earn money (Bitcoin) in one main way. This is the reward from the network itself for solving the block of justified transactions before the other miners. A Block is a file where data pertaining to the Bitcoin network is permanently recorded to prevent the double-spending problem.
The block is solved when a highly complex math problem is solved by high-powered computers, when it is solved it’s termed as a solved block. Solving the block results in two things, the first being that a transaction is recorded and the second is that one bitcoin is produced.
Presently the reward for mining bitcoin is 6.25 bitcoin. This does increase the supply, but because the reward is halved after every 210,000 blocks added to the blockchain, eventually the reward will go to zero, and at that point, there will be about 21,000,000 BTC in circulation.
13.1. If cryptominers are awarded Bitcoins, how does that affect supply?
Although new Bitcoin is created every 10 minutes, which increases supply and is inflationary, this is balanced, at least in part, by the deflationary constraint of the knowledge that there is a hard limit on the number of Bitcoin that can ever exist and the rate of new Bitcoin supply is ever decreasing.
- Are cryptocurrencies different from blockchain?
Blockchains are designed to use cryptocurrencies as the “ink” for writing records on the blockchain. Cryptocurrencies are therefore different from blockchain, but still an integral part of blockchain technology.
- What are the benefits of Bitcoin/Cryptocurrency?
This is a very complex question, and there are diverse reasons people like cryptocurrencies like Bitcoin.
It’s advisable to find some more informative articles on the topic in addition to what we’ve shared below.
Benefits of cryptocurrency
- Decentralized/No Government Control
- Cryptocurrencies in the form of Utility Tokens can be used to raise capital
- Non-fungible tokens (NFTs) used as digital collectibles and proof of ownership for unique digital items
- A way to safeguard against the turbulence of fiat money.
- Fast and inexpensive transactions
- Easily and quickly access your crypto in a foreign country as a Plan B
- Foundational tech for decentralized finance
- It’s the new hotness, innovative, novel, and shiny!
- Payment processing and banking services when you’ve been “canceled’ by other banking institutions
- It can eliminate expensive middlemen/escrow services
- Security in a trustless environment
For further reading on Cryptocurrency, check out the following articles.
Like most things, cryptocurrency is still advancing and evolving, and that is why it’s important to learn more about it so that you can better understand it and avoid being left behind.
You can learn and stay updated on all things cryptocurrency for free at Yellow Card Academy and if you are interested in buying and selling cryptocurrency the platform to use is Yellow Card