The main technological breakthrough of the end of the last century was the emergence of the Internet. In the new millennium, this role rightfully goes to blockchain and cryptocurrency, which managed to change the rules of the game in the modern world of finance. But, as is usually the case with any technological breakthroughs, they conquer people’s minds gradually, building up a certain critical mass, after which they become ordinary things. Now it seems that cryptocurrencies are in their midway: they already have a significant impact on the global economy, but have not yet come to the masses, simply due to the complexity of perception. But this is a matter of the next few years as more and more blockchains and cryptos appear in the market grasping investors` attention like it happened in the case of the decimalchain.com platform.
Blockchain in simple language
The history of the emergence of cryptocurrencies is closely related to the blockchain, but there is no such ambiguity as with an egg and a chicken here. Without blockchain, you wouldn’t be talking about cryptocurrencies right now, but the opposite statement is hardly true.
So, what should be understood by this term? It has many definitions, but the meaning is virtually the same. Here is IBM’s interpretation: “Blockchain should be understood as a general immutable registry designed to record transactions, track digital assets and strengthen trust.” In other words, any goods or services that have an agreed value are potential blockchain objects.
The blockchain can be thought of as a database where individual records/transactions are combined into blocks, each of which refers to the previous one, forming an immutable data chain. Each transaction contains the information necessary to identify it. The principle of a decentralized distributed registry is applied when the blockchain is stored on thousands of servers and does not have a central governing body. This structure, combined with the use of a consensus mechanism, reliably protects the registry from attempts to make unauthorized changes to it: after adding a new block, it is guaranteed to be stored unchanged for as long as the blockchain itself exists.
Blockchain Security
When hackers say that there are no systems that cannot be hacked, they are right: what is created by man can also be destroyed by man. But the emergence of modern cryptographic encryption methods using complex mathematical algorithms significantly complicates the task for attackers. Simply put, they have to spend much more time and resources to decrypt, and often the cost of such work does not cover the possible benefits.
In addition to attempts of direct decryption, there are other methods of attacks, from ordinary theft of private keys to phishing attacks.
The blockchain is sufficiently reliably protected from most known vulnerabilities, it is absolutely transparent to all users and unchangeable: any attempt to make changes to existing records will be quickly detected and blocked.
Nevertheless, it is not necessary to talk about 100% security of the blockchain. The reason for this is the human factor: most of the thefts of cryptocurrencies are committed due to the carelessness of users regarding the storage of their private keys. It’s like with a wallet: some carry it in an inner pocket, while others carry it in the upper part of an open handbag…
What is cryptocurrency?
As we already know, the cryptocurrency is secondary to the blockchain, but it is it that is being heard today as the most popular way to use a distributed registry.
The term “cryptocurrency” also does not have an unambiguous generally accepted definition. Most often it is interpreted as digital money used exclusively virtually, and the principle of decentralization means that this money is used outside the traditional banking system. This means that they are not subject to state regulation.
There are pros and cons here, but the first ones, as it turned out, are much more.
So, when making transactions with cryptocurrency, two parties always participate in the transaction, the seller and the buyer – no intermediaries and extra expenses. The use of private keys as an identifier guarantees complete anonymity of users, and independence from banks means that anyone having access to the Internet can participate in transactions with cryptocurrency. At the same time, transactions are executed very quickly and without any restrictions, including time.
About terminology
As in any other industry, in the sphere of cryptocurrency, its own professional slang has appeared, and it is constantly updated with new terms. Here is a list of the most common of them (an expanded list can be found on the website of Time magazine):
– altcoin – any cryptocurrency other than bitcoin/ethereum;
– bitcoin is the first cryptocurrency in history, which appeared in 2009 and is the most expensive;
– DeFi (decentralized finance) – a financial transaction performed without reference to the banking system;
– dApps (decentralized applications) – software code integrated into the blockchain to perform actions embedded in the application algorithm;
– ethereum is the second most important and market capitalization cryptocurrency operating on a blockchain that allows the use of dApps;
– cryptocurrency exchange – an online platform where cryptocurrencies are bought and sold;
– hash – a specially generated sequence of characters that uniquely identifies the blocks of the blockchain;
– mining – the procedure of mining new coins related to the maintenance of the register (blockchain);
– a token is a unit of value accepted for the blockchain. Several tokens can operate on one blockchain;
– an NFT is a kind of non–interchangeable (unique) tokens, most often used to indicate ownership of digital art objects;
– the public key is the digital identifier of wallets, it is indicated in transactions;
– a private code is a digital identifier that grants access to the wallet (a password analogue that is reliably protected from hacking);
– a smart contract – a program that allows you to automate the execution of contracts without the use of intermediaries. It independently verifies the fulfillment of transaction terms and activates the appropriate actions;
– a wallet is a place where cryptocurrency can be stored. There are hot and cold wallets. The latter are not normally connected to the Internet, the hot ones, on the contrary, are online most of the time.
How do cryptocurrencies work?
So, how to make money on cryptocurrency? What is the best cryptocurrency to buy? These are the main questions that bother newbies in the world of crypto investments. If it`s rather hard to say what is the best cryptocurrency to buy, then for the first question, we have some common recommendations to provide you with. To buy/sell cryptocurrency, you need to have a wallet. Many crypto exchanges provide wallets to customers when registering, but you can have your own software wallet without being tied to a specific device (smartphone, laptop, PC).
Any transaction with cryptocurrency requires knowledge of the counterparty’s public key (wallet address), which, together with your public key, is entered into the blockchain if the transaction is approved. Any registered users will be able to see the date, time, amount and both addresses of the wallets involved in the transaction, but it is impossible to determine the identity by the address of the wallet in the blockchain.
How mining works
If the principle of buying cryptocurrencies is quite simple and clear, then everything is not so simple with the minting of new coins (mining). The actual mining process consists in performing a large number of calculations, the purpose of which is to find a unique identifier for a new block being added to the blockchain. Basically, anyone can be a miner, but in practice, powerful equipment is used to perform such calculations, often combined into so–called farms, which increases the chances of being the first to find this identifier and get rewarded for it in the form of a mined cryptocurrency.
Meanwhile, a new coin is added to the ecosystem, and the total number of mined coins is usually limited. The more coins have already been mined, the more difficult it is to generate new ones. This model is called deflationary and contributes to the growth in the value of cryptocurrencies over time.
Are cryptocurrencies secure?
Digital assets are characterized by high volatility, that is, they are subject to sharp price fluctuations. This is an ideal environment for risk–loving investors. And since, in general, the market capitalization of cryptocurrencies demonstrates positive dynamics, this attracts both professional investors and ordinary users hoping to make a significant profit from the increase in the value of the purchased coins.
There are several common strategies on how to invest in cryptocurrencies: you can buy them directly through exchanges, you can invest in ICOs, you can buy shares of crypto exchanges, etc. In any case, you need to know which cryptocurrencies are better for buying and investing in order to avoid unnecessary risks. No matter what currency you choose for buying, first you should wonder how to invest in cryptocurrencies to get the mechanism. And speaking of what crypto to buy, cryptocurrencies from the TOP 25 by market capitalization are considered the most suitable for crypto investments, as the most stable. But it is hardly worth expecting super great profit in this case.
Although it is impossible to say what is the best crypto to buy now, experienced investors diversify their crypto investments, paying a lot of attention to young and promising cryptocurrencies and blockchains (DecimalChain, Avalanche, Solana).
Trading
You not only get passive income from your crypto investments. Crypto-trading refers to high-risk activities, even if you`ve chose the best crypto to invest in. However, just like traditional trading. And here, too, it is important to be able to distinguish cryptocurrencies with more or less stable behavior, such as bitcoin and ethereum, which ore one the the best cryptos to buy, but it is even more important to react quickly to changing cryptocurrency rates. Therefore, you should start learning crypto trading. Crypto platforms offering automation in the form of bots that monitor important parameters on large exchanges can provide invaluable assistance in this matter. In general, studying crypto trading requires a thorough immersion in the world of cryptocurrencies, so this method is not suitable for everyone. But this is what contributes a lot to the profitability of your crypto investments even if you are not so interested in learning crypto trading and you cannot say for sure what the best crypto to buy is.
To sum up
We hope that this article will help our readers to get the main concept of cryptocurrencies and ways to earn money with their crypto investments. We should remind you you that this niche is one of the most dynamically developing, and the more you know about it and about the new trends in the industry, the higher the chances of getting significant profit. Besides, you need to carefully choose the best cryptos to invest in. And so, those who want to know how to make money on cryptocurrency, should start with following these simple tips.
Read: Investors lost around $1 bln to Cryptocurrency Frauds since 2021
