The Layman’s Guide to Crypto

root | Jul 11 | Blockchain | Crypto

It’s 2018, every man, woman, child and even your hairdresser seems to be talking about this bitcoin thing.

Haven’t you heard? It’s going to change the world, or something.

So you’ve no doubt heard of Bitcoin but what about Ethereum or Neo? What’s an address or a node? or even Proof of Work? There’s plenty of jargon flying around, this will attempt to strike the balance by explaining some of these terms without getting bogged down in the technicalities to allow you to dive deeper if you wish.

Here I present the most common crypto questions, answered for yours truly.

Is Bitcoin even real money?

If by that you mean can it be used in exchange for goods or services, then yes!

Today, many places are now accepting Bitcoin as payment,you can use it to donate to Wikipedia, buy products from the Microsoft Store, and even get a sandwich from Subway

Unfortunately however things are more complicated than that. Official currencies are typically recognised and accreddited by Governments but technically Bitcoin is only a digital asset, that is yet to be fully regulated and understood by the mainstream financial system. Not only that but Bitcoin can be more than just money, it is perhaps more akin to a computer protocol like http that you use to browse the web.

How do I get Bitcoin

Just like buying any currency you must go to an exchange.

Bitcoin can easily be purchased using fiat (i.e US dollar, British Pounds etc.) from a number of online exchanges, such as Cex.io or Coinbase

You can then buy other cryptocurrencies by sending the funds to another exchange such as Poloniex or Bittrex to buy other coins

Wait, there are other coins?

Yep, there are  currently a whopping 1629 different cryptocurrencies listed on coinmarketcap.com.

CoinMarketCap is also a great resource for checking the stats of different coins.

However that’s not to say that all of them have any actual purpose or use.

Many of the currencies further down the ranking are often clones of other coins, joke currencies or even scams so you need to carry out research.

Why are there so many cryptocurrencies?

Most of the main coins have very different purposes to each other so they’re not in direct competition.

In fact the term ‘cryptocurrencies’ is slightly misleading as not all of them are even intended to be currencies.

Many are assets and tokens simply designed to be used as part of their blockchain network rather than used as a currency. Confused yet?

What’s the blockchain?

The blockchain is possibly one of the biggest tech buzzwords in recent years, but what actually is it?

It is typically described as an ‘open ledger’ because it allows for all data (such as transaction information) to be stored and distributed among the blockchain. This involves ‘broadcasting’ the information out to every participant to ensure everybodies records match. Participants can then verify that the information is correct using cryptography.

Why is it useful?

The main benefits of the blockchain is it’s immutability.

It can essentially be thought of as a really secure database.

In the ‘database’ every entry (or block as they are called) points back to the previous entry in a continuous chain.

This chain links back to the very first block meaning that if anything is changed or modified, this ‘chain’ will be broken.

This information is distributed across the network to allow its authenticity to be continually verifed by its participants.

How do transactions work?

Cryptocurrencies rely on a system of addresses to exchange funds between different parties. These work in a similar way to an email address or your payment information but they are stored as a hexadecimal value.

To generate an address you must have a ‘wallet’ this is a software application that handles your fundswhich is secured via something called a ‘private key’ which provides cryptographic security by ensuring only you are able to interact with the funds.

Once you have a wallet you can generate an address which may look something like this:

1HxWKMDnXrhHnNuecL7zeikdMghn9kt4HP

You can then send transcations using your wallet, which will take the funds from your account and send it to the corresponding address.

This transaction is then contained within a block sent over the network and verified by a process known as mining.

What is mining?

In Proof-of Work systems, the blockchain network releis on a process called mining to verify that every block fits correctly into the chain. This is a complex mathematical process which requires lots of computing power to solve, however miners are then rewarded for their efforts by a small amount of the cryptocurrency as a result.

Once the order of the blockchain can be agreed by the miners, the block is considered ‘confirmed’ and the transaction can be completed.

What is Proof of Work?

‘Proof of Work’ refers to the system of verification used by bitcoin and many others where the network is secured through the calculations of ‘miners’.

In this system miners must produce a proof of work to verify each block. This is a very time-consuming method as it is a random process with a low chance of success to generate the valid proof.

Each miner then competes against each other to be the first to produce the valid match.  This means that the more powerful a computer is (and therefore capable of processing more calculations), the more successful it will be.

However for very block that is solved, the difficulty of the algorithm changes accordingly, which is why it is much harder to mine bitcoins today than several years ago.

What is Proof of Stake?

This is one of the main alternatives to proof of work which attempts to verify the network on account of how much of the coin each user holds.

Instead of using miners, the network relies on validators, the bigger your stake (or share of the coin) the more chance you have of solving/validating the block.

In return, the validators are payed in transaction fees which can be considered like recieving interest in a bank account.

This is therefore a much more environmentally friendly approach as it doesn’t require the same levels of energy as Proof of Work.

Summary

This was just a quick overview, and is not intended as an in-depth guide but merely to provide input for further research.