Crypto and Blockchain 101: 
Your Essential FAQ Guide for Beginners

What are Cryptocurrencies?

A cryptocurrency is a digital or virtual currency secured by cryptography, making it nearly impossible to counterfeit or duplicate. Many cryptocurrencies are decentralized networks based on blockchain technology.

A key feature of cryptocurrencies is that they are generally not issued by a central authority, making them theoretically immune to government or third-party interference or manipulation.

The first blockchain-based cryptocurrency was bitcoin, which remains the most popular and most valuable. Today, there are thousands of alternative cryptocurrencies (altcoins) with different features and specifications. Some of these are clones or forks of Bitcoin, while others are entirely new cryptocurrencies built from scratch.

While some of these altcoins have impressive features and use cases that Bitcoin does not, they generally carry much greater risks.

Bitcoin was launched in 2009 by an individual or group known by the pseudonym "Satoshi Nakamoto", becoming the first to solve the double-spending problem that made electronic money without a central authority possible.

How is Cryptocurrency Value Determined?

Cryptocurrency values are determined primarily by market dynamics and are rooted in trust. Even bitcoin, the most dominant cryptocurrency, is subject to fluctuations and volatility due to its relatively new status in the financial world.

Factors Influencing Cryptocurrency Value:

1. Supply and Demand:

  • The basic principle governing cryptocurrency value is the interaction of supply and demand. When demand exceeds supply, prices tend to rise, and vice versa.

2. Scarcity Assurance:

  • Cryptocurrencies like bitcoin are designed with a capped supply, ensuring a maximum number of units (e.g., 21 million). This scarcity is a key factor in their value preservation.

3. Economic Implications:

  • Cryptocurrencies have the potential to transform our economic landscape in several ways.
  • Reduced monetary inflation due to governments printing money can preserve purchasing power.
  • Companies may no longer feel pressured to generate quick profits and engage in excessive acquisitions.
  • A move towards holding value can result in a more sustainable and environmentally friendly world with less consumption.

4. Equality and Peace:

  • Cryptocurrencies operate without central authority, allowing universal participation and reducing the chances of economic emergencies and conflicts related to money creation.
  • Historically, currency devaluation has often led to crises.

5. Efficiency and Innovation:

  • Cryptocurrencies facilitate efficient transactions and may lead to innovations in financial technology.
  • By combating planned obsolescence, they can encourage better product quality and durability.

6. Critique of Traditional Monetary Policy:

  • Factors such as quantitative easing, and bailouts of banks and corporations cause monetary inflation.
  • Traditional monetary policies have led to inequality, devaluation of your savings and authoritarian superpowers.

Governments and central banks are the big culprit. Inequality went parabolic the moment Nixon abandoned the gold standard and central banks got their hands free to create money to their hearts' content. And history gives us enough examples that every currency fails when devalued.

In conclusion, cryptocurrencies, such as bitcoin, hold value based on trust and utility. Their attributes, including scarcity, efficiency, and decentralization, have the potential to transform the world's financial and economic landscape.

Reading Tip: A better world with Bitcoin

What is Blockchain?

Blockchain is a revolutionary data structure that underlies the network. It functions as a novel form of database designed for storing and accessing transactions. These transactions can involve digital currency payments, but they are equally suited for the secure exchange of vital information between two parties.

One critical feature shared by all transactions is their transformation into "blocks". These blocks consist of information digitally signed by both parties involved, all without the need for a third-party intermediary. Moreover, these blocks are stored directly within the database.

Uncrackable Chain

All stored information is encrypted using cryptographic techniques, and transactions are organized into blocks distributed across a global network of computers. Each new block always contains data pertaining to the previous block, which, in turn, retains information from the block before it. This cumulative structure forms an unbreakable, immutable chain of information.

Decentralization

In contrast to most traditional databases, which are centrally managed, this technology operates without a central point of control. Instead, numerous nodes exist, each holding an identical copy of the database. These nodes are also commonly referred to as "nodes".

Centralized systems allow large corporations, banks and governments to misuse your data and money. In this way, our economy will remain completely controlled by a centralized entity (small elite group), who will continue to run it according to their own interests (central bankers).

Centralized vs decentralized network

Supervision

Within the blockchain ecosystem, there is no single owner or supervisor. Oversight rests with the users themselves. New transactions are added to the database by the nodes, but this process requires them to identify a code that confirms the accuracy of the information. Consensus among the nodes is necessary to validate the code before the information is added to the chain. Consequently, no single entity can independently store or alter information in the database, rendering it virtually immune to fraudulent transactions or data manipulation.

Security

The system automatically duplicates all data across each node. This network redundancy eliminates dependence on a central database, mitigating major disruptions if one of the nodes encounters issues, such as hacking or power failures. In such scenarios, the remaining nodes continue to function, each with its copy of the database. This redundancy significantly enhances security compared to systems with a central database.

Blockchain & mining - video Simply Explained

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Where to Buy and Sell Cryptocurrency?

With the ever-increasing popularity of cryptocurrency, numerous providers offer the option to purchase or trade bitcoin and alternative coins (altcoins). However, it's important to exercise caution, as there are less reputable websites in the space.

In many countries, buying cryptocurrency is made easy through various methods such as Bancontact, credit card, or SEPA bank transfer on online trading platforms. Many of these platforms also allow you to sell and trade your cryptocurrencies.

While it's not always necessary to have your own wallet to use cryptocurrencies, some platforms enable you to store them directly in your online account. However, there are also platforms that don't offer this feature, requiring you to buy, sell, and transfer your cryptocurrencies to your personal wallet.

Europe / Arab World

USA

It is highly recommended if you want to invest larger amounts to use a hardware wallet.

Reading Tip: The Future of Finance - Exploring the World of Decentralized Crypto Exchanges

How to Store, Send, and Receive Cryptocurrency?

Many people use digital wallets for cryptocurrency transactions, but there is often confusion about how they operate. Unlike traditional wallets, digital wallets do not store actual currency. Cryptocurrencies don't physically exist in a single location; instead, they are represented as transaction records on a blockchain.

Digital Wallet

A cryptocurrency wallet is a software program that stores your public and private keys. These keys, in combination with the wallet's interface, enable you to interact with different blockchains, allowing you to check your balance, send funds, and perform various operations.

Transactions

When someone sends you bitcoins or any other digital currency, they are essentially transferring ownership of those coins to your wallet's address. To access and spend these coins, your wallet's private key must match the public key to which the currency is assigned. If the keys match, your cryptocurrency wallet balance increases while the sender's balance decreases. Importantly, no physical exchange of coins occurs; instead, the transaction is recorded on the blockchain, and your cryptocurrency balance changes accordingly.

Blockchain: A Ledger of Transactions

Attention!

In simpler terms, the private key grants you access to your wallet and the ability to store and send cryptocurrencies. Never share your private key with others; think of it like the PIN for your bank or ATM card. Once it's known by someone else, they can access your wallet and transfer your cryptocurrency to another wallet.

Remember: Not Your Keys, Not Your Coins!

Hardware Wallet

Hardware wallets distinguish themselves from software wallets by storing a user's private keys on a physical device, like a USB flash drive. Unlike software wallets, which are connected to the internet, hardware wallets remain offline, offering enhanced security.

Hardware wallets are versatile and can be used with various web interfaces, supporting different cryptocurrencies. To make a transaction, users can simply connect their hardware wallet to an internet-enabled computer or mobile device, enter a PIN, send the desired currency, and confirm the transaction.

With hardware wallets, you can easily conduct transactions while keeping your funds offline and safe from potential threats.

Mobile Wallet

Mobile wallets are applications that you can install on your smartphone for convenient access to your digital assets. They offer the flexibility of being used anywhere in the world, including at various retail stores and online merchants. Mobile wallets provide a user-friendly and on-the-go solution for managing your finances and making payments.

Online Wallet

Online wallets are cloud-based solutions that offer accessibility from any device and location. While they provide convenient access to your digital assets, it's important to note that these wallets store your private keys online and are typically managed by a third party. This arrangement can make them more vulnerable to hacking attacks and potential theft. Users should exercise caution and implement strong security measures when using online wallets to protect their assets.

What are The Advantages and Disadvantages?

Cryptocurrencies have gained significant attention and adoption in recent years. Let's explore the advantages and disadvantages associated with these digital assets.

Advantages:

  • Decentralized: Cryptocurrencies operate on a decentralized ledger, eliminating the need for intermediaries like banks.
  • Open-source: Many cryptocurrencies are built on open-source technology, fostering innovation and transparency.
  • Freedom of payment: Users have greater control over their transactions, enabling borderless payments.
  • Security: Cryptocurrencies offer security through encryption and eliminate bureaucratic hurdles.
  • Neutrality and transparency: Transactions are public and transparent, reducing the potential for fraud.
  • Low transaction costs: Cryptocurrency transactions are often cheaper than traditional financial systems.
  • Relatively fast: Cryptocurrency transactions can be processed quickly compared to traditional banking systems.

Disadvantages:

  • Dependent on internet or satellite availability: Cryptocurrency usage relies on internet access, which can be a limitation in some regions.
  • Highly volatile in emerging markets: Cryptocurrencies can experience extreme price fluctuations, making them a risky investment in emerging economies.
  • Immutable transactions: Once recorded on the blockchain, transactions cannot be altered or reversed, which can be a problem in the case of errors or fraud.
  • Knowledge and awareness required: Users need a basic understanding of cryptocurrency technology to keep their assets safe and secure.

Bitcoin's core ideology goes against the most powerful institutions, governments, politicians, banks, regulators ... and is likely to face resistance from other players who will not tolerate or approve it.

What are Potential Purposes?

Cryptocurrency has emerged as a versatile and transformative technology, offering a wide range of use cases. It is now used for:

  1. Hoarding (Store of Value): Cryptocurrencies like bitcoin have become a popular means of storing value, akin to digital gold.

  2. Investment: Many individuals and institutions see cryptocurrencies as an attractive investment opportunity due to their potential for high returns.

  3. Means of Payment: Cryptocurrencies can be used as a medium of exchange for goods and services, offering a secure and borderless alternative to traditional currencies.

  4. Decentralized Programming Platform: Crypto projects, especially those with smart contract capabilities like Ethereum, serve as decentralized programming platforms for building a wide range of applications.

The widespread adoption of decentralization and blockchain technology is reshaping the digital landscape. Some of the key use cases include:

  • Decentralized Finance (DeFi): Transforming traditional financial services by eliminating intermediaries and providing access to financial products for all.

  • Decentralized Applications (dApps): Enabling the development of applications that operate without central control, promoting transparency and trust.

  • Decentralized Computing: Utilizing the blockchain for decentralized computing and data storage.

  • Digital Collectibles or Access Tokens (NFTs): Revolutionizing digital art, collectibles, and ownership verification.

  • Proofs of Property or Possessions: Providing a secure and immutable record of ownership for various assets.

  • Logistics: Streamlining supply chain and logistics management through blockchain technology.

  • Real Estate: Facilitating notary digitization and government blockchain initiatives to enhance transparency and reduce fraud.

  • Identity Management: Improving identity verification and security, while giving individuals control over their personal data.

  • Social Media without Censorship: Creating censorship-resistant platforms that protect free speech.

  • Rewarding Creators on the Internet: Enabling content creators to monetize their work directly, without middlemen.

  • Blockchain Gaming (Play-to-Earn): Offering gamers the opportunity to earn real value through in-game assets and activities.

  • Blockchain Learning (Learn-to-Earn): Incentivizing education and skill development through blockchain-based rewards.

Blockchain Applications - video Simply Explained

“The first generation of the digital revolution brought us the internet of information. The second generation – powered by blockchain technology – is bringing us the internet of value: a new, distributed platform that can help us reshape the world of business and transform the old order of human affairs for the better.”

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