Bitcoin, Ethereum, and Litecoin are popular examples of cryptocurrency.
A cryptocurrency is a type of digital currency that uses cryptography to secure and verify transactions, as well as to control the creation of new units. Unlike traditional currencies issued by central banks, cryptocurrencies operate in a decentralized manner through distributed ledger technologies, such as the blockchain . This means that there is no single authority that controls its issuance or regulates its circulation, which is often perceived as a characteristic of independence and transparency. Examples of popular cryptocurrencies include Bitcoin, Ethereum, and Litecoin.
Blockchain
Blockchain technology is a decentralized and distributed digital ledger used to record transactions across multiple nodes in a network. It works like a chain of blocks, where each block contains a set of verified transactions and is cryptographically linked to the previous block, thus forming a continuous and immutable chain of records.
Blockchain security and transaction privacy are two of the most notable aspects of this technology. Cryptography plays a vital role in protecting stored data . Each block is encrypted using cryptographic algorithms that guarantee the integrity and authenticity of transactions.
Once a transaction is recorded in a block and added to the chain, it is virtually impossible to alter or delete that information without modifying all subsequent blocks, which would require massive computing power and a consensus of the majority of participants in the block. grid. For this reason, the blockchain is highly secure and resistant to tampering .
Cryptocurrency security is also based on this security principle. This is about protecting digital funds and preventing unauthorized access to the digital wallet and transactions. Cryptography ensures that addresses and private keys are protected from hackers . In addition, the blockchain guarantees the transparency and immutability of transactions, which increases users' confidence in the security of cryptocurrencies.
Mining
Cryptocurrency mining is the process by which transactions are verified and added to the blockchain and new units of said cryptocurrency are generated. This process is essential to maintain the integrity and security of the blockchain network.
Proof of Work or Proof of Work (PoW)
The most well-known and used consensus mechanism in cryptocurrency mining, used by Bitcoin and Ethereum, among others. Miners compete with each other to solve complex mathematical problems that require a large amount of computing power . The first to come up with a solution receives the right to add a new block to the chain and is rewarded monetarily, along with associated transaction fees.
Proof of Stake or Proof of Stake (PoS)
Participants in the network are selected to validate and add blocks to the chain based on the amount of cryptocurrency they own and are willing to stake or lock as collateral. The larger an individual's stake, the greater the likelihood that they will be selected as a validator and receive rewards in the form of transaction fees and new units of the cryptocurrency.
Proof of Space or Proof of Space (PoSpace)
It is based on the amount of storage space a participant is willing to allocate to perform mining . Participants who make the highest contribution are most likely to be selected to add blocks to the blockchain and receive rewards.
Burn test or Proof of Burn (PoB)
Participants burn (send to an inaccessible address) a specific amount of an existing cryptocurrency to demonstrate their commitment to the network . In exchange, they can access the right to add blocks to the chain and receive rewards in the form of transaction fees and new units of the cryptocurrency.
Transactions are recorded using blockchain technology.
Cold wallets vs hot wallets
Cold wallets
Cryptocurrency storage devices that are not connected to the internet. They typically take the form of physical hardware, such as USB devices. These wallets are highly secure due to their isolation from the network, making them less susceptible to cyber attacks. They are mainly used to store large amounts of cryptocurrencies for the long term.
hot wallets
They are connected to the internet and are therefore more vulnerable to cyber attacks. They can take the form of software applications, online wallets, or even mobile wallets. These wallets are convenient for quick access and making frequent transactions, but it is generally recommended to use them to store smaller amounts of cryptocurrency.
Bitcoin
Bitcoin, the world's first decentralized cryptocurrency, was introduced in 2009 by Satoshi Nakamoto . It works on a P2P (Peer-to-Peer) network without the need for intermediaries such as banks or governments, allowing direct transactions between users without borders or geographical restrictions. A key feature is its programmed digital scarcity, with a maximum limit of 21 million that can be mined. This creates a digital economy where supply is finite, which can potentially increase in value over time. In addition to being a medium of exchange, Bitcoin has become a digital store of value and a popular form of investment, attracting the attention of individuals, financial institutions, and governments around the world.
Halving
A scheduled event that occurs approximately every four years, designed to halve the number of new bitcoins generated with each mined block. This process aims to control the supply of Bitcoin in circulation, which can have a significant impact on its value. It is considered a key mechanism for maintaining Bitcoin's scarcity and long-term value.
Fork
A change in network protocol that can result in two different and separate blockchains. This can occur for a variety of reasons, such as disagreements in the community over changes to consensus rules. Depending on the nature of the fork, there are hard forks , which involve changes that are incompatible with the previous version of the software, and soft forks , which are compatible with previous versions.
Bitcoin cash
A fork that occurred in August 2017. It was created as a response to concerns about scalability and block size limitations. Bitcoin Cash increased the block size to 8MB , allowing for more transactions and greater scalability.
Bitcoin was the first cryptocurrency in history.
Bitcoin SV
Bitcoin SV ( Satoshi Vision ) is another fork that occurred in November 2018. It was driven by groups seeking to restore the original Bitcoin protocol as defined by Satoshi Nakamoto's whitepaper. It focuses on network scalability , stability, and security, with an even larger block size than Bitcoin Cash.
Bitcoin Gold
A fork of Bitcoin that took place in October 2017. Its main goal was to decentralize mining by changing the proof-of-work consensus algorithm to Equihash, allowing mining with standard GPU hardware instead of specialized ASICs.
Taproot (Bitcoin Update)
An improvement proposal for the Bitcoin protocol, which sought to improve privacy, scalability and flexibility. It makes multisig transactions and smart contracts more efficient, while increasing privacy by making all transactions look the same on the blockchain. It was implemented in November 2021.