Understanding Cryptocurrencies and Block Chains

Understanding Cryptocurrencies and Block Chains can be a challenge if you are new to this market. While cryptocurrency has been around for several years, the momentum surrounding digital based coinage has only seen momentum in recent years. Because crypto coinage is the rate of exchange on such platforms as Polkadot and Kusama, it is important to understand the basic structure of blockchains and crypto currency. If you have ever struggled with understanding cryptocurrencies and block chains, read on.

Understanding Cryptocurrencies and Block Chains is the key to being succesfull in auctions. Here are a few of the cryptocoins on the market.

What are Cryptocurrencies?

If you were to enter a bank, you would have a physical paper or coin means of transaction. Cryptocurrencies are similar in their function. They are usually variations of Bitcoin, which was the first of this type of tender. Like “traditional” money, cryptocurrencies have their own units and their own identification. For example, when you are on Kusama, the coins are called KSM. However, when you are on Polkadot, the tender is referred to as DOT.

Where cryptocurrency differs from, say, a $20 bill is in the where you can spend the money. While you can exchange the currency on the market, you may not spend the money on certain sites. Again, going to the example, you cannot use KSM on Polkadot or DOT on Kusama. In most cases, you will need to have specific cryptocurrencies to auction and complete transaction on the platform of your choosing.

What are block chains?

When transactions are completed, there must be a record of the transaction. This can be a trade, a sale, or the development of new cryptocurrencies. Block Chains are the record of the transactions. Just like a ledger would show the transactions and validate the spender and the money within an account, block chains validate the ownership of units and the currency.

Because there are transactions which occur regularly, there must be updated to the block chain. Each update to the chain is known as a block. Blocks usually are added several times per day. For example, Bitcoin has a rate of about 10 minutes per block being added. Some newer cryptocurrencies have a rate which is quicker.

How are cryptocurrencies secured?

Like most online things these days, the security of your cryptocurrency is based upon a private key. This key can be randomly generated or you can choose the key. It is important to note that the pin or private key which is associated with your wallet is crucial to performing transactions, trades, or auctioning. Private keys are the access validation for such.

Unlike pins which can be retrieved if you have forgotten the code, Private keys cannot be recovered if lost. This is meant as a security measure. Only you have the private key. Therefore, if you lose the key or forget the key, there is no one and nowhere that the key is located for recovery. Why does this matter? It matters because if the private key is lost, you will not have access to your cryptocurrency. While you could form a new private key, you would lose all the accumulated cryptocurrency associated with the lost key.

If you are setting up a private key or if you have a randomly generated key, ensure that you do not lose that key.

What is a cryptocurrency wallet?

All cryptocurrency users must have a wallet in order to perform transactions. The wallet is where the cryptocurrency is housed. Each platform may have different wallets. So, you could end up having several wallets with several units. DOT may require one and KSM may have another. It all depends upon the units which can be exchanged on the platform that you choose.

Backing up your wallet is advised. The backup does not secure your coinage, however. It is more of a means of verifying the cryptocurrency that you have should anything ever go wrong with the site. That being stated, most of the cryptocurrency sites do not offer refunds or additional securities on coinage in your wallet. It is a use at your own risk type of setup.

How are transactions verified?

If you use cryptocurrency, you will eventually hear the term miner. A miner is someone or a group of individuals who have strong servers and IT knowledge which can process the transactions which occur on a platform. Usually, there are multiple servers, decentralizing the cryptocurrencies. This means that there is no one financial institution validating the transaction. Miners, when a transaction is started, freeze the cryptocurrency so that neither you nor the party being paid can access it. Once the transaction has been verified (which usually only takes a few minutes), the party to which the coins were transferred will have access.

It is important to understand that these transactions are not like going to a physical, financial institution. While there are validations of transactions, there is still a risk that you can become hacked or lose your coins. Unlike a physical, financial institution, once the transaction is complete, it is final.

Why are there transaction fees?

There are two types of transactions which can occur, free-fee and for-fee. Most of the platforms will have a transaction fee of 1% or less. Like any institution, they are in the business of making money. Incentives are given, usually as processing times, for users to use fee based transactions. Note that even if you have started a transaction before a fee transaction, most platforms will prioritize the for fee over the free-fee. Transaction fees are how miners make their living.

Picture of a blockchain.

Understanding Cryptocurrencies and Block Chains

While cryptocurrency codes can be complex, the basics do not have to frustrate you. If you remember cryptocurrency is the digital tender which platforms based upon Bitcoin and such technology run, you will be fine. Block Chains are simpler to understand. They are the record of all transactions and the variation of crypto units.

Should you have questions about a particular unit, or if you are unsure how your platform handles cryptocurrency, contact the appropriate parties to find out more information before investing.