A cryptocurrency is any digital currency that is designed to work as a medium of exchange through a computer network. Crpytocurrencies are not confiding to any central authority such as any government or bank institution to maintain it. Cryptocurrency received its name because it uses various encryptions to verify transactions. Therefore it means an advanced system which stores and transmits data between wallets and to public ledger. Instead it uses cryptography to confirm transcriptions on a publicly distributed ledger called a blockchain. Cryptocurrency prices have risen and fallen over the last few years. Crypto markets do not guarantee that an investor is completing a purchase or trade at a price. As a result, many investors take advantage of this by using trade to find the difference in prices across several markets.
Cryptocurrency examples
Bitcoin
Bitcoin was founded in 2009, by and is the first cryptocurrency and most commonly traded also. The currency was developed by Satoshi Nakamoto which is believed to be a pseudonym for an individual or a group of people who’s identify remain unknown to this day.
Etherum
Etherum was first developed in 2015, it is a blockchain platform with its own cryptocurrency called Ether. It is the most popular currency after bitcoin.
Blockchain is form of ledger technology that keeps records in a distributive manner. Blockchain is very secure means of storing data since it cannot be modified and can be used anonymously to protect user’s privacy.
Why do forks occur?
Forks need software updates just like any other software. Blockchains are updated for a number of reasons. It addresses the security risks, it resolve the disagreement within the community about the cryptocurrency direction.
what are blockchain forks?
Blockchain forks are a way of creating a split in the blockchain network. The network is an open software which means that the code is freely available to all. This means anyone can make changes and improve the code.
Most digital currencies have unconventional development teams responsible for changes and improvement of the network. It is also possible that a fork happens to make the cryptocurrency more secure. The developers of new cryptocurrency use fork to create new coins and ecosystems.
Soft fork
Soft fork can be defined as a software update for the blockchain. As soon as it is adopted by users it becomes a currency’s new set of standards. Soft forks are used to bring new features and functions in the programming level.
Hard fork
Hard fork happens when the code changes that it does not matches with the new version, it is no longer compatible with the new blocks. In this place the blockchain splits into two:-
The original blockchain and the new version of blockchain that follows the new set of rules.This produces a new cryptocurrency and is the source of many well known coins. For example cryptocurrencies like bitcoin gold and bitcoin cash are produced out of the original Bitcoin blockchain via hard fork.
How does Blockchain work?
Forks work by purposing changes to the software of the blockchain. They are often equated with creation of new tokens. The main ways of creating new cryptocurrencies are from scratch. Or to fork the existing cryptocurrency blockchain. It involves copying and pasting of the existing mode, which is then modified and launched as a new token. The network has to build from scratch and need people to be convinced to use this new cryptocurrency.
Cryptocurrency Splits
A permanent chain split is described as a case when there are more permanent version of blockchain. These blockchain are sharing the same history up to a certain period of time after which the histories start to differ. Permanent chain splits leads to a situation when two or more Cryptocurrency exist in the same blockchains. The taxation of Cryptocurrency splits varies from state to state. A few examples are
- Australian taxation office
- HM Revenue and Customs
- Internal Revenue Service
Is Cryptocurrency safe?
Cryptocurrency transactions require two factor authentication process. For instance you may be required to provide a username and password to start a transaction. Then you have to enter an authentication code sent via text to your personal phone.
While the securities are in place that does not mean the cryptocurrency is unhackable. Several high dollar thefts have cost cryptocurrency heavily.
Tips to invest in cryptocurrency safely
According to consumers report all investments carry risk but some experts consider cryptocurrency to be one of the riskiest investment choices. In order to invest in cryptocurrency one must keep these hacks in mind
Research Exchanges
Before investing one must learn about cryptocurrency exchange. It is estimated that there are about 500 exchange to choose from. In addition one should research, read reviews, and talk to more experienced investors.
Know how to store your currency
If you are willing to buy cryptocurrency you have to store it. You can keep it in a digital wallet or exchange. While there are many different kinds of wallet each has it’s own perks , technical requirements and security.
Variance is the Key
Variance is the key to any good investment strategy. Do not put all your money in only one cryptocurrency. For example don’t just invest in bitcoin because you know it’s name. There are other options to choose from and to spread your investment across various currencies.
The Economics of Cryptocurrency
Block rewards
Proof of work Cryptocurrency offer rewards incentive for miners. There has been a belief that whether miners are paid by block rewards or transaction fees. This does not affect the security of the blockchain but a study shows that this may not be the case under certain circumstances.
Transaction fees
The transaction fees depends mainly on the supply of network capacity at the time, versus the demand from the currency holder. The currency holder can choose from a specific transaction fee while networking with transactions in order of highest transaction fee from highest to lowest.
Exchange
Cryptocurrency exchange allow customer to trade currencies for other assests or money to trade between different digital currencies.