What is Cryptocurrency?
Cryptocurrency is a digital asset designed to work as a medium of exchange that uses strong cryptography to secure financial transactions, control the creation of additional units, and verify the transfer of assets. Cryptocurrencies use decentralized control as opposed to centralized digital currency and central banking systems.
What is Blockchain?
A blockchain is a distributed database that is shared among the nodes of a computer network. As a database, a blockchain stores information electronically in digital format. Blockchains are best known for their crucial role in cryptocurrency systems for maintaining a secure and decentralized record of transactions. The innovation with a blockchain is that it guarantees the fidelity and security of a record of data and generates trust without the need for a trusted third party.
What is mining?
Mining is the process that Bitcoin and several other cryptocurrencies use to generate new coins and verify new transactions. It involves vast, decentralized networks of computers around the world that verify and secure blockchains – the virtual ledgers that document cryptocurrency transactions. In return for contributing their processing power, computers on the network are rewarded with new coins. It’s a virtuous circle: the miners maintain and secure the blockchain, the blockchain awards the coins, the coins provide an incentive for the miners to maintain the blockchain.
Why is mining important?
Beyond releasing new coins into circulation, mining is central to Bitcoin’s (and many other cryptocurrencies’) security. It verifies and secures the blockchain, which allows cryptocurrencies to function as a peer-to-peer decentralized network without any need for oversight from a third party. And it creates the incentive for miners to contribute their computing power to the network.
What is Liquidity Pool?
Liquidity pools are protocols that pool together large amounts of different tokens into a smart contract for the purpose of providing enough liquidity for buyers and sellers to trade each token at the most efficient price possible.
What is Staking?
Like a lot of things in crypto, staking can be a complicated idea or a simple one depending on how many levels of understanding you want to unlock. For a lot of traders and investors, knowing that staking is a way of earning rewards for holding certain cryptocurrencies is the key takeaway.
How does staking work?
If a cryptocurrency you own allows staking — you can “stake” some of your holdings and earn a percentage-rate reward over time. This usually happens via a “staking pool” which you can think of as being similar to an interest-bearing savings account. The reason your crypto earns rewards while staked is because the blockchain puts it to work. Cryptocurrencies that allow staking use a “consensus mechanism” called Proof of Stake, which is the way they ensure that all transactions are verified and secured without a bank or payment processor in the middle. Your crypto, if you choose to stake it, becomes part of that process.
What are the advantages of staking?
Many long-term crypto holders look at staking as a way of making their assets work for them by generating rewards, rather than collecting dust in their crypto wallets. Staking has the added benefit of contributing to the security and efficiency of the blockchain projects you support. By staking some of your funds, you make the blockchain more resistant to attacks and strengthen its ability to process transactions.
What are some staking risks?
Staking often requires a lockup or “vesting” period, where your crypto can’t be transferred for a certain period of time. This can be a drawback, as you won’t be able to trade staked tokens during this period even if prices shift. Before staking, it is important to research the specific staking requirements and rules for each project you are looking to get involved with.
What is NFT?
NFTs (or “non-fungible tokens”) are a special kind of cryptoasset in which each token is unique — as opposed to “fungible” assets like Bitcoin and dollar bills, which are all worth exactly the same amount. Because every NFT is unique, they can be used to authenticate ownership of digital assets like artworks, recordings, and virtual real estate or pets.1
What does “non-fungible” mean?
Every bitcoin is worth as much as every other bitcoin. NFTs, on the other hand, are all unique. “Fungibility” refers to goods or assets that are all the same and can be swapped interchangeably. A dollar bill is another perfect example — each is worth exactly one dollar. Concert tickets, by contrast, are non-fungible. Even if every Radiohead ticket is the same price, they aren’t directly exchangeable. Each represents a specific seat and a specific date — no other ticket will have those exact characteristics.
Why are NFTs important?
You can think of NFTs as being kind of like certificates of authenticity for digital artifacts. They’re currently being used to sell a huge range of virtual collectibles, including:
NBA virtual trading cards
Music and video clips from EDM stars like Deadmau5
Video art by Grimes
The original “nyan cat” meme
A tweet by Dallas Mavericks owner and entrepreneur Mark Cuban
Virtual real estate in a place called Decentraland
As as Bitcoin and other crypto has boomed in popularity over the last year, NFTs have also soared — growing to an estimated $338 million in 2020. Each NFT is stored on an open blockchain (often Ethereum’s) and anyone interested can track them as they’re created, sold, and resold. Because they use smart contract technology, NFTs can be set up so that the original artist continues to earn a percentage of all subsequent sales.
