Chain Journey

Frequently Asked Questions

A cryptocurrency is a digital currency that uses special cryptographical methods to ensure that there is security in every transaction made. Cryptography as a contributing factor is considered a strength since it makes it very difficult for a transaction to be spoofed or for counterfeit actions to occur. One special quality of cryptocurrencies is that they are decentralized. This means that these types of currencies have an organic nature in which they are not issued by a governmental authority


Some examples of common cryptocurrencies


A node is a computer that is actively using cryptocurrency software. It is the responsibility of the nodes to keep track of the latest transaction information and spread this information as needed to other nodes. This helps the information about transactions to spread and allows the currency to thrive for all involved.


A nice illustration of how nodes work

Source: Blockgeeks

Mining happens when a node is responsible for grouping outstanding transactions into blocks of information. These blocks are then added to the blockchain; this happens when miners solve complex math puzzles that are part of the cryptocurrency software. After the math has been solved, the answer to the puzzle is included in the block. Many may wonder: what is the puzzle? Miners need to figure out a certain number that produces a result that is within a certain range. This needs to be done when combined with the data involved in a block and passed through a hash function. This number that is being sought after is called a nonce. In Bitcoin’s case, a nonce has to be an integer between 0 and 4,294,967,296. The strategy involved in finding this mystery number is to guess randomly until it is found since the hash function makes it pretty much impossible to guess what the outcome will be. The guessed number is put to the test by applying the hash function to it in combination with data in the block. There may be several validated nonces that serve as solutions or there may be none at all (in which case miners will attempt again with a different block configuration.) The first miner that guesses correctly will let the network know and gets rewarded with an amount of new coins (and fees if applicable.) As a result, other miners will start to work on the next solution at hand. Another noteable aspect of mining is difficulty. The difficulty is measured by observing how hard it is to find a satisfactory solution to the puzzle at hand.

On a related note, miners can choose to either be a part of a collective mining pool that mines together or they may choose to mine individually. When mining for a pool, there is commonly a fee taken from a miner's earnings to support the website or company running the pool. Work contributed towards a pool is usually rewarded through a payout; payouts are commonly issued after a certain earnings threshold has been met. The faster the hashrate (or the speed at which miners complete an operation in the cryptocurrency code) the better the opportunity of finding the next block and receiving the reward.

A blockchain is a database that holds information that is shared and continually reconciled. The best part about blockchain is that there is not just one place where it exists; therefore, it is publicly accessed and information can be verified easily. If there were hackers that wanted to alter this database maliciously, they would have an extremely difficult time since millions of computers simultaneously host the information. Circumventing verification is the challenge in the hackers’ pathway to corruption. Since the information of the blockchain is not central or tied to one certain location, it is referred to as decentralized; no single institution can fully control the whole network.


How to think about the blockchain


Anyone is able to send money to anyone else anywhere in the world, almost instantly, with no middleman or extra fees. They enable the inclusion of everyone in the worldwide financial system; Those that have access to modern day banking no longer have exclusive access. The incredible amount of computing power generated when mining cryptocurrencies can be used to create a decentralized network for applications on top of the block chain.

There are some that are pseudonymous and there are some that are anonymous. Those that are pseudonymous use ‘false names’ or disguised identities in transaction dealings. In the case of Bitcoin as an example, transactions contain an origin and destination public address; since this is the case, one can use a block explorer to exploit detailed information about Bitcoin blocks, addresses, and transactions. With this information, one could do an analysis to start building an explanation of where the money is flowing from and why. On the other hand, those that are anonymous use special methods to ensure that the information stored on the blockchain is private in the interest of its users. Zcash, Monero and PIVX are examples of coins that use zero-knowledge proofs, ring signatures and stealth addresses to hide identifying information.

Zcash transaction

A simple depiction of Zcash's transaction method


When using a cryptocurrency exchange, exchange fees or commissions are paid to the exchanges as their “cut.” Exchanges may also charge additional fees for transferring coins to an outside wallet The cryptocurrency network itself may ask for fees to pay the miners to include a transaction in a block sooner rather than later.

Here are some ways to acquire cryptocurrencies: Coinbase, Kraken and Poloniex are 3 of many cryptocurrency exchanges that will allow you to buy and sell cryptocurrencies at different exchange rates. You can find a person that has cryptocurrencies and buy it off of them. Mining is a good way to acquire cryptocurrency by contributing to the network and getting coins as a reward.

Market capitalization aka market cap is a measurement of a certain cryptocurrency's size relative to all of the others. The bigger the market cap of a coin, the bigger the influence the coin has on the market.

Market Cap = Price per Coin x Circulating Supply

Zcash transaction

A snippet from CoinMarketCap


Coin = a cryptocurrency that can operate independently.

Token = a cryptocurrency that depends on another cryptocurrency. A coin can serve as a platform for a token to operate.

A coin can serve as a platform for a token to operate.