With almost 7% of the world’s population invested, it’s safe to say that the meteoric rise of Bitcoin and other cryptocurrency trading has captured the public imagination. But for those new to the space, the technical underpinnings of crypto can seem opaque.
Understanding the core technologies that power cryptocurrencies can help you navigate the complex task of cryptocurrency trading with confidence. We explore the main points below.
Blockchain
At the heart of every cryptocurrency lies a blockchain – a distributed, digital ledger that records cryptocurrency transactions chronologically and transparently. A blockchain is replicated across a vast network of computers around the world, instead of being stored on a single server. This decentralised nature makes it incredibly secure. Any attempt to tamper with a transaction would require altering copies across the entire network, which is a near-impossible feat.
Cryptocurrencies leverage blockchain technology to track ownership and facilitate secure transactions without the need for a central authority like a bank.
Smart Contracts Smart contracts are self-executing contracts that reside on the blockchain and automatically trigger actions when predetermined conditions are met.
For instance, a smart contract could be programmed to release funds from a buyer to a seller only after the delivery of goods is confirmed. This eliminates the need for intermediaries and streamlines transactions, making them faster and more secure.
While still under development, smart contracts have the potential to revolutionise various industries, from supply chain management to real estate.
Crypto Wallets
Instead of existing in physical form like coins or notes, cryptocurrencies are stored in crypto wallets. These wallets come in various forms, including software wallets on your phone or computer and hardware wallets resembling USB sticks – called hot and cold wallets, respectively.
Regardless of which form it’s in, your crypto wallet stores your private keys, which are essentially cryptographic passwords that grant access to your cryptocurrency holdings. Safeguarding your private key is paramount, as losing it means losing access to your crypto.
Tokenisation
Tokenisation is another exciting application of blockchain technology, representing real-world assets, like property or artwork, on a blockchain as digital tokens.
These tokens can then be bought, sold or traded fractionally, unlocking unique investment opportunities, such as co-owning a valuable piece of art or a prime piece of real estate without the prohibitive costs associated with traditional ownership.
