{"id":316,"date":"2019-04-30T07:24:33","date_gmt":"2019-04-30T07:24:33","guid":{"rendered":"http:\/\/algotrading101.com\/wiki\/?p=316"},"modified":"2019-05-03T16:02:09","modified_gmt":"2019-05-03T16:02:09","slug":"cryptocurrency","status":"publish","type":"post","link":"https:\/\/algotrading101.com\/wiki\/cryptocurrency\/","title":{"rendered":"Cryptocurrency"},"content":{"rendered":"\n

Definition<\/strong><\/p>\n\n\n\n

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Cryptocurrencies are digital money.<\/p>\n\n\n\n

Description<\/strong><\/p>\n\n\n\n

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Cryptocurrencies are digital money that are tracked using a virtual accounting system called the blockchain.<\/p>\n\n\n\n

Cryptocurrencies are stored in virtual wallets. The blockchain records the number of cryptocurrency coins every wallet has and all the transfers that have ever occurred.<\/p>\n\n\n\n

Anyone can verify the transactions in the blockchain by setting up computers or servers to ensure all the transactions tally. <\/p>\n\n\n\n

In exchange, they are rewarded with coins for their work. Those who do this are called miners.<\/p>\n\n\n\n

The most common cryptocurrency coins are Bitcoin (BTC) and Ethereum (ETH).<\/p>\n\n\n\n

3 Broad Uses of Cryptocurrencies<\/strong><\/p>\n\n\n\n

There are many cryptocurrencies with different uses. They fall into 3 broad categories.<\/p>\n\n\n\n

Store of value, medium of exchange<\/u><\/p>\n\n\n\n

Cryptocurrencies can be spent to buy goods or services. In this aspect, they are similar to fiat currencies or gold.<\/p>\n\n\n\n

Smart contracts<\/u><\/p>\n\n\n\n

A smart contract is a code that enforces certain action when an event occurred. <\/p>\n\n\n\n

Example: If Wallet A receives Coin X, Wallet A will return Coin Y to the sender of Coin X. <\/p>\n\n\n\n

In this case, the smart contract is attached to Wallet A. The action and events coded onto the smart contract has to be digitally trackable.<\/p>\n\n\n\n

Smart contracts can interact with non-digital events if an entity is appointed to input the results of the non-digital event. This entity is known as an oracle.<\/p>\n\n\n\n

Example: If the temperature in City X falls below 32 degrees Fahrenheit, based on weather.com, Wallet A must send 10 coins to Wallet B. In this case, weather.com is the oracle. <\/p>\n\n\n\n

Asset tracking<\/u><\/p>\n\n\n\n

Cryptocurrencies can be pegged to an external value such as the US Dollar or Gold. <\/p>\n\n\n\n

However, it is up to the creator of that cryptocurrency to devise a way to ensure that the cryptocurrency accurately tracks the external asset. <\/p>\n\n\n\n

The most common way to do this is to store the external asset and issue only the equivalent value in cryptocurrency coins.<\/p>\n\n\n\n

For instance, if Crypto X is pegged to the value of the US dollar, it might store 1 billion USD in its bank and issue out 1 billion USD worth of Coin X. <\/p>\n\n\n\n

Storing Cryptocurrencies<\/strong><\/p>\n\n\n\n

Cryptocurrencies are stored in virtual wallets. <\/p>\n\n\n\n

Most wallets are designed to only store certain cryptocurrencies. If you have 2 different coins, you will usually need 2 different wallets.<\/p>\n\n\n\n

Transaction Mechanics<\/strong><\/p>\n\n\n\n

Transferring of coins are usually cheap and fast.<\/p>\n\n\n\n

Wallets and smart contracts submit a transfer request to the blockchain and the miners will add that transaction to it.<\/p>\n\n\n\n

Characteristics of Transactions<\/strong><\/p>\n\n\n\n

Irreversible<\/u><\/p>\n\n\n\n

After a transaction has been confirmed by the miners, it cannot be reversed.<\/p>\n\n\n\n

Semi-anonymous<\/u><\/p>\n\n\n\n

Wallets are not connected to real-world identities.<\/p>\n\n\n\n

Fast and Global<\/u><\/p>\n\n\n\n

Transactions can be completed within seconds or minutes. <\/p>\n\n\n\n

This time does not change even if the person you are sending the coins to is physically far away.<\/p>\n\n\n\n

You can send coins to anyone around the world<\/p>\n\n\n\n

Permissionless <\/u><\/p>\n\n\n\n

No one can prevent you from setting up wallets, and sending\/receiving coins. (You do need access to the Internet though.)<\/p>\n\n\n\n

Examples of Popular Cryptocurrencies<\/strong><\/p>\n\n\n\n

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