Cryptocurrency – Questions & Answers for a Beginner

Admittedly, the cryptocurrency landscape is difficult to navigate at first. Everybody is looking around the web for answers, turning to Reddit or Quora for granular pieces of information. So we wanted to bring all the basics into one post that can answer the questions every beginner in the cryptosphere may encounter.

First, you can skim our post about common cryptocurrency terms or just open it in a new tab to help you while reading this post. If you have it open, you are ready to go.

Beginner Questions About Blockchain

Questions about blockchain

So let’s start from the very basics of blockchain. This will help you make more sense out of the next paragraphs regarding different cryptocurrencies as well.

What makes blockchain trustworthy?

There are three sides to this answer. Firstly, nobody but the owner of the data can access it without permission. Thus, it is a safe way to protect data from third parties who should not see the information.

Secondly, the data can be tracked at any time. It comes with a timestamp which indicates when the information was written on the blockchain and it is always available for fetching.

Last but definitely not least, data on the blockchain is immutable. This means that once something is written on the blockchain, it cannot be altered. As there is no central governing entity, all the nodes make sure that the information cannot be tampered with.

People sometimes confuse this last point a bit. Immutability is not the same as truthfulness. What do we mean? If the initial data written onto the chain is incorrect, it will just stay this way. That is why auditing of the data input makes a powerful combination alongside using blockchain tech.

What is a public key?

This is essentially the address of your wallet. People can send you money using the public key. Therefore sharing it with others is not a problem, as it does not grant any access to your funds.

What is a private key?

The private key allows encrypting and decrypting data. Basically it is the password for accessing your funds. Creating a new wallet generates a pair of public and private keys. The latter must remain confidential and should not be shared with anybody.

Otherwise, anyone with your private keys can access your account and act maliciously, transferring the funds elsewhere.

What is the difference between public and private blockchains?

Public blockchains make reading and writing (e.g. mining) data on the blockchain available to anybody. Private blockchains do not. The first group includes projects like Bitcoin while Hyperledger represents the second group.

What is the difference between open and closed blockchains?

An open blockchain allows anyone to read data on the chain. Closed blockchains do not allow that. Note that it does not say anything about writing data, hence the difference between this and the last question.

What is the difference between permissionless and permissioned blockchains?

This question relates to the ability to write data onto the chain. Permissionless blockchains allow anyone to participate in writing data onto the chain, whereas permissioned does not.

What does decentralization mean?

Decentralization refers to the lack of a central governing authority by having many anonymous (or sometimes KYC’d) entities take care of maintaining the integrity of the chain. These entities are called nodes. We have also explained the importance of nodes in the article about how blockchain technology works.

What is the use of blockchain?

We all know of Bitcoin and that it was at least intended to be a way to transfer financial value (the purpose seems to have changed over time). But this is just one form of data. Any kind of information can be stored on the blockchain, including medical records, voting results, business transactions and data throughout the supply chain. There are many projects that are looking to bring the immutability features to industries outside finance.

What is a block?

A block is essentially a bundle of information. This data is gathered over a period of time, in Bitcoin’s case 10 minutes, and written onto the chain after every such period. Every new block includes information about the last one, essentially connecting them. Hence the name blockchain. This makes sure that all the previously stored data remains immutable.

What is a cryptocurrency?

Cryptocurrency is a digital medium of exchange that is based on blockchain. There are different types of cryptocurrencies, whereby some are for financial transaction only, others can be used to pay for writing data onto blockchain, etc. Having other utilities besides financial transaction does not mean that these currencies could not be used as a medium of monetary exchange, however. A special use-case may rather bring about intrinsic value that can lead to using a crypto for monetary transactions.

Questions About Bitcoin

Begineer questions about Bitcoin

You may start with either reading the actual Bitcoin whitepaper or our simple explanation of the Bitcoin whitepaper. This will help explain some of the following questions more in-depth.

What is Bitcoin?

It is the first cryptocurrency. Bitcoin was created as a virtual currency but is now moving towards a store of value, although the current phase is still very much volatile. The currency runs on a decentralized blockchain, meaning that there is no central governing body to control transactions, emission rates, etc.

How is Bitcoin created?

As said, there is no central governing body, therefore nobody to change the emission rates. This is all mathematical. Miners or nodes maintain the network and write new data onto it. For that work, they are awarded new Bitcoins.

What is the emission rate of Bitcoin?

The total number of Bitcoins ever to exist is already determined at 21,000,000. The current circulating supply is a little above 18M. As Bitcoin got its start in 2010, it has been mined continuously but the mining rewards halve after every 210,000 blocks which takes about 4 years. So the next halving will take place in May 2021 whereby the emission rate will decrease again by 50%.

Can anyone mine Bitcoin?

In theory, yes. While it used to be profitable to mine Bitcoin with a regular desktop computer, nowadays the competition in mining is high and specialized mining rigs, alongside low electricity costs, are necessary for it to pay off.

Who develops Bitcoin?

The project was started by someone called Satoshi Nakamoto in 2009. He left shortly afterwards in 2010 when Bitcoin had already made its market entry. The identity of Nakamoto is not publicly known.

Nowadays, there are large developer communities behind further improving the technology. However, nobody has the right to make choices based on their own whims as all these decisions are made collectively. As Bitcoin is open source, anyone can pretty much copy and tweak the system and release their own cryptocurrency similar to the original, as is evident also from the plethora of different “Bitcoins” (e.g. Bitcoin Cash) on the market today. You can check CoinMarketCap and type in “bitcoin” to see all the different projects out there that are based on this single project.

How to get your hands on Bitcoin?

There are a few ways to do that. For a beginner, the simplest way to go is just registering on an exchange and buy some. You can see our list of the best cryptocurrency exchanges to avoid opening an account on a dodgy site. If you do not know how to buy crypto, we also have a piece on how to buy Vechain. As the buying mechanism remains the same with any currency, you can use it for help.

Another way of acquiring Bitcoin or any other crypto is by selling something on the open market in exchange for digital currencies. There are several platforms dedicated for just that. Paxful is one of the most popular websites for this purpose.

Lastly, there is always mining. Bitcoin mining today requires quite a significant up-front investment. As this cryptocurrency FAQ here is dedicated to beginners, we won’t delve deeper on this subject.

What happens when I lose my private keys?

As described earlier, private key is your access to the money. If you lose them, you lose access to your Bitcoin. As there is no central body like a bank, there is no way to regain access to your account when losing the private key. This is not uncommon and that is why we encourage everyone to be fully aware of the risks of managing your accounts. Once the keys are lost, the money is out of circulation, bringing more scarcity to the table.

Altcoin FAQ

Altcoin FAQ

Altcoins, or alternative coins, are all the other cryptocurrencies beside Bitcoin. And there are thousands of them.

What are the most popular altcoins?

Ethereum is the first blockchain that allowed anyone to create dApps on top of it. So ETH is still leading the altcoin pack today, closely following Bitcoins market movements.

Litecoin is, similarly to Bitcoin, a coin for exchanging value through financial transactions. Litecoin was created in 2011 and has an established follower and user-base.

Monero is another standout in this segment, being the most secure way to perform private transactions. Nobody can see your account balance or other metrics you may deem necessary to hide from others.

Vechain is a blockchain platform like Ethereum and actually uses parts of its code, although a lot of development has made it quite different by today. What makes the stand out is the mentality – rather than relying on building a great product and attracting users this way, they decided to consult big corporations beforehand. So they have lowered many barriers on the road to adoption, resulting in a long list of high-profile partnerships.

Lastly, we should mention Tezos, another platform coin that aims to bring in a large user-base through a unique blockchain. We have also written a longer article to explain the features of the Tezos project.

Why are there so many altcoins?

To be fair, a large portion of them were just created during the ICO boom when getting money from people was easy and little to no regulations resulted in empty promises. Having said that, blockchain technology is still new and many of these projects are focusing on different industries and possibilities brought about by this tech. Anything from creating dApps or making supply chain management more efficient to tokenizing assets like paintings are possible. The unique features of these projects support the different use-cases.

Why are altcoins so much cheaper than Bitcoin?

We cannot really bundle up all altcoins when answering this question. Many of them just do not provide any value. Bitcoin’s first mover advantage has brought it a huge followership. This, along with little adoption of blockchain technology in the grand scale of things, means that speculation is still the biggest player in determining the price of a coin. Time will tell how it all pans out in reality.

Should I rather invest in the cheaper coins because of larger possible ROI?

To be clear, the price of a single coin is not the metric you should check when comparing the value of different coins. You can only compare a coin’s price historically to itself, as every project has a different amount of coins in circulation. This results in varying market caps, which is the actual metric to consider when looking for the value of a project.

With that said, we cannot give any advice. Bitcoin is on the road to becoming a store of value, it seems. This means that its price is related to market sentiment and will probably stay that way, making the upside pretty much limitless but not guaranteeing anything at the same time.

A lot of these altcoins are aspiring to make their mark by bringing actual value in a variety of sectors like medicine, supply chain tracking, elections, etc. If they succeed, combining this with market speculation can also result in significant returns. The smartest approach here is to do a lot of market research before plunging in and buying anything.

You can also read our article on how to make money with cryptocurrencies to get more ideas for generating a good ROI – whether it is active trading or just buying and holding long-term.

Initial Coin Offerings

Lastly, you may be interested in participating in initial coin offerings, or ICOs. We would advise you not to do it at first because some background knowledge and nous can come in handy in this field that is, unfortunately, filled with projects that either cannot or are not even planning to deliver.

You can check our article on initial coin offering and what it means for more information