Introduction to Cryptocurrencies: Bitcoin and Virtual Currency

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Introduction to Cryptocurrency
How to buy cryptocurrency? Why do you need to buy stablecoins in the first place?

What is virtual currency?

Virtual currency or cryptocurrency is a non-substantial currency. The currency itself is minted by the blockchain system and has an irreversible "bookkeeping function", which enables the holder of any cryptocurrency to complete decentralized transactions. A decentralized financial system (Decentralized Finance, Defi) that handles more complex funding activities.

What is decentralization? What is the difference between virtual currency and traditional currency?

The biggest difference between virtual currency and traditional currency is "decentralization". Through the consensus mechanism behind the blockchain, complex cryptography, and continuous system updates, virtual currency enables cryptocurrencies to accurately handle complex transactions and capital systems without requiring a large number of human resources.

The encrypted currency system can save the cost of human resources of the traditional financial system (banks, securities houses, exchange houses), can break through the restrictions of the national and local systems, and achieve the transparency that the traditional financial system cannot achieve, regardless of speed and speed. In terms of application breadth, another form of the decentralized financial system has begun.

How many virtual currencies are there? How to classify?

virtual land, NFT, etc., It looks dazzling, how to start? What are the differences between these currencies?

In fact, the classification of cryptocurrencies can be very detailed, but for beginners, the following major concepts should be generally remembered:

  • Layer 1/public chain currency

Cryptocurrencies are conceptually divided into different "Layers". The principle behind it is very complicated, but it can be remembered that Layer 1 is the most basic and most complete public chain level, just like the basic planning of a city. This Layer's blockchain is like a supercomputer that can run itself according to its system design.

Therefore, Layer 1 currency is also called "public chain currency", including Bitcoin, (Ethereum) Ethereum, BNB currency, AVAX currency, SOL currency, and LUNA currency. Because the public chain currency is built on its own "consensus mechanism", it will gradually evolve its own currency ecology, and the use of the token will become more and more extensive, so it is often regarded as a top line.

  • Stablecoin stablecoin

Stablecoins refer to currencies pegged to physical currencies, mainly pegged to the US dollar. Including USDT, USDC, BUSD, etc.

Different stablecoins can be built on different public chains, but they are all linked to the exchange rate of the US dollar. For example, 1USDT is equal to 1 US dollar.

Under various systems, these stablecoins ensure that users can exchange stablecoins for stablecoins first, and then exchange them for various cryptocurrencies, enabling users to buy and sell various cryptocurrencies at relatively stable currency prices.

Algorithmic Stablecoins vs Stablecoins

Algo stablecoin (Algo stablecoin) refers to a stable price that stabilizes the currency price with an automatic destruction transaction mechanism, such as the UST that was sniped and crashed earlier

There is no actual U.S. dollar asset behind UST. The exchange rate and the LUNA coin of the Terra public chain form a mutual stabilization mechanism, and a series of cryptocurrencies are used as backup assets.

This approach is different from USDT/USDC. When choosing a stable currency, you must first understand the mechanism behind it.

  • Ethereum-related currencies

As mentioned above, Ethereum itself is a Layer 1, like a supercomputer, which can run various programs. Most of the existing currencies are actually issued on Ethereum, and the tokens issued through Ethereum are called It is an ERC tokens, and can be further divided into different types of tokens such as ERC-20, ERC-721, ERC-1155, etc. through the differences in specifications. Common currencies such as $UNI, Dogecoin, and various GameFi currencies, usage and The rules of their respective tokens are different, but as long as they are all ERC tokens, they have the opportunity to be exchanged for each other in different applications in the Ethereum ecosystem

  • game currency

Another currency that has been heatedly discussed in recent years is GameFi currency. In fact, most GameFi decentralized games are built on Ethereum and do not have their own exclusive consensus mechanism. However, because GameFi has its own application logic in its games, So it can be a class of its own.

For example, GALA coin, SAND coin, MANA coin, or YGG coin are all GameFi coins, which are used as tokens or resources in the game, so the currency price is often relatively unstable, depending on the popularity of the entire game.

  • Layer 2 / off-chain scaling layer

The blockchain is divided into different layers, including the public chain layer commonly known as Layer 1. For example, AVAX is the layer 1 public chain currency, and when the expansion solution (Expansion Solution) appears on the blockchain, it can be regarded as a more in-depth application of the split of the public chain. The tokens of these Layer 2 expansion schemes are Layer 2 tokens, including MATIC (polygon), PPAY (Plasma Finance), and so on.

  • Blockchain/Consensus Mechanism

Seeing this, readers will find that the "consensus mechanism" appears frequently. What is this?

In fact, the consensus mechanism (consensus) is the core of all cryptocurrencies. The reason why the blockchain can operate and decentralize is that it is built on the consensus mechanism (consensus).

The consensus mechanism can be imagined as an automated authentication process. In the past, we deposited 10,000 yuan in the bank, and the bank regularly had staff to confirm transactions, logarithmically confirm the number of user accounts and bank deposits, and ensure that in the event of more transactions, the system Running without foundation, and making sure that this employee never goes wrong. The consensus mechanism of the blockchain can replace human hands, and as long as it is effective, it can automatically and completely process various complex cryptocurrency transactions permanently.

Therefore, the form, speed, stability, and expansion of the consensus mechanism completely determine the value of the cryptocurrency. When we strip away all market and subjective factors, to truly examine the value of cryptocurrencies and their blockchains from the most objective perspective, we must understand their consensus mechanisms.

For example, Bitcoin's consensus mechanism "PoW" is actually very slow, and Avalanche/Solana's consensus mechanism can process thousands or even tens of thousands of times more transactions than Bitcoin. If the significance of Bitcoin in the history of cryptocurrencies and the market is excluded, we can indeed say that BTC is actually not as effective as the emerging AVAX/SOL and so on.

  • Ecosystem / Expansion

The blockchain is actually like an operating system for mobile phones and computers. Its speed and system expansion will determine the future development of the blockchain. When we intend to invest in different virtual currencies, we must pay attention to the consensus mechanism of the blockchain, whether there is an opportunity to create a complete and long-term application ecosystem, such as various decentralized games on Ethereum, Solana's NFT market, or Avalanche's DeFi world.

When the ecosystem of the blockchain is stronger and there are more users, its scalability is equal to the affirmation of the market and users, and the cryptocurrency of the blockchain itself will naturally be more valuable.

  • Market heat

Cryptocurrencies are indeed new technologies that have emerged in less than a decade or even five years, and technology developers are scrambling to develop their own cryptocurrencies. The digestibility of the market is limited. Even a veteran of the currency circle may not have the time to fully understand all the cryptocurrency information, let alone a novice.

Before choosing to invest in cryptocurrencies, you should pay attention to the market popularity of a certain currency. Is it completely underwhelming, has it been overheated, or is it in a state of misunderstanding?

What is Bitcoin? Why the "leader" of virtual currency?

Bitcoin was born in 2009. After 13 years, looking back at Bitcoin, you will find that the mechanism of Bitcoin is very simple. Compared with the latest blockchains, it can be said to be rudimentary.

However, the currency circle is a world that pursues new technologies. Any new technology can only be created by someone first, and it can run safely, then there will be a so-called "first mover advantage".

In fact, although the mechanism of Bitcoin is relatively simple, it has not made any significant technical errors for so many years. Even if the currency price rises and falls, it can still maintain a high degree of liquidity, which is not even possible for various new currencies. and.

To this day, the currency circle is still dominated by Bitcoin. The volatility of Bitcoin’s price and the correspondence between Bitcoin and the real economy often influence the development of the entire market.

Is Ethereum not as good as Bitcoin?

As for Ethereum, it is the most talked about cryptocurrency besides Bitcoin. Although the two are often compared, it is difficult to compare them directly.

If Bitcoin is simply used as a currency for accounting, pricing, and transactions, Ethereum is more like a token on the supercomputer of Ethereum, so related applications on Ethereum all have the opportunity to require Ethereum to operate, so The application of Ethereum is more extensive than that of Bitcoin. Although many public chains are regarded as "Ethereum killers" and have the opportunity to replace Ethereum in the future, including Solana, Avalanche, Harmony, etc. See related signs.

What are Altcoins?

The altcoin is actually a misinterpretation, of the English "Altcoin", Alt's original meaning is "in addition" / "alternative". This word appeared as early as 2009, and its original intention was to replace other tokens of Bitcoin. Therefore, all Ethereum, Litecoin, or Dogecoin are actually "Altcoin" by definition.

  • The Chinese translation of altcoin seems to be a little bit of a blink of an eye, but in fact, Altcoin has no related meaning.

How to buy cryptocurrency? Why do you need to buy stablecoins in the first place?

At present, there are two modes of purchasing cryptocurrencies, offline and online. Since the cost of offline mode is often more expensive and the exchange rate is unstable, online exchanges are recommended, including Bybit, Binance, WhaleFin, FTX, etc.

Conclusion

Since the direct purchase of a specific currency will be more expensive, and it may not be possible to buy it at the price of the favorite currency, you can use the fee-free P2P/C2C system to buy a batch of stablecoins first. Since the exchange rate of stablecoins such as USDT/USDC tends to be stable for a long time, they can be traded for other cryptocurrencies at any time.

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