Let’s start with the boring basics.
Cryptocurrency (crypto, coin, token) – This refers to any coin (Bitcoin, Ethereum, Doge, etc.) that operates on blockchain technology. For example, the Sberbank loyalty points “Spasibo” are not considered crypto.
Blockchain – This is a technology where data is organized into a chain of encrypted blocks. Each block contains a series of transactions. Each block is linked and stores information about the previous and subsequent blocks. Therefore, to falsify data, the chain must be broken, which would immediately be visible from the previous and subsequent blocks.
Smart Contract – This is a program or protocol that operates within a blockchain and is programmed to perform a specific action. For example, exchanging one cryptocurrency for another can be implemented using a smart contract. If you send Bitcoin to such a smart contract, it will immediately exchange it for a dollar equivalent, such as USDT, at the current rate. The main advantage of such automation is that it cannot be altered (with very rare exceptions) and cannot be influenced from the outside. It’s like a robot programmed to perform one single action, and it will keep doing it as long as it can.
FAQ
How many cryptocurrencies are there?
There are an infinite number, as anyone can issue their own coin in a blockchain.
How can you be scammed when buying cryptocurrency?
The simplest way is that you can buy a coin, but you can’t sell it. How so? I’ll explain later.
A more complex scam involves artificially inflating the coin (the owner buys this coin from themselves), which plays on people’s greed, making it seem like they are missing out on a profit. People rush to buy the rapidly growing coin, and at a certain level, the owner starts selling uncontrollably. The coin’s price plummets, and everyone who bought it ends up at a severe loss.
Is there only one blockchain?
No, there are many. The first was Bitcoin, which is not only a cryptocurrency (Bitcoin) but also a blockchain. Transactions in this blockchain are paid for with the native coin BTC. The second most popular is Ethereum, where fees are paid in ETH. There are many such blockchains, hundreds if not thousands. Some have their own unique features, like Solana, Cosmos, TON, and others, while some simply replicate existing technologies.
Can a blockchain scam me out of my money?
Yes, it can. You can buy a coin in a blockchain, and it can simply stop working. Therefore, if you are an experienced crypto enthusiast, you might use dozens of blockchains, but it’s better to store your money in proven ones, such as BTC, ETH, BNB, Polkadot, and Tron.
Does each blockchain have its own coins?
Great question, thank you. Each coin indeed belongs to its blockchain. For example, BTC (Bitcoin) can only be transferred to a wallet in the BTC network. If you send it to an address in the Ethereum network, the funds will be lost. But there are coins that exist in multiple networks, like USDT. For such coins, there are bridges to transfer the coin from one network to another. But it’s often easier to use an exchange as a bridge. For instance, if you send USDT via the ETH network (ERC-20) to Binance, you can then send the same USDT from Binance to any other available network.