Mastering Blockchain

Chapter 2. Cryptocurrency Fundamentals

Like many emerging technologies, cryptocurrencies have ushered in a new way of thinking—about finance, in this case. As a result, new ways of storing value are being considered. Cryptocurrency has some similarities to fiat money, stocks, and bonds, as well as to precious assets such as gold. But the methods of acquiring, transferring, and storing cryptocurrency, or crypto for short, are very different from other assets.

Note

Major differences are involved regarding security and sending/receiving value in cryptocurrencies. It is possible to lose funds in these systems without recourse.

Using cryptocurrency can be confusing as it introduces a large number of new terms that even people in traditional finance are often unfamiliar with. Although today there are a number of services that make a lot of the basic underpinnings of crypto easier for consumers, becoming familiar with at least the basics of how cryptocurrency systems work can be helpful when trying to understand how these new systems are different. This chapter will cover some basic terminology and processes that will set you up for understanding the rest of the book.

Note

Although the examples here will primarily use bitcoin, most of these concepts translate to other cryptocurrencies as well. Ethereum introduces some new ideas, which are covered starting in Chapter 4.

Public and Private Keys in Cryptocurrency Systems

The use of cryptography, or encryption, goes back thousands of ...