RockItCoin Crypto Literacy Services: Beyond The Basics

Posted on July 19th, 2022 by RockItCoin

Beyond the Basics Of Cryptocurrency Security

Blockchains function to encrypt transactional data through cryptographic verification called mining. To dive deeper into the security of encrypted digital assets, here is a breakdown of how public keys and private keys work.

How Do Public and Private Keys Work To Encrypt Blockchains? 

Private keys are used as a security measure to ensure that only the verified owner of a digital asset can send or transfer that asset to a new location. The private key is randomly produced and consists of hundreds of characters. The private key is stored in your crypto wallet, along with your crypto address. To protect your assets from theft and fraud, it is crucial that you keep your private key a secret. 

Public keys are used as destination codes for users to deposit cryptocurrency into a specific account. In order to access the deposited crypto, the user needs both the public key and the private key. 

Public keys and private keys ensure the security of each crypto transaction. When a user initiates a transaction, a cryptographic algorithm issues them a private key and a public key.

Public keys are condensed into a public address through complicated encryption methods. Two users engaging in a crypto transaction will send each other their public addresses. The recipient will need their private key to access the funds deposited in their public address. 

You can think of a private key as a step to prove your ownership of the specific cryptocurrency, like a signature on a check. 

What is Proof of Work and Proof Of Stake?

It is important to understand how crypto transactions are validated and written into a blockchain. Proof of work and proof of stake minimize fraud and corruption in the public ledger of transactions. 

Proof of work is relevant to mining. Proof of work describes the difficulty of mining in a given network. It operates to eliminate the need for an intermediary by incentivizing users to validate transactions themselves and earn bitcoin in the process. 

Proof of work is presented on the blockchain as a “hash”. To successfully guess the target hash, miners need strong computing power. Once the hash has been successfully calculated, the miner has verified the crypto transaction and a new block is added to the blockchain. 

Proof of stake aids in the security of the blockchain as well, but rather than working through mining, proof of stake relies on validators who hold and stake crypto. A validator is a crypto owner who provides crypto as collateral to gain the opportunity to validate blocks on the blockchain. Proof of stake validates transactions and adds blocks to the blockchain by randomly assigning validators to mine. 

While PoW requires large computational power for mining, PoS uses staking to randomly assign miners to validate transactions and add blocks to the blockchain. 

When using the proof of stake method, blocks are validated by multiple validators. Once the block has been verified by the validators it is added to the chain.  

Beyond the Basics: Types of Cryptocurrency 

What is the Difference Between A Coin and A Token?

“Cryptocurrency” is used to describe digital currencies that operate on a decentralized financial system. Cryptocurrency is not backed by an issuer or government but through cryptography. Transactions are secured through cryptographic algorithms in the blockchain. 

Still, we can define cryptocurrency more specifically by describing crypto coins and crypto tokens. 

A coin can be defined as a cryptocurrency that stores value and can be exchanged for value. The most popular example of a coin is Bitcoin. Coins operate on their own blockchains. 

A token can be defined as a digital representation of an asset that is exchanged on the blockchain. Tokens do not have their own blockchains. Instead, they operate on pre-existing blockchains. 

There may be many tokens that operate on a blockchain, but there is only one coin that is native to a given blockchain.

A token does not need to design its own method to secure and maintain its data. Instead, tokens rely on the coin’s blockchain.

What is Altcoin?

Altcoins are alternatives to Bitcoin, that have key differences. Altcoins may differ from Bitcoin in their blockchain structure or methods of verification (like proof-of-stake, or proof-of-work). Bitcoin has a capped supply, while some altcoins leave their supply uncapped. 

There are tens of thousands of types of altcoins in use. A new altcoin is created in an attempt to make up for the perceived shortcomings of the cryptocurrency it was derived from (be it Bitcoin or Ethereum). Altcoins are also created for specific projects and goals. For example, “stablecoins” are altcoins that are designed to mitigate the volatile nature of crypto trading. 

Beyond the Basics: How Does Crypto Gain Value?

Cryptocurrency gains its value largely through supply and demand.

The supply of cryptocurrency is reliant on mining which produces new coins. The demand for cryptocurrency is reliant on how accessible crypto usage is for crypto owners. 

Because cryptocurrency is sparse and its system does not permit counterfeiting, it does have value as a secure ledger of transactions and ownership. In order to further increase their value, Bitcoin and other forms of cryptocurrency must prove themselves as accessible and useful mediums of exchange. Media coverage and investing also have the potential to influence the value of cryptocurrencies. 

This look beyond the basics of cryptocurrency can help you participate in discussions about crypto security strategies, types of cryptocurrencies, and the ways in which crypto gains value to the user. To put your knowledge to action, check out RockitCoin’s Bitcoin ATMs! With over 1,700 BTMs around the United States, buying crypto is accessible, safe, convenient, and streamlined.