The rapid development and adoption of an entirely new asset class was never going to be smooth. In the early days of crypto assets, the risks were all about the newly developed technology, immense price volatility and uncertain government policy. As the investment world started to embrace crypto as an emerging investable asset class, the risks became more systemic and governance focused. The past year was certainly tumultuous on that front. The collapse of the Terra Luna ecosystem and the UST stablecoin in May 20221 reminded investors about the importance of assessing the underlying collateral quality and liquidity. The FTX debacle taught investors about the value of robust due diligence and governance. The downstream implications of these – and other governance oversights – brought intense scrutiny to the crypto asset trading ecosystem Training should detail the characteristics, use cases, and differences between different cryptocurrencies.

Bitcoin is the world’s first successful decentralized cryptocurrency and payment system, launched in 2009 by a mysterious creator known only as Satoshi Nakamoto. The word “cryptocurrency” refers to a group of digital assets where transactions are secured and verified using cryptography – a scientific practice of encoding and decoding data. Those transactions are often stored on computers distributed all over the world via a distributed ledger technology called blockchain.

Bitcoin can be divided into smaller units known as “satoshis” (up to 8 decimal places) and used for payments, but it’s also considered a store of value like gold. This is because the price of a single bitcoin has increased considerably since its inception – from less than a cent to tens of thousands of dollars. When discussed as a market asset, bitcoin is represented by the ticker symbol BTC.

The Bitcoin system and its component

It’s important to understand there are three separate components to Bitcoin, all of which combine together to create a decentralized payment system:

• The Bitcoin network
• The native cryptocurrency of the Bitcoin network, called bitcoin (BTC)
• The Bitcoin blockchain

Bitcoin runs on a peer-to-peer network where users — typically individuals or entities who want to exchange bitcoin with others on the network — do not require the help of intermediaries to execute and validate transactions. Users can choose to connect their computer directly to this network and download its public ledger in which all the historical bitcoin transactions are recorded.

Bitcoin is structured as a peer-to-peer network architecture on top of the Internet. The term peer-to-peer, or P2P, means that the computers that participate in the network are peers to each other, that they are all equal, that there are no “special” nodes, and that all nodes share the burden of providing network services. The network nodes interconnect in a mesh network with a “flat” topology. There is no server, no centralized service, and no hierarchy within the network. Nodes in a peer-to-peer network both provide and consume services at the same time with reciprocity acting as the incentive for participation. Peer-to-peer networks are inherently resilient, decentralized, and open. The preeminent example of a P2P network architecture was the early Internet itself, where nodes on the IP network were equal. Today’s Internet architecture is more hierarchical, but the Internet Protocol still retains its flat-topology essence. Beyond bitcoin, the largest and most successful application of P2P technologies is file sharing with Napster as the pioneer and BitTorrent as the most recent evolution of the architecture.

Crypto nodes store the data necessary for a blockchain to operate. This can include the entire distributed ledger and all of its transactions. The other important job crypto nodes have is communicating with each other. This is integral to keep the nodes in consensus, i.e. making sure every node has the same copy of the chain. It’s basically the method the nodes use to synchronize, making sure the blockchain is the same for everyone. Beyond that, some crypto nodes also have other jobs, such as verifying blockchain transactions and rejecting those that don’t fit the mold. Plus they can also offer a copy of the blockchain to any new node that wishes to join the network.

Essentially, these capabilities work together to allow crypto nodes to verify and record transactions without a central entity. Instead of working like traditional finance, public blockchains rely on the power of the collective: People all around the world operating nodes.

Bitcoin mining is a complex computational and technological process of validating the bitcoin transactions over the Bitcoin network. It is like a process of validating a block on the chain network and getting paid in Bitcoin.

People who are involved in this process of mining are known as miners. The reason why it is called ‘mining’, is because just like any other form of natural resources, there is a finite number of Bitcoins available. The maximum amount of Bitcoin that can be created or mined is 21 million. Just like real mining, in Bitcoin mining, one needs to invest energy in order to generate or create Bitcoins. And here, the energy is in the form of electrical energy to mine Bitcoins. The miners compete against each other to solve complex hash puzzles, which are encoded cryptographically to verify the blocks containing transactions.

What is BlockChain ?

Blockchain is a record-keeping technology designed to make it impossible to hack the system or forge the data stored on the blockchain, thereby making it secure and immutable. It's a type of distributed ledger technology (DLT), a digital record-keeping system for recording transactions and related data in multiple places at the same time.

Each computer in a blockchain network maintains a copy of the ledger where transactions are recorded to prevent a single point of failure. Also, all copies are updated and validated simultaneously.

Blockchain is also considered a type of database, but it differs substantially from conventional databases in how it stores and manages information. Instead of storing data in rows, columns, tables and files as traditional databases do, blockchain stores data in blocks that are digitally chained together. In addition, a blockchain is a decentralized database managed by computers belonging to a peer-to-peer network instead of a central computer like in traditional databases.

An important point to keep in mind is that crypto lives on its blockchain. There is thus no actual crypto in your wallet. Instead, the wallet is meant for storing your public and private keys.

Crypto wallets allow users to send, receive and store crypto tokens. As mentioned earlier, the coins exist on the blockchain and users can access these coins and perform transactions using their crypto wallets because it stores the public and private keys. To send tokens to another wallet you need to know the public key of that wallet. To receive tokens, your public key needs to be shared with the sender.

Because of advancements in technology, the process of sending and receiving is super easy. But at the same time, one needs to be careful while performing transactions as sending tokens to the wrong addresses can result in permanent loss of funds.

A cryptocurrency exchange is a digital marketplace platform that enables users to buy and sell cryptocurrencies. Cryptocurrency exchanges may also support the trading of other digital assets, such as non-fungible tokens (NFTs).

Cryptocurrency exchanges may be centralized or decentralized. Centralized exchanges are controlled by a singular group or entity, such as a publicly traded corporation or private company. Decentralized exchanges (DEXs) are controlled by technology protocols that enable large groups of people to efficiently make decisions and achieve consensus. Decentralized crypto exchanges are an application of decentralized finance (DeFi).

Ethereum is “a global, decentralized platform for money and new kinds of applications,” with thousands of games and financial apps running on top of the Ethereum blockchain. This crypto is so popular that even other crypto coins run on its network.

Central to Ethereum is its blockchain network. A blockchain is a decentralized, distributed public ledger where transactions are verified and recorded.

It’s distributed in the sense that everyone participating in the Ethereum network holds an identical copy of this ledger, letting them see all past transactions. It’s decentralized in that the network isn’t operated or managed by any centralized entity—instead, it’s managed by all of the distributed ledger holders.

Blockchain transactions use cryptography to keep the network secure and verify transactions.

Blockchain technology is open source, meaning any software developer can use the original source code and create something new with it. Developers have done just that. There are estimated to be more than 10,000 different cryptocurrencies in circulation at the time of this writing, and the figure keeps increasing. For reference, the number of cryptos surpassed 1,000 only four years ago.

Part of the reason for the surge is the relative ease with which new cryptocurrencies can be created. The source code of one can be used to build another.

Cryptocurrency trading is the act of speculating on cryptocurrency price movements via a CFD trading account, or buying and selling the underlying coins via an exchange.

CFD trading on cryptocurrencies
CFDs trading are derivatives, which enable you to speculate on cryptocurrency price movements without taking ownership of the underlying coins. You can go long (‘buy’) if you think a cryptocurrency will rise in value, or short (‘sell’) if you think it will fall.

Both are leveraged products, meaning you only need to put up a small deposit – known as margin – to gain full exposure to the underlying market. Your profit or loss are still calculated according to the full size of your position, so leverage will magnify both profits and losses.

Buying and selling cryptocurrencies via an exchange
When you buy cryptocurrencies via an exchange, you purchase the coins themselves. You’ll need to create an exchange account, put up the full value of the asset to open a position, and store the cryptocurrency tokens in your own wallet until you’re ready to sell.