A Beginner's Guide to Cryptocurrency

A Beginner’s Guide to Cryptocurrency

What is Cryptocurrency?

The hype around cryptocurrencies, which entered our lives with Bitcoin, is growing every day. As the cryptocurrency ecosystem is developing rapidly, investors are showing an increasing interest in the field. You can keep reading this article if you want to have detailed information about cryptocurrencies and shape your investments accordingly.

What is Cryptology?

what is cryptology

To gain insight into cryptocurrencies, you should first understand cryptology. Cryptology is basically the science of codes. In a broader and more relevant definition, cryptology is a science that aims to transfer data in a secure and confidential manner. The data, encrypted in a way that cannot be understood by others, is transmitted securely to the receiver and then decrypted again. So, cryptography encompasses both cryptography and cryptanalysis. 

Cryptography refers to the mathematical techniques used to encrypt data, which means making important data unreadable to others. Cryptanalysis, on the other hand, deals with decoding the data encrypted with the cryptography method. It is possible to employ cryptology in every field that requires the smooth and confidential transfer of information. Innovative cryptology methods are also used for the security of cryptocurrencies. 

History of Cryptocurrencies

The concept of Bitcoin was first introduced in an eight-page “white paper” written by an anonymous figure with the pseudonym Satoshi Nakamoto on October 31, 2008. With this white paper he sent to a discussion group focusing on cryptography, Nakamoto explained the technical details such as the working principle of Bitcoin, how many coins will be produced and how they will be produced. On January 9, 2009, he announced the first public version of the Bitcoin software, proving that it was more than just an idea. Although the real identity of Satoshi Nakamoto still remains unknown and it is unclear if the name refers to a single person or a group, Bitcoin has managed to make a tremendous impact as a cryptocurrency that does not need any centralized structure. Nakamoto disappeared in December 2010 after handing over the control of the project to Gavin Andresen. 

After the Bitcoin software went public, the process of creating Bitcoins known as mining began. The first transaction with the monetary value of Bitcoin was made in 2010; Laszlo Hanyecz bought two pizzas for 10,000 Bitcoins. As the popularity of Bitcoin grew rapidly in a very short time, alternative cryptocurrencies began to emerge. As of December 2021, there are more than 8,000 cryptocurrencies in the crypto market. While some of these currencies have low volume, popular cryptocurrencies continue to be highly demanded by investors. 

What is Blockchain?

what is blockchain

Blockchain refers to a chain structure consisting of blocks that contain data. Blockchain is not a centralized system, which means it is not governed by any institution. Public blockchain networks are anonymous, while private and permissioned blockchain networks do also exist. Blockchain, which is a distributed ledger that can be accessed from different computers, operates as follows:

  • Every transaction made on the blockchain is recorded as a data block.
  • Each data block is linked to the previous and next blocks. This chronological order cannot be changed.
  • Each data block appended to the chain provides the validation of the previous data block, which increases data accuracy and security across the entire blockchain. 
  • The users perform transactions with their unique ID number. All transactions are encrypted with the hash functions in the user’s system and are permanently recorded on the chain.
  • Transactions made on the blockchain cannot be deleted or changed. Since even the smallest change is recorded as a new transaction, the details of all transactions are stored in a transparent manner. 

So, it is possible to store an infinite amount of data with the blockchain, which can contain all kinds of data. Blockchain technology, which ensures that data is stored in a transparent and secure manner, is used in Bitcoin. 

What is a coin?

bitcoin icon

Cryptocurrencies can be sorted into two major categories: coin and token. Cryptocurrencies that are built on their own blockchain are called coins. The coins, other than Bitcoin are also called altcoins. Altcoins can create a new blockchain or use the open-source blockchain codes of other coins while building their own blockchain structures. For example, the blockchain of Litecoin, a popular cryptocurrency, was created with Bitcoin codes. 

A white paper is published before the initial coin offering, also referred to as ICO. White paper is a guideline document describing the working principle, aim and technical features of a product or service. The first known example of white paper in the cryptocurrency world is the one written for Bitcoin by Satoshi Nakamoto. A white paper, which provides information on the concept, roadmap and features of a coin to be launched, guides the decisions of investors.

What is a token?

what is a token

Tokens are representative assets that correspond to a certain value. For example, flight miles or reward points accumulated on a credit card are tokens. In the cryptocurrency market, tokens are generated on the blockchains of cryptocurrencies and represent the value of relevant cryptocurrencies. Most tokens are created on the Ethereum blockchain. Tokens are usually created and offered for sale to raise funds prior to the initial offering of cryptocurrencies. Some tokens can be converted to coins by creating their own blockchains after being launched on the relevant coin’s blockchain. 

What is the difference between a coin and a token?

The differences between coins and tokens, which are two types of cryptocurrencies with different functions, can be summarized as follows:

  • Coins have their own blockchains, while tokens operate on blockchains of coins. For example, Ethereum, which has its own blockchain, is a coin; whereas cryptocurrencies such as Holo, Ankr, Tron created on the Ethereum blockchain are tokens. 
  • Creating coins, also referred to as coin mining, requires powerful hardware. Creating tokens, on the other hand, is relatively easier. It is possible to generate tokens by using smart contracts offered by blockchain technology. 

What is the difference between digital currency and cryptocurrency?

what is the difference between digital currency and cryptocurrency

Digital currency is a currency that exists only in the digital environment with no physical equivalent. As it has all the features of traditional money, it is possible to make payments with digital currency and convert it into other currencies via smartphones, tablets or computers. Although the term digital currency encompasses cryptocurrency, the functioning of cryptocurrencies is quite different. The main differences between digital currency and cryptocurrency are as follows:

  • Cryptocurrency is created with blockchain technology and is secure against cyber-attacks. Data on digital currencies are stored in centralized networks; and these networks, although strongly protected, can be subject to cyber-attacks.
  • Digital currencies have a centralized structure. Like traditional currencies, all transactions with digital currencies that are created by an authority are subject to the approval of the relevant central authority. Cryptocurrencies, on the other hand, do not need a centralized structure and are not subject to the approval of any authority. 
  • Digital currencies are used with an official user ID, whereas cryptocurrencies are relatively anonymous. But this anonymity does not create any trust issues since all transactions are recorded with user information. 
  • An intermediary institution is needed to use digital currencies, while all cryptocurrencies eliminate the need for intermediaries when transferring money or assets. 

What does volume mean in the cryptocurrency market?

what does volume mean in the cryptocurrency market

One of the most important criteria that should be considered while evaluating the investment potential of cryptocurrencies is the trading volume. The total amount of trading activities on cryptocurrencies performed in a certain time period is called trading volume. In other words, trading volume indicates how often a cryptocurrency changes hands. By following the trading volume of a cryptocurrency, it is possible to measure its popularity, price stability and performance against other cryptocurrencies. The trading volume of cryptocurrencies can be viewed according to given time periods such as 24-hour, daily, weekly, monthly, or yearly. 

Are cryptocurrencies legal?

Although legal regulations regarding cryptocurrencies in Turkey have not been completed yet, there is no legal obstacle to investing in cryptocurrencies in our country. After the completion of the legal regulations, more investors will be able to confidently invest in cryptocurrencies. If you wish, you can manage your crypto assets by using trading platforms established and operating in accordance with the relevant law, such as Felixo Exchange.

Are cryptocurrencies reliable?

As the cryptocurrency market does not have any regulation or control mechanism yet, various cases of fraud have happened so far. In fact, since they are based on blockchain technology, cryptocurrencies are more resilient against cyber-attack compared to other digital currencies. The important thing is to be careful while choosing which cryptocurrency to invest in. In addition, choosing the right trading platform for crypto asset investments is crucial in terms of security. With Felixo Exchange, which has vast experience in the field, you can safely perform all kinds of cryptocurrency transactions. 

How to store cryptocurrencies?

how to store cryptocurrencies

The method of storing cryptocurrencies is extremely important for security. Just the way cash is kept in a physical wallet, cryptocurrencies are stored in a digital wallet. Wallets that store cryptocurrencies also enable things such as viewing balance and sending and receiving cryptocurrencies by interacting with the blockchain. Every cryptocurrency investor must make a choice between different types of wallets and own a wallet where they can store their private and public keys. Each wallet type has different security levels and usage features. 

What is a wallet?

A wallet is basically an application that allows investors to store and trade crypto assets. Crypto wallets do not physically store crypto assets. Instead, they provide the necessary tools to interact with a cryptocurrency blockchain. So, these wallets generate the private and public keys necessary to send and receive cryptocurrency via blockchain transactions. 

There are different wallet applications such as electronic wallets offered by websites, software wallets installed on computers, hardware wallets that can be carried with devices such as USB, and wallets that can be installed on smartphones. Wallets have two main types: Hot and cold wallets. 

What is a hot wallet?

Hot wallets are online wallets that work on internet-connected devices such as computers, phones, or tablets. Having the advantage of easy access, hot wallets can create security vulnerabilities because they are connected to the internet. Therefore, it is important to take security measures while using hot wallets. Wallets that are downloaded and installed on computers, online wallets that are generally cloud-based, and wallet applications downloaded to mobile phones are among the types of hot wallets. 

What is a cold wallet?

Cold wallets are offline wallets that are not connected to the internet. Keeping the wallet offline reduces possible security risks. Cold wallets store the investor’s private key in an offline environment. A paper wallet is a type of cold wallet. Paper wallets, which can be created through certain websites, generate private and public keys for the user. Since these keys are physically printed on a piece of paper, it is important to keep this paper safe. 

A more common type of cold wallets are hardware wallets. A hardware wallet is a USB device that securely stores the investor’s private keys offline. Although cold wallets provide a secure way to store your cryptocurrencies, it is required to have technical knowledge during their setup and use. 

How to create cryptocurrencies?

how to create cryptocurrencies

Cryptocurrencies are usually created by mining. Those who create cryptocurrency with this method are called miners. However, individual mining activities have decreased in recent years since the technical equipment necessary for mining requires serious investment and causes high energy costs. Instead, professional mining centers with advanced infrastructure have come to the fore. 

How to earn cryptocurrency?

In order to earn cryptocurrency, it is necessary to do crypto mining. Mining is the process of earning cryptocurrency by validating various complex algorithms. The growing popularity of cryptocurrencies has led to an increase in the number of miners and mining activities, which has also increased the difficulty of algorithms. In addition, various reasons such as the requirement of advanced systems in the technological hardware used for crypto mining, high electricity costs, and the establishment of professional mining centers have reduced the profits of miners, which led to a decrease in the number of individual miners. 

“Airdrop” is another way to earn cryptocurrency. Cryptocurrency creators may send coins or tokens to cryptocurrency owners as rewards in order to promote their new product before its launch. This promotion method is called airdrop. 

What is mining?

Mining is the process of creating new cryptocurrencies by solving various mathematical equations and validating groups of transactions called blocks. These equations are called hash functions, while the activity of validating equations is called hashing. The block created by the miner who solves the equation is appended to the blockchain and the miner is rewarded with cryptocurrency in return. The mining methods of different cryptocurrencies may differ from each other. 

How to do mining?

It is possible to do mining with more than one method. The leading methods can be listed as follows: 

  • CPU mining: Being the oldest mining method, CPU mining is done with the central processing units of computers. Highly equipped computers and high energy are needed for CPU mining. 
  • GPU mining: Powerful graphics processing units are used in GPU mining. Over time, graphics processing units have started to be used more commonly for mining because they are faster and more efficient than central processing units. Today, crypto mining is usually done with this method.
  • ASIC mining: In ASIC (Application Specific Integrated Circuit) mining, integrated circuits customized for mining are used. This method makes individual mining possible thanks to powerful circuits that can be connected directly to the computer. 
  • Cloud mining: Cloud mining is a method that allows individual mining through large mining servers. In this method, miners can create cryptocurrencies by using professional cloud platforms without having advanced hardware.

What is Airdrop?

what is airdrop

In the cryptocurrency world, “airdrop” is the distribution of newly created cryptocurrencies as rewards to cryptocurrency owners. So, an airdrop can be regarded as a publicity stunt to promote newly released products. Cryptocurrency creators or wallets can send free cryptocurrencies to certain users’ wallets before the launch of a new cryptocurrency or after a hard fork in the blockchain network. Sometimes cryptocurrencies can be sent to users in exchange for a simple activity (like retweeting the company’s post). Airdrops are usually announced on the creator’s website or on cryptocurrency forums.

How to buy cryptocurrency?

Crypto trading is performed on cryptocurrency platforms. To buy and sell cryptocurrencies, you can follow these steps:

  • First of all, you need to create an account on a reliable cryptocurrency platform. For this, you can download the mobile application of the relevant platform to your smartphone. 
  • After becoming a member of the platform, you must transfer funds to your platform account from your bank account. 
  • You can place a market order to buy cryptocurrency by entering the type of cryptocurrency and the amount you want to trade on the relevant tab.

With Felixo Exchange, you can safely trade cryptocurrencies and perform transactions quickly and easily with the Fast Buy/Sell option. 

Things to consider while buying cryptocurrency

If you’ve decided to invest in cryptocurrencies but don’t know where to start, you should pay attention to the following:

  • Before making an investment, make sure that you choose a reliable cryptocurrency platform. You should definitely check whether the platform you have chosen has a solid security infrastructure and whether it has a good track record. 
  • For higher security, you can prefer applications where cryptocurrencies are stored in cold wallets. Using cold wallets, Felixo Exchange offers high-level security. 
  • It is also important to choose the right cryptocurrency to invest in. To obtain detailed information on a cryptocurrency, you can examine its white paper and current trading volume. 

Why does a cryptocurrency rise in value?

why does a cryptocurrency rise in value

While making cryptocurrency investments, it is really helpful to know how the trends in the market are shaped. Cryptocurrencies may rise in value based on the following criteria: 

  • Just like other investment instruments, the value of cryptocurrencies is shaped by the supply-demand balance. Currencies that are highly demanded in the market gain value. 
  • News and comments in the conventional and social media outlets affect the value ​​of cryptocurrencies. Cryptocurrencies that receive positive comments follow an upward trend.
  • The decrease in mining activities reduces the supply of cryptocurrencies in the market, which causes existing cryptocurrencies to rise in value. 
  • Developments such as updates in cryptocurrencies and new sponsorship deals can also lead to an increase in cryptocurrency prices.

Why does a cryptocurrency decline in value?

why does a cryptocurrency decline in value

There can be many different reasons behind the depreciation of cryptocurrencies. The most common reasons can be listed as follows:

  • An increase in the supply of cryptocurrencies with a decrease in demand may cause the depreciation of cryptocurrencies. 
  • Some cryptocurrencies in an uptrend that attract the attention of investors may cause other cryptocurrencies to decline in value.
  • Negative comments or speculative news about cryptocurrencies also lead to depreciation.
  • Developments in the global and local economic markets may affect the trends in cryptocurrencies like other investment instruments. 
  • Investors who have large amounts of cryptocurrencies, known as “cryptocurrency whales”, can cause sudden and large price fluctuations on both upside and downside.

Cryptocurrencies

The popularity of Bitcoin, the first cryptocurrency, paved the way for different cryptocurrencies. Cryptocurrencies other than Bitcoin are called altcoins. As of December 2021, more than 8.000 cryptocurrencies are available in the cryptocurrency market. This number is constantly changing as new cryptocurrencies are launched and failed projects withdraw from the market. Bitcoin and Ethereum are the most popular currencies in the cryptocurrency market. 

What is Bitcoin?

what is bitcoin

Bitcoin (BTC), the first currency in the cryptocurrency market that was introduced with the enigmatic white paper of Satoshi Nakamoto, is a pioneer in the world of cryptocurrencies and still the most popular cryptocurrency. Standing out for its decentralized structure, Bitcoin can be bought, sold and exchanged without an intermediary. Since its launch in 2009, the price of Bitcoin has increased significantly. Bitcoin has a limited supply of 21 million. And all 21 million coins are expected to be supplied between 2035 and 2040 while final coins will be minted in around 2140. 

What is Ethereum?

what is ethereum

Ethereum, which was founded by Vitalik Buterin when he was 17, is an open-source and decentralized blockchain. Launched in July 2015, Ether (ETH) is the name of the cryptocurrency generated on the Ethereum blockchain. Ether is the most popular cryptocurrency after Bitcoin. Having an innovative and secure system, the Ethereum blockchain offers an ideal infrastructure for the production of different coins, as it is open to common use similar to the Bitcoin blockchain. The key difference between the two blockchains is that Ethereum uses smart contracts, which means that cryptocurrency producers who meet the terms of the smart contracts can create new coins on the Ethereum blockchain. 

What is Altcoin?

An altcoin is not a cryptocurrency per se. All cryptocurrencies produced as an alternative to Bitcoin are defined as altcoins. So, popular cryptocurrencies such as Ether, Ripple, Litecoin are technically altcoins. Altcoins can have their own blockchains, or they can be created on blockchains such as Bitcoin and Ethereum. 

Is there any Turkey-based cryptocurrency?

Various coins and tokens are based in Turkey. Fan tokens of national sports clubs have a considerable role in the Turkish cryptocurrency ecosystem. Fan tokens of sports clubs such as Galatasaray, Fenerbahçe, Trabzonspor and Gençlerbirliği aim to make profits for both clubs and fans.  

Felixo Exchange Platform’s utility token, namely FLX Token, is also among the leading cryptocurrencies in the Turkish crypto market. $FLX can be stored in wallets on the Felixo.com platform, or in cold or hot Avalanche (AVAX) wallets that allow users to have full control.

The Future of Cryptocurrencies

Not being dependent on any authority and making a breakthrough in financial markets with their decentralized models, cryptocurrencies will probably maintain their popularity in the future. Cryptocurrencies, which have been proved to be safe investment tools despite entailing some risks, are expected to consolidate their presence in financial markets. Of course, state policies towards cryptocurrencies will be a determining factor in the future of cryptocurrencies. Today, a growing number of countries are closely following the inevitable rise of the crypto market and legalizing the use of cryptocurrency transactions by introducing a set of regulations. 

Will there be regulations on cryptocurrencies?

Blockchain technology and cryptocurrencies, which have shown a great progress at a really fast speed, have also brought a lot of controversies. There are still many questions about how to introduce legal regulations in such a rapidly developing field. Each country has adopted different approaches to the regulation, classification and taxation of cryptocurrencies, which have turned into a balanced investment tool over time. It seems that the regulation of cryptocurrencies will continue to be a more dynamic area for a long time. 

In Turkey, the subject was officially brought up for the first time on November 25, 2013, with a press release issued by the Turkish Banking Regulation and Supervision Agency (BDDK) that comprised some warnings regarding cryptocurrency transactions. As the subject gained popularity, the issue of introducing regulations on the cryptocurrency market came into the spotlight. Efforts to make legal regulations on cryptocurrencies are ongoing for a long time. The discussion meetings on the subject, coordinated by the Turkish Treasury and Finance Ministry, are ongoing with the participation of the Capital Markets Board of Turkey (SPK), Revenue Administration, Central Bank and Banking Regulation and Supervision Agency (BDDK). The meetings aim to protect cryptocurrency investors and consolidate the control and monitoring mechanisms of crypto trading. 

Download Felixo Exchange now and perform your cryptocurrency investments safely and effectively. 

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Written by Bircan Akalın
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I graduated from Istanbul Bilgi University, Department of Business Administration in 2019. I continue my career as a Marketing Specialist in 2020, and now I work as a Marketing Communications Specialist. I also write articles on cryptocurrencies and blockchain on the Felixo Blog.