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Bitcoin 101: Everything you need to know about investing, buying, and mining digital currency
The biggest questions about cryptocurrency, answered.
The crypto industry is booming, and it's unlikely to slow down for a long time.
For anyone outside of the community, understanding the basics can be a challenge as cryptoinsiders tend to explain things very technically.
Here, I have tried to break down crypto concepts. So if you'd like to understand crypto basics, read on...
What is a blockchain?
A blockchain is made up of a growing list of records, known as 'blocks'. These blocks are linked together using cryptography.
A blockchain is a decentralized public ledger. Essentially, this means that it is a database that is continually being shared and synchronized across a network. If any changes are made to this ledger, all changes will be copied to all participants in the network almost instantly.
There are many different blockchains in existence. The most well-known blockchain is the Bitcoin blockchain, as Bitcoin was the first application of blockchain technology. However, it is important to realize that 'Bitcoin' and 'blockchain' are not the same things. Rather, Bitcoin was built on top of blockchain technology.
What is a cryptocurrency?
A cryptocurrency is a digital currency that is designed to be used as a medium of exchange. It uses cryptography to increase its security.
Not every cryptocurrency needs to create its own blockchain. For instance, many popular cryptocurrencies are built on the Ethereum platform. These are known as 'ERC-20 tokens'. Examples of such tokens include the likes of Aion, EOS, and TRON.
'Altcoins' are essentially just 'alternatives to Bitcoin'. They can differ in a number of ways. For instance, they might have a different economic model, a different coin distribution method, a different mining protocol, or offer more privacy and scalability than Bitcoin.
What is a smart contract?
A smart contract is a self-executing contract made from computer code that is designed to enforce the fulfillment of an agreement.
Ethereum is currently the most dominant smart contract platform. However, it has some severe limitations that need to be addressed - the most prominent flaw being its lack of scalability. As a result, Ethereum now has several up and coming competitors, such as Qtum and NEO, who are now working to take its place.
Smart contracts currently have several limitations that are currently limiting their growth. For starters, they require a computer programmer to create them. They are also encrypted to increase their security, which can make them difficult to read.
Companies like SciDex aim to make smart contracts more readable and adaptive for the mainstream population.
Other companies, such as Etherparty, have created smart contract templates. Meaning that smart contracts can be created within minutes, and the process is simple and accessible to everyone.
What is crypto mining?
Crypto mining is the process by which transactions for various cryptocurrencies are verified and added to the blockchain. Anyone can mine cryptocurrencies, but being successful usually requires high upfront hardware costs.
There are several different mining protocols that cryptocurrencies can have. The main protocols are Proof of Work (PoW) and Proof of Stake (PoS). However, more and more alternative methods are beginning to pop up.
- Proof of Work (PoW) - users compete to be the first to find the solution to a mathematical problem. This measure was put in place to reduce the number of denial of service attacks and spam, as it requires the user to do some work. Bitcoin uses this protocol.
- Proof of Stake (PoS) - users mine or validate blocks and are rewarded according to how many coins they already hold. The more cryptocurrency they hold, the more mining power they have. This is the mining protocol for cryptocurrencies such as Qtum. In the near future, Ethereum plans to move from Proof of Work to Proof of Stake in the near future.
- Proof of Burn (PoB) - users undergo a short-term loss in exchange for long-term gain by 'burning' a cryptocurrency. When a user burns more coins, they stand a greater chance of mining the next block. There are many reasons for this burning of coins. It encourages the long-term commitment of a project, it gets rid of unsold coins, and it pays for transaction fees. Counterparty (XCP) is one of the most well-known cryptocurrencies using this protocol.
- Proof of Assignment (PoA) - this is a relatively new mining protocol. It sets itself apart from other protocols as it is able to run on Internet of Things (IoT) devices and mine cryptocurrency without any added hardware and without using a lot of the device's power or memory. IOTW uses the Proof of Assignment protocol.
What is a Crypto Exchange?
Crypto exchanges allow users to buy and sell cryptocurrencies and digital assets. There are two main types of exchanges.
The first type of exchange is known as a fiat exchange. This allows users to directly exchange their US dollars, Euros, and other government-backed currencies into cryptocurrencies. The top fiat exchanges include the likes of Coinbase and Kraken.
The second type of exchange is a crypto to crypto exchange. These exchanges don't accept fiat currency, and instead, require users to trade their cryptocurrencies directly with one another. Binance is one example of such an exchange.
What is an ICO?
An ICO is an 'Initial Coin Offering'. It is a fundraising campaign where new projects can sell crypto tokens in exchange for Bitcoin or Ethereum.
Investing in an ICO can pay off big time. For instance, the price of an Ethereum token during its ICO was approximately $0.311. In January 2018, the price of a single Ethereum token broke the $1,300 barrier. Buying even a single token during its ICO could have led to massive returns.
However, while participating in ICOs can provide significant rewards, it is also extremely risky. For many ICOs, the idea never takes off, and the tokens are rendered redundant.
What is a fork?
There are multiple different types of fork, and they are triggered by different events.
An accidental fork occurs if coin updates turn out to be incompatible and the developer is required to eliminate the bugs that are causing incompatibilities and figure out how to merge the blockchains.
A hard fork occurs if developers want to make substantial changes to the programming of the coin that will result in an incompatibility between the older and newer version. If a hard fork occurs, all holders of the cryptocurrency are required to update all applications in order to continue using the cryptocurrency.
The first hard fork for the splitting of Bitcoin (BTC) occurred in August 2017. This resulted in the creation of Bitcoin Cash (BCH). For every BTC a person owned, they received 1 BCH.
Ethereum has gone through a substantial number of both planned and unplanned hard forks. For instance, Ethereum Classic (ETC) was created as a result of a hard fork of Ethereum (ETH) following The DAO attack, where 3.6 million Ether (worth approximately $50 million USD) was taken from the accounts in The DAO and moved to another account without consent.
What is a wallet?
A wallet is where users store their cryptocurrencies. There are several different types of wallets. Each type has its own pros and cons.
- Online Wallet - these run on the cloud, and can be accessed from anywhere with an internet connection. They are extremely convenient but are also more vulnerable to attacks, which means they require additional layers of security.
- Mobile Wallet - an application on your phone. These even allow you to use crypto as a payment method in stores. However, if you lose your phone, you will also lose your crypto wallet.
- Desktop wallet - safer than an online wallet. However, if your computer gets hacked or breaks down, you could lose all of your assets.
- Hardware wallet - users store their private keys on a hardware device, such as a USB drive. This is one of the most expensive options, but it is also one of the safest.
- Paper wallet - this can be as simple as a printed sheet of paper that contains your generated public and private keys. You can withdraw and send cryptocurrencies by simply scanning the QR code in your paper wallet with your phone.
Which wallet you use depends on what you need it for, and how much you value security. Often, it is merely a case of weighing up security with usability and choosing accordingly.
Scientists find routes using arches of chaos that can lead to much faster space travel.
- Researchers discovered a route through the Solar System that can allow for much faster spacecraft travel.
- The path takes advantage of "arches of chaos" within space manifolds.
- The scientists think this "celestial superhighway" can help humans get to the far reaches of the galaxy.
Humanity could be making its way through the Solar System much faster thanks to the discovery of a new superhighway network among space manifolds. Don't get your engines roaring along this "celestial autobahn" just yet, but the researchers believe the new pathways can eventually be used by spacecraft to get to the outer reaches of our Solar System with relative haste.
The celestial highway could get comets and asteroids from Jupiter to Neptune in less than a decade. Compare that to hundreds of thousands or even millions of years it might ordinarily take for space objects to traverse the Solar System. In a century of travel along the new routes, a 100 astronomical units could be covered, project the scientists. For reference, an astronomical unit is the average distance from the Earth to the Sun or about 93 million miles.
The international research team included Nataša Todorović, Di Wu, and Aaron Rosengren from the Belgrade Astronomical Observatory in Serbia, the University of Arizona, and UC San Diego. Their new paper proposes a dynamic route, going along connected series of arches within so-called space manifolds. These structures, coming into existence from gravitational effects between the Sun and the planets, stretch from the asteroid belt to past Uranus.
The most pronounced of these structures are linked to Jupiter by its strong gravitational pull, explained UC San Diego's press release. They influence the comets around the gas giant as well as smaller space objects called "centaurs," with are like asteroids in size but exhibit the composition of comets.
This animation shows space manifolds over a hundred years. Each frame of the animation shows how the arches and substructures appear over three-year increments.
Credit: Nataša Todorović, Di Wu and Aaron Rosengren/Science Advances
"Space manifolds act as the boundaries of dynamical channels enabling fast transportation into the inner- and outermost reaches of the Solar System," write the researchers. "Besides being an important element in spacecraft navigation and mission design, these manifolds can also explain the apparent erratic nature of comets and their eventual demise."
A closer image of the manifolds showing colliding and escaping objects.
Credit: Science Advances
The researchers discovered the structures by analyzing collected numerical data on the millions of orbits in the Solar System. The scientists figured out how these orbits were contained within known space manifolds. To detect the presences and structure of the space manifolds, the team employed the fast Lyapunov indicator (FLI), used to detect chaos. The scientists ran simulations to compute how the trajectories of particles approaching different planets like Jupiter, Uranus and Neptune would be affected by possible collisions and the manifolds.
While the results are encouraging, the next step is to figure out how these arches can be used by spacecraft for much speedier travel. It's also not clear how similar manifolds work near Earth. Also unclear is how they impact our planet's run-ins with asteroids and meteorites or any of the man-made objects floating up in space near us.
Check out the new paper "The arches of chaos in the Solar System" in Science Advances.
A new episode of "Your Brain on Money" illuminates the strange world of consumer behavior and explores how brands can wreak havoc on our ability to make rational decisions.
- Effective branding can not only change how you feel about a company, it can actually change how your brain is wired.
- Our new series "Your Brain on Money," created in partnership with Million Stories, recently explored the surprising ways brands can affect our behavior.
- Brands aren't going away. But you can make smarter decisions by slowing down and asking yourself why you're making a particular purchase.
How Apple and Nike have branded your brain | Your Brain on Money | Big Think youtu.be
Brands can manipulate our brains in surprisingly profound ways. They can change how we conceptualize ourselves and how we broadcast our identities out to the social world. They can make us feel emotions that have nothing to do with the functions of their products. And they can even sort us into tribes.
To grasp the power of brands, look to Apple. In the 1990s, the company was struggling to compete with Microsoft over the personal computer market. Despite flirting with bankruptcy in the mid-1990s, Apple turned itself around to eventually become the most valuable company in the world.
That early-stage success wasn't due to superior products.
"People talk about technology, but Apple was a marketing company," John Sculley, a former Apple marketing executive, told The Guardian in 1997. "It was the marketing company of the decade."
So, how exactly does branding make people willing to wait hours in line to buy a $1,000 smartphone, or pay exorbitant prices for a pair of sneakers?
Branding and the brain
For more than a century, brands have capitalized on the fact that effective marketing is much more than simply touting the merits of a product. Some ads have nothing to do with the product at all. In 1871, for example, Pearl Tobacco started advertising their cigarettes through branded posters and trading cards that featured exposed women, a trend that continues to this day.
It's crude, sure. But research shows that it's also remarkably effective, even on monkeys. Why? The answer seems to center on how our brains pay special attention to information from the social world.
"In theory, ads that associate sex or status with specific brands or products activate the brain mechanisms that prioritize social information, and turning on this switch may bias us toward the product," wrote neuroscience professor Michael Platt for Scientific American.
Brands can burrow themselves deep into our subconscious. Through ad campaigns, brands can form a web of associations and memories in our brains. When these connections are robust and positive, it can change our behavior, nudging us to make "no-brainer" purchases when we encounter the brand at the store.
It's a marketing principle that's related to the work of Daniel Kahneman, a psychologist and economist who won the 2002 Nobel Memorial Prize in Economic Sciences. In his book "Thinking Fast and Slow", Kahneman separates thinking into two broad categories, or systems:
- System 1 is fast and automatic, requiring little effort or voluntary control.
- System 2 is slow and requires subjective deliberation and logic.
Brands that tap into "system 1" are likely to dominate the competition. After all, it's far easier for us as consumers to automatically reach for a familiar brand than it is to analyze all of the available information and make an informed choice. Still, the most successful brands can have an even deeper impact on our psychology, one that causes us to conceptualize them as something like a family member.
A peculiar relationship with brands
Apple has one of the most loyal customer bases in the world, with its brand loyalty hitting an all-time high earlier this year, according to a SellCell survey of more than 5,000 U.S.-based smartphone users.
Qualitatively, how does that loyalty compare to Samsung users? To find out, Platt and his team conducted a study in which functional magnetic resonance imaging scanned the brains of Samsung and Apple users as they viewed positive, negative, and neutral news about each company. The results revealed stark differences between the two groups, as Platt wrote in "The Leader's Brain":
"Apple users showed empathy for their own brand: The reward-related areas of the brain were activated by good news about Apple, and the pain and negative feeling parts of the brain were activated by bad news. They were neutral about any kind of Samsung news. This is exactly what we see when people empathize with other people—particularly their family and friends—but don't feel the joy and pain of people they don't know."
Meanwhile, Samsung users didn't show any significant pain- or pleasure-related brain activity when they saw good or bad news about the company.
"Interestingly, though, the pain areas were activated by good news about Apple, and the reward areas were activated by bad news about the rival company—some serious schadenfreude, or "reverse empathy," Platt wrote.
The results suggest a fundamental difference between the brands: Apple has formed strong emotional and social connections with consumers, Samsung has not.
Brands and the self
Does having a strong connection with a brand justify paying higher prices for their products? Maybe. You could have a strong connection with Apple or Nike and simultaneously think the quality of their products justifies the price.
But beyond product quality lies identity. People have long used objects and clothing to express themselves and signal their affiliation with groups. From prehistoric seashell jewelry to Air Jordans, the things people wear and associate with signal a lot of information about how they conceptualize themselves.
Since the 1950s, researchers have examined the relationship between self-image and brand preferences. This body of research has generally found that consumers tend to prefer brands whose products fit well with their self-image, a concept known as self-image congruity.
By choosing brands that don't disrupt their self-image, consumers are able not only to express themselves personally, but also broadcast a specific version of themselves into the social world. That might sound self-involved. But on the other hand, humans are social creatures who use information from the social world to make decisions, so it's virtually impossible for us not to make inferences about people based on how they present themselves.
Americus Reed II, a marketing professor at the University of Pennsylvania, told Big Think:
"When I make choices about different brands, I'm choosing to create an identity. When I put that shirt on, when I put that shirt on — those jeans, that hat — someone is going to form an impression about what I'm about. So, if I'm choosing Nike over Under Armour, I'm choosing a kind of different way to express affiliation with sport. The Nike thing is about performance. The Under Armour thing is about the underdog. I have to choose which of these different conceptual pathways is most consistent with where I am in my life."
Making smarter decisions
Brands may have some power over us when we're facing a purchasing decision. So, considering brands aren't going away, what can we do to make better choices? The best strategy might be to slow down and try to avoid making "automatic" purchasing decisions that are characteristic of Kahneman's fast "system 1" mode of thinking.
"I think it's important to always pause and think a little bit about, "Okay, why am I buying this product?" Platt said.
As for getting out of the brand game altogether? Good luck.
"I've heard lots of people push back and say, "I'm not into brands,"" Reed II said. "I take a very different view. In some senses, they're not doing anything different than what someone who affiliates with a brand is doing. They have a brand. It's just an anti-brand brand."
Powerful branding can not only change how you feel about a company, it can actually change how your brain is wired.
- Powerful branding can not only change how you feel about a company, it can actually change how your brain is wired.
- "We love to think of ourselves as rational. That's not how it works," says UPenn professor Americus Reed II about our habits (both conscious and subconscious) of paying more for items based primarily on the brand name. Effective marketing causes the consumer to link brands like Apple and Nike with their own identity, and that strong attachment goes deeper than receipts.
- Using MRI, professor and neuroscientist Michael Platt and his team were able to see this at play. When reacting to good or bad news about the brand, Samsung users didn't have positive or negative brain responses, yet they did have "reverse empathy" for bad news about Apple. Meanwhile, Apple users showed a "brain empathy response for Apple that was exactly what you'd see in the way you would respond to somebody in your family."