Software Wallets & Hardware Wallets

You may hear that bitcoins are stored in wallets. If this were true, then if you copied your wallet you’d own double the number of bitcoins. Clearly you couldn’t have digital money that works this way. So no, bitcoins are not stored in wallets. So where are bitcoins stored? Ownership of bitcoins is recorded on Bitcoin’s blockchain, which is, as we have seen, the database replicated on over 10,000 computers around the world containing every Bitcoin transaction ever. So you can look at that database and see that at this time, a specific address has a specific number of bitcoins associated with it. Bitcoin’s blockchain doesn’t store balances of accounts (it is not a list of account numbers and corresponding BTC balances), it stores transactions. So to get the current balance of any account, you need to look at all the inbound and outbound transactions through that account. Bitcoin wallets store private keys (not bitcoins) and their software makes it easy for the user of the wallet to see how many coins they control and to make payments. If you cloned your wallet, you would be cloning your private keys, not doubling your bitcoins.

Bitcoin wallets are apps that can: create new Bitcoin addresses and store the corresponding private keys; display your addresses to someone who wants to send you a payment; display how many bitcoins are in your addresses; make Bitcoin payments.Creating new Bitcoin addresses is an offline operation and involves creating a public and private key pair.

When someone wants to send you bitcoins, you need to tell them your address - like telling someone your bank account number so they can send you money. There are a few ways to do this. One popular way is by showing it as a QR code. QR codes are not magic. They are just text, encoded in a visual way that makes it easy for QR code scanners to read the code and convert it back into text. Another way is just to copy and paste the address itself.

The wallet needs to access an up to date version of the blockchain in order to be aware of all the transactions going in and out of the addresses it is keeping tabs on. The wallet, software can do this by either storing the entire blockchain and keeping it up to date (this is called a full node wallet) or by connecting to a node elsewhere which does the heavy lifting (this is called a lightweight wallet). A full node wallet would contain over a hundred gigabytes of data and would need to be constantly connected over the internet to other Bitcoin nodes. So in many cases, especially on mobile phones, this is not practical so the wallet software is lightweight and connects to a server which hosts the blockchain.

As well as reading the account balances, the wallet needs to be able to make payments. To make a Bitcoin payment, the wallet generates a bundle of data called a ‘transaction,’ which includes references to the coins that are going to be spent (transaction inputs consisting of unspent outputs of previous transactions), and which accounts the coins will be sent to (new outputs). This transaction is then digitally signed using the relevant private keys of the addresses holding the coins. Once signed, the transaction is sent to neighboring nodes, via its server node if it is a lightweight wallet, or directly to other peers if it is a full node wallet. The transactions eventually find their way to miners who add them to blocks.

Good wallet software has more functionality, including the ability to back up private keys (encrypted with a passphrase) either to a user’s hard drive or to a cloud storage server somewhere, to generate one-time use addresses for privacy, to hold addresses and private keys for multiple cryptocurrencies. Some are even integrated with exchanges to allow users to convert between one cryptocurrency and another directly from within the wallet software. Often wallets will allow you to split keys or set up addresses that require multiple digital signatures to spend from.

Sometimes Bitcoin wallets can have a hardware component. Private keys are stored in chips on small handheld devices. Two popular hardware wallets are called ‘Trezor’ and ‘Ledger Nano’, but there are others. These devices are specifically designed to store private keys securely and only respond to certain pre-programmed requests, for example, ‘Please sign this transaction’, and not, ‘Show me the private key you are storing’. Because the private key is stored on hardware that is not connected to the internet and can communicate with the outside world only via a limited set of pre-programmed interfaces, it is much harder for a hacker to gain access to the private keys.

The user interface software is run on an online machine. When it comes to the critical part of the transaction (the signing), the unsigned transaction is sent to the hardware wallet, which returns the signed transaction without revealing the private key. Hardware wallets are more secure than
software-only wallets, but nothing is infallible.

The phrase ‘keeping coins in cold storage’ was popular in 2013-17 before hardware wallets became widely available. Remember, you don’t store bitcoins, you store private keys. ‘Cold storage’ is keeping a note of those private keys on offline media, such as a piece of paper or a computer not connected to the internet. There are many ways of storing them. You can memorise keys if you have a good memory, you can print them out on bits of paper, you can even engrave them on a ring that you wear. You could store them on an offline computer which, for increased security, should not have a modem or network card. You could write them down and put them in a bank’s locked deposit box. These are all methods of storing your private keys offline.

If you do keep private keys on a device or printed out, you wouldn’t want someone else to be able to see it and use it to steal your bitcoins. So one way of increasing security is to first encrypt the private key with a passphrase that you can remember and then store or print out the encrypted result. Passphrases are a lot easier to remember than private keys. This means that even if someone gets hold of the device or print out, they’d need to decrypt it with your passphrase before the private key is revealed. You can split keys or use multi-sig addresses for further security. This means if one part is found by a thief, it is useless without another part, and also means if one part is lost, the other two will still work. Remember, you are trying to simultaneously guard against two things: loss of keys and theft of keys.

A hot wallet is a wallet that can sign and broadcast transactions without manual intervention. Exchanges, who control many bitcoins need to manage lots of Bitcoin payments, as we will see later. They often have a ‘hot wallet’ that controls a small proportion of their total bitcoins. Customers of exchanges like to withdraw bitcoins from the exchanges by clicking a button, causing an automated process to run to make and sign a Bitcoin transaction moving bitcoins from the exchange’s hot wallet to the user’s personal wallet. This means that somewhere, a private key belonging to the exchange must be stored on a ‘hot’ machine connected to the internet. There is a trade-off between security and convenience. Online machines are easier to hack than offline machines, but can automate the process of creating and broadcasting Bitcoin transactions. Due to this trade-off, exchanges keep only a small fraction of BTC in hot wallets, enough to satisfy customer demand, similar to banks that keep a small amount of cash in tellers’ tills at branches.

Bitcoin’s Price

Like gold or oil or any other asset, bitcoins have a value that can be priced in USD or any other currency. This means there are people who are willing to exchange BTC with USD, usually using cryptocurrency exchanges, marketplaces which attract buyers and sellers. On exchanges you can see indications of supply and demand for cryptocurrencies at any price level (more on these later). You can also buy and sell bitcoins with anyone in the world, physically on the streets or over the internet, or using brokers who mediate between buyers and sellers, or who trade on their own behalf. To trade BTC, you simply need the ability to send or receive BTC and the ability to receive or send the other asset, usually a local currency.

Like any other market-traded asset, the price of Bitcoin fluctuates with supply and demand. At any point in time, people trade at prices that they are comfortable buying or selling at. If there is more buying pressure and people want to buy more bitcoins, prices will increase. If there is selling pressure and people want to sell more bitcoins for fiat currencies, then the price at which the bitcoins change hands will drop. Later we will go into more detail about how cryptocurrencies and tokens can be priced, but here we will look at specifically Bitcoin’s price. Bitcoin’s price has been a wild ride. A recent price rise to almost $20,000 USD per Bitcoin and subsequent fall the $4,000 levels has caught the media’s attention. But this is not the first time Bitcoin has been this volatile. Bitcoin appears to be cyclically volatile, with each cycle as dizzy as the previous.

Bitcoin Mining

Although anyone can mine, the process has become so intensive that new hardware and chips are created which are designed to be exceedingly efficient at performing the SHA-256 hashing. ASICs (Application Specific Integrated Chips) became the norm for mining in 2014 and outcompete all other forms of hardware in terms of energy efficiency for Bitcoin mining. In the popular media, the computational power of these specially designed chips is often compared to the computational power of supercomputers, but ACICs cannot operate as general-purpose computers, so comparisons with supercomputers are meaningless. Only a few entities can mine profitably, usually using special purpose ‘mining farms’ clustered in areas of cheap electricity.

Miners use special purpose chips called ASICs that are specifically designed and built to be efficient at SHA-256 hashing. Commercial chip manufacturers have been slow to design chips  that are specifically built to be efficient at SHA-256 hashing, so demand has created an alternative specialised industry for supplying Bitcoin ASICs. The main provider of this is Bitmain, the same Chinese company who controls the top two mining pools. It has been estimated that Bitmain produces hardware that mines 70-80% of the total blocks in Bitcoin.

Bitcoin’s Ecosystem

The Bitcoin ecosystem consists of parties who perform different roles. Miners and bookkeepers focus on building and maintaining the blockchain itself. Wallets make it easy for people to use cryptocurrencies. Exchanges and cryptocurrency payment processors bridge between the fiat and crypto worlds.

While there are around 10,000 nodes who perform bookkeeping tasks and who relay transactions and blocks, they are mostly running the same software written, and therefore controlled, by a very small number of people. They are known as the ‘Bitcoin Core’ developers and the software is known as ‘Bitcoin Core’. The various versions, or implementations, that are not Bitcoin Core all have slightly different rules but are not different enough to create incompatibilities. Some, for example, may have additional flags to signal that the bookkeepers would be prepared to adopt a rule change if enough participants also signal the same intention.

What Are Bitcoins?

People refer to Bitcoin as a digital currency, virtual currency, or cryptocurrency, but it may be easier to think of it as an electronic asset. The word currency often side-tracks people when they are trying to understand Bitcoin. They get caught up trying to understand aspects of conventional currencies which do not apply to Bitcoin, for example, what backs it (nothing) and who sets the interest rate (there is none). Bitcoin is also sometimes described as a digital token, and in some respects that is accurate; but, alas, the term token is now also used to mean something more specific, so the ambiguity of this term too is best avoided.

Bitcoins are digital assets (‘coins’) whose ownership is recorded on an electronic ledger that is updated (almost) simultaneously on about 10,000 independently operated computers around the world that connect and gossip with each other. This ledger is called Bitcoin’s blockchain. Transactions that record transfer of ownership of those coins are created and validated according to a protocol - a list of rules that define how things work and which therefore govern updates to the ledger. The protocol is implemented by software - an app - that participants run on their computers. The machines running the apps are called ‘nodes’ of the network. Each node independently validates all pending transactions wherever they arise, and updates its own record of the ledger with validated blocks of confirmed transactions. Specialist nodes, called miners, bundle together valid transactions into blocks and distribute those blocks to nodes across the network.

Anyone can buy bitcoins, own them, and send them to other people. Every Bitcoin transaction is recorded and shared publicly in plain text on Bitcoin’s blockchain. Contrary to many media articles, Bitcoin’s blockchain is not encrypted. By design, everyone sees all details of all transactions. Anyone can, in theory, create bitcoins for themselves too. This is part of the block creation process, called mining.

The purpose of Bitcoin is described in its whitepaper - a short document written by a pseudonymous Satoshi Nakamoto, published in October 2008. It describes why Bitcoin exists and how it should work. It is worth reading the whitepaper in full. It is only nine pages long and available online. It sets out the purpose of Bitcoin, and how Bitcoin derives  both value and utility. For the first time in history, we have a system that can send value from A to B, without the physical movement of items or using specific third-party intermediaries. It is difficult to overstate how important a milestone this is in the evolution of payments. As generalized by cryptocurrency industry commentator Tim Swanson, Bitcoin is designed as censorship resistant digital cash. There is no mention of a blockchain or ‘block chain’ at all in the original Bitcoin whitepaper, even though we are constantly reminded by the media that Bitcoin is built on blockchain or that blockchain is the underlying technology of Bitcoin. A chain of blocks was not the purpose of Bitcoin, it is just the design that was developed to achieve the objective - the solution to the business problem.

The Bitcoin blockchain is managed by software running on computers that communicate with each other forming a network. Although multiple compatible software implementations exist, the most commonly used software is called ‘Bitcoin Core’ and source code to this software is published on GitHub. This software contains the full range of functionalities needed for the network to exist.
However, in practice, the software is usually only used for its bookkeeping function.

To understand how Bitcoin works, and why it works the way it does, it is important to keep in mind the objective: to create an electronic payment system that cannot be censored, and to allow anyone the ability to send payments ‘directly from one party to another without going through a financial institution’.

Such a system cannot have a central administrator managing the ledger, as that administrator would be the financial institution that Bitcoin is set up to avoid. The system therefore needs to be able to be operated by anyone, without any need to identify themselves or gain permission from a gatekeeper. The moment that parties need to identify themselves, they lose privacy and are vulnerable to interference, coercion, prison, or worse. This goes for both administrators of the system and users themselves. So every single part of the solution needs to work with these constraints in mind.

Instead of names or account numbers and passwords, why not use public keys as the account number, and digital signatures instead of passwords? By using public keys as account numbers, anyone can create their own accounts with their own computer without having to ask an administrator for an account number. Remember, a public key is derived from a private key, which is a number picked at random. So you create an account by picking a random number (your private key) and doing some maths on it to get your public key. In Bitcoin and most other cryptocurrencies, account numbers are mathematically derived from public keys (not public keys themselves), and are called addresses. You can tell the world this Bitcoin address to allow people to pay to it. No one can spend anything from it unless they have the private key, which only you have. You can also create as many addresses as you want and your wallet software will manage all of them for you.

Public/private keypairs also solve the authentication problem. You don’t have to log in to prove that you are the account holder. When sending a payment instruction you digitally sign the transaction with your private key, and this signature proves to the administrator that the instruction is indeed coming from you, the account holder. You can create and sign the transaction offline without being connected to any network. When you broadcast the signed transaction to the administrator, all the
administrator has to do is check that the digital signature is valid for the respective account number, rather than maintain a list of usernames and passwords for you and all transacting parties.

In Bitcoin, any individual with a computer, adequate storage, and access to internet bandwidth can download some software (or write their own), connect to a few neighbors, and become a bookkeeper. New transactions are broadcast to all bookkeepers via a gossip network, and each bookkeeper relays new transactions to as many others as they are connected to. This ensures eventual propagation of transactions to all bookkeepers.

Bitcoin is digital, but it works more like physical cash. With cash you open your wallet and take this specific $10 note which you received earlier and pay $8 for your coffee and expect $2 change. Bitcoin is similar: for every payment you make, you have to specify exactly which coins you are spending - that is, which specific bitcoins that you received earlier. You refer to these received bitcoins by the transaction hash that sent the coins to you. In the same way that blocks build on each other by referring to the previous block’s hash, transactions also refer to each other using a previous transaction’s hash. When you make a Bitcoin payment, you say, ‘Take this bundle of money that came in to my account in this transaction, and pay some of it to this account and return the change to me’.

Hence all bitcoins are traceable. You can see the exact composition of every lump of Bitcoin that comes into your account - what it is composed of and where it came from - and you can trace every part of that money via the previous accounts, all the way back to when it was first created in
a coinbase transaction. I say each ‘lump of money’ specifically, rather than ‘each Bitcoin,’ because
you don’t send bitcoins coin by coin, you just send a total amount. Let’s see how this works with an example.

Let’s start with an empty address and assume that you are friends with a Bitcoin miner who has just created a ‘lump’ of 12.5 BTC in a coinbase transaction when they successfully mined a block. The 12.5 BTC is like a single banknote in a physical wallet and needs to be spent in its entirety.
The miner takes pity on you because you have no bitcoins and wants to give you 1 BTC. So the miner creates a transaction spending those 12.5 BTC to two recipients: 1 BTC to you, and 11.5 BTC back to herself. You now have a 1 BTC ‘lump’ in your account.

Now it is your lucky day and a few other people give you BTC. In further separate transactions, you receive ‘lumps’ of 2 BTC and 3 BTC. So now you have 6 BTC in your wallet, in three lumps: 1 BTC, 2 BTC, and 3 BTC. Most people think in terms of ‘account balances’ (i.e., my account goes up and down) whereas Bitcoin ‘thinks’ in transactions (the transaction spends this money and puts it there). The lumps are the result or output of a transaction, and they are unspent because you haven’t spent them yet.

The transaction is created and signed by the sender using their private keys. This signed transaction is then sent to a node (bookkeeper) who validates it according to business rules (e.g., Does this UTXO - Unspent Transaction Outputs - exist? Has it been spent before?) and technical rules (e.g., How much data does the transaction contain? Is the digital signature valid?), and if found to be valid, the bookkeeper keeps this transaction in a pool of ‘unconfirmed transactions’ that they have heard about, called a mempool or memory pool. They then propagate this transaction to their neighbors in the network. Each neighbor follows the same process. Eventually a miner or block-creator picks up this transaction and decides whether they want to pack it into a block, and if so, they start mining the block. If the miner is successful in mining the block, they propagate the block to other miners and bookkeepers and each node records this transaction as confirmed in a block.

When people say Bitcoin is ‘peer-to-peer’ what do they mean? Firstly, data is sent between bookkeepers in a peer-to-peer way, i.e., directly and not via a central server. Transactions and blocks are sent between bookkeepers who are each as important in status as each  other - that is, they are peers. They use the internet to send data between themselves, instead of a 3rd party infrastructure like the SWIFT network used by major banks.

Second, Bitcoin payments are often described as peer-to-peer (i.e., with no middle man). But is this really true? Up to a point. A physical cash transaction is definitely peer-to-peer as there are no other actors other than the payer and the recipient. But Bitcoin also has intermediaries such as miners and bookkeepers. The difference between Bitcoin payments and bank payments is that, with Bitcoin payments, the intermediaries are non-specific and can act in lieu of each other, whereas traditional banks and centralised payment services are specific intermediaries. For example, if you have an account with HSBC you can’t instruct another bank such as Citibank to move your money, but in Bitcoin any miner can add your transaction to a block they are mining.

Peer-to-peer models of data distribution are like a gossip network where each peer shares updates. Peer-to-peer is in many ways less efficient than client-server, as data is replicated and validated many times, once per machine, and each change to the data creates a lot of noisy gossip. However, each peer is independent and the network can continue operating if some nodes temporarily lose connectivity. And because there is no central server that can be controlled, peer-to-peer networks are more robust and resistant to shutdown, whether accidental or deliberate.

In anonymous, and therefore untrusted, peer-to-peer networks, each peer needs to operate on the basis that any other peer could be a bad actor. So every peer needs to do their own homework and validate transactions and blocks, rather than trusting other peers. The network as a whole acts honestly, if populated by a majority of honest nodes.

What can and can’t miscreants do? The impact of a malicious bookkeeper is very limited. They can withhold transactions and refuse to pass them to other bookkeepers, or they can present a false view of the state of the blockchain to anyone asking them. A quick check with other bookkeepers will reveal any discrepancies. So the impact of a malicious miner is also actually quite limited.
Furthermore, a miner discovered to be enabling double spends could quickly find themselves cut off from the rest of the network if the rest of the network informally agrees to take action. Honest miners might agree not to build on blocks generated by a malicious miner.

Transactions are payment instructions of specific amounts of Bitcoin (UTXOs) from one
user-generated account (address) to another. The transactions are created using wallet software, authenticated with unique digital signatures, then sent to bookkeepers (nodes) who individually
validate them according to some well-known business and technical rules. The bookkeepers then add valid transactions to their mempool and distribute them to other bookkeepers that they are connected to.

Miners gather these individual transactions into blocks and compete with each other to mine their blocks by tweaking the block contents, specifically the nonce field, until the hash of the block is smaller than some target number. The target number is based on the difficulty setting at the time, which is derived from the time taken to mine the previous set of blocks to achieve a network-wide target frequency of one new mined block every 10 minutes. Miners receive a financial incentive in the form of new BTC and transaction fees which they may credit themselves, to compensate for spending resources to perform the competitive, repetitive hashing needed to create valid blocks.

The blocks link to each other in a unique sequence to form a ledger, the Bitcoin blockchain, that is recorded identically almost simultaneously on thousands of computers around the world that run Bitcoin software. If a Bitcoin transaction is not recorded on this blockchain, it is not a Bitcoin
transaction. It doesn’t exist. A Bitcoin transaction recorded outside this file does not form part of the ledger. There is no central authority who controls the ledger or who can censor specific transactions. Different blockchain platforms or systems work differently. If you relax or change the aims or constraints, the design of the solution can also change.

More on Ethereum

Ethereum is a highly successful public blockchain by adoption, mindshare, and the number of developers working on Ethereum smart contracts and decentralised apps. Vitalik Buterin described Ethereum as a concept in a white paper in late 2013. This concept was developed by Dr Gavin Wood who published a technical yellow paper in April 2014. Since then, the development of Ethereum’s software has been managed by a community of developers. A crowdsale took place in July and August 2014 to fund development, and Ethereum’s live blockchain was launched on 30 July 2015. You can see the very first block here: https://etherscan.io/block/0.

The development team was funded by an online sale of ETH tokens during July to August 2014 where people could buy ETH tokens by paying in Bitcoin. Early investors received 2,000 ETH per BTC, and this was gradually reduced to 1,337 ETH per BTC over the course of about a month, to encourage investors to invest early. Crowdsale participants sent bitcoins to a Bitcoin address and received an Ethereum wallet containing the number of ETH bought. A little over 60m ETH was sold this way for more than 31,500 BTC, worth about US$18m at the time. An additional 20% (12m ETH) were created to fund development and the Ethereum Foundation.

Vitalik Buterin, known as the creator of Ethereum, sits on the council of the foundation, and the foundation has a great deal of influence into the roadmap of Ethereum. In theory, Ethereum participants (miners, bookkeepers) don’t have to implement any software changes made by the
Foundation, but in practice they do. The Ethereum Enterprise Alliance is a non-profit industry group
launched in March 2017 whose goal seems to be to make Ethereum suitable for enterprise use.

Like Bitcoin, the price of Ether has also been through ups and downs. Ethereum’s crowdsale was at a price of 2,000 ETH to 1 BTC, and at the time (July-Aug 2014), 1 BTC was worth about $500, making 1 ETH =$0.25. At its peak in early 2018, the price of ETH almost touched $1,500. So, to date, Ether has been a highly successful cryptocurrency in terms of price.

Compared to Bitcoin, Ethereum has an additional use case. Its token ETH is often used in ICOs. A company that runs an ICO will create a smart contract on Ethereum which will automatically create tokens and assign them to Ethereum addresses who have sent Ether to a related smart contract. This means you can run an automated ICO on Ethereum, as long as investors pay in ETH or another token recorded on Ethereum.

Other Parts to Ethereum

Computers need to be able to calculate, store data, and communicate. For Ethereum to realise its vision as an unstoppable, censorship resistant, self-sustaining, decentralised, ‘world’ computer, it needs to be able to do those three things in an efficient and robust way. The Ethereum Virtual
Machine is just one component of the whole, the element which does the decentralised calculations.

Swarm is another component. This is for peer-to-peer file sharing, similar to BitTorrent, but incentivised with micropayments of ETH. Files are split into chunks, distributed and stored with participating volunteers.These nodes that store and serve the chunks are compensated with ETH
from those storing and retrieving the data. Whisper is an encrypted messaging protocol that allows nodes to send messages directly to each other in a secure way and that also hides the sender and receiver from third party snoopers.

Smart contracts mean different things depending on the blockchain platform. Ethereum smart contracts are short computer programs that are stored on Ethereum’s blockchain, replicated across all the nodes, and are available for anyone to inspect. There are two steps that are performed separately: uploading the smart contract to Ethereum’s blockchain; making the smart contract run.

You upload a smart contract by sending the code to miners in a special transaction. If the transaction is successfully processed, the smart contract will then exist at a specific address on Ethereum’s blockchain. You may then make it run by creating a transaction that says ‘Please run the smart contract found at address x’.

Once a contract has been uploaded, it behaves a bit like a jukebox. When you want to run it, you create a transaction pointing to the contract and supply whatever information the contract expects. You pay gas to the miner to run it. As part of the mining process, each miner will execute the
transaction, which involves running the smart contract.

The miner who successfully wins the proof-of-work challenge will publish the winning block to the rest of the network. The other nodes will validate the block, add the block to their own blockchains, and process the transactions, including running the smart contracts. This is how Ethereum’s blockchain gets updated, and how the state of the EVMs on each node’s machine is synchronised.
Ethereum smart contracts are described, ‘Turing complete’. This means that they are fully functional and can perform any computation that can be done in any other programming language.

Ethereum Accounts, Ether tokens

Bitcoin uses the word address to describe accounts. Ethereum uses the word account but technically they are also addresses. The words seem to be more interchangeable with Ethereum. There are two types of Ethereum accounts: accounts that only store ETH; accounts that contain smart contracts. Accounts that only store ETH are similar to Bitcoin addresses and are sometimes known as Externally Owned Accounts. You make payments from these accounts by signing transactions with the appropriate private key. Accounts that contain smart contracts are activated by a transaction sending ETH into it. Once the smart contract has been uploaded it sits there at an address, waiting to be used.

The issuance of Ether tokens is a bit more complicated than Bitcoin. The number of ETH in existence are: Pre-mine + Block rewards + Uncle rewards. Around 72 million ETH were created for the crowdsale in July/Aug 2014. This is sometimes called a ‘pre-mine’ as they were just written in rather than mined through proof-of-work hashing. These were distributed to initial supporters of the project and to the project team itself. It was decided that after the initial crowdsale, future ETH generation would be capped at 25% of the pre-mine total, i.e., no more than 18m ETH could be mined per year. Originally, each block mined created five fresh ETH as the block reward. Due to concerns about oversupply, this was reduced to 3 ETH, in a set of changes to the protocol called the Byzantium update, in October 2017 (block 4,370,000).

Some blocks are mined but do not form part of the main blockchain. In Bitcoin, these are called ‘orphans’ and are entirely discarded, and the miner of the orphaned block receives no rewards. In Ethereum, these discarded blocks are called ‘uncles’ and can be referenced by later blocks. If a later block references an uncle, the miner of the uncle gets some ETH. This is called the ‘uncle’ reward. The miner of the later block referencing the uncle also gets an additional small reward called an ‘uncle referencing’ reward.

The uncle reward used to be 4.375 ETH (7/8th of the full 5 ETH reward). It was reduced in the Byzantium upgrade to 0.625-2.625 ETH. The biggest difference between ETH and BTC token generation is that BTC generation halves approximately every 4 years and has a planned finite cap, whereas ETH generation continues to be generated at a constant number every year indefinitely. Like any other parameter or rule, however, this rule is subject to ongoing debate and can be changed if the majority of the Ethereum network agrees.

The Ethereum community hasn’t yet come to agreement about what happens to the rate of issue when Ethereum moves from proof-of-work to proof-of-stake. Some argue that perhaps the rate at which ETH is created should decrease, as the value will not have to subsidise competitive electricity usage.

In Bitcoin, the miner of a block receives the block reward (new BTC), plus transaction fees for transactions mined (existing BTC). In Ethereum, the miner of a block receives the block and uncle referencing rewards (new ETH), plus mining fees (gas amount x gas price) from transactions and
contracts that were run during the block.

How is Ethereum Different from Bitcoin?

When you download and run the Ethereum software, it creates and starts a segregated virtual computer on your machine called an ‘Ethereum Virtual Machine’ (EVM). This EVM processes all the Ethereum transactions and blocks, and keeps track of all the account balances and results of the smart contracts. Each node on the Ethereum network runs the same EVM and processes the same data, resulting in them all having the same view of the world. Ethereum can be described as a replicated state machine because all of the nodes running Ethereum are coming to consensus about the state of the Ethereum Virtual Machine.

Compared with Bitcoin’s primitive scripting language, the code that can be deployed in Ethereum and run as smart contracts is more advanced and approachable for developers. You can think of smart contracts as pieces of code run by all the nodes in Ethereum’s Virtual Machine. In Bitcoin, you can add a small amount of BTC as a transaction fee that goes to the miner who successfully mines the block. This compensates the miner for checking the validity of the transaction and including it in the block they are mining. Likewise, in Ethereum, you can add a small amount of ETH as a mining fee which goes to the miner who successfully mines the block.

The complication with Ethereum is that there are more types of transactions. Different transaction types have different computational complexities. For example, a transaction performing a simple ETH payment is less complex than a transaction to upload or run a smart contract. Therefore, Ethereum has a concept of ‘gas’ which is a sort of price list, based on the computational complexity of the different types of operation you are instructing the miners to make in your transaction.
Operations include searching for data, retrieving it, making calculations, storing data, and making changes to the ledger.

A basic transfer of ETH from one account to another uses 21,000 gas. Uploading and running smart contracts uses more gas depending on their complexity. When you submit an Ethereum transaction, you specify a gas price (how much ETH you are willing to pay per gas used) and a gas limit (the maximum amount of gas you will let the transaction use). Mining fee (in ETH) = gas price (in ETH per gas) x gas consumed (in gas). The gas price is the amount of ETH you are prepared to pay per unit of gas for the transaction to be processed. As with Bitcoin transaction fees, this is a competitive market, and in general the busier the network the higher the gas price people are willing to pay. In times of great demand gas, prices spike.

The gas limit you set provides a ceiling for how much gas you are prepared for a transaction to consume. This limit protects you from over-spending  on mining fees and you know that the maximum mining fee will be gas limit x gas price. This stops you over-paying if you accidentally
submitted a very complex transaction that you thought was simple.

Analogy time: driving your car 10km will use up a certain amount of fuel. If you run out of fuel, your car will stop before reaching the destination. The price of fuel is dependent on market conditions and can go up and down, but the price of fuel bears no relation to how far you may drive your car with it. Gas in Ethereum is similar. When you submit an Ethereum transaction, you specify how much gas you’re prepared to spend on making the transaction ‘work’ (this is the gas limit), and how much ETH you are prepared to pay the miner per unit of gas (this is the gas price). This results in a total amount of ETH you’re prepared to pay for the transaction to be processed.

The miner will execute the transaction and will charge you the amount of gas taken, multiplied by the gas price you specified. As with Bitcoin, the mining fee is up to you, and you need to bear in mind that you’re competing with other transactions which may have set a higher gas price. For example, a basic transaction of a transfer of ETH from one account to another uses 21,000 gas, so you can set the gas limit for this kind of transaction to 21,000, or higher; but it will only use 21,000 gas. If you set the gas limit below the amount of gas it takes to process the transaction, the transaction will fail and you will not be refunded your mining fee. This is like trying to make a journey with insufficient fuel in your tank; the fuel will be used, but you will not get to your destination.

Just like one dollar can be split into 100 cents, 1 BTC can be split into 100,000,000 Satoshi, and Ethereum too has its own unit naming convention. The smallest unit is a Wei and there are
1,000,000,000,000,000,000 of them per ETH. There are also some other intermediate names:
Finney, Szabo, Shannon, Lovelace, Babbage, Ada - all named after people who made significant contributions to fields related to cryptocurrencies or networks. Wei and Ether are the two most common denominations. Wei is usually used for gas price (a gas price of 2-50 Giga-Wei per gas is common, where 1 GWei is 1,000,000,000 Wei).

In Ethereum the time between blocks is around 14 seconds, compared with Bitcoin’s ~10 minutes. This means that, on average, if you made a Bitcoin transaction and an Ethereum transaction, the Ethereum transaction would be recorded into Ethereum’s blockchain faster than the Bitcoin transaction into Bitcoin’s blockchain. You could say Bitcoin writes to its database roughly every 10 minutes, whereas Ethereum writes to its database roughly every 14 seconds.

Currently, Bitcoin’s blocks are a little under 1MB in size whereas most Ethereum blocks are about 15-20kb in size. However, we should not compare blocks by the amount of data in them: while Bitcoin’s maximum block size is specified in bytes, Ethereum’s block size is based on complexity of contracts being run. It is known as a gas limit per block, and the maximum is allowed to vary slightly from block to block. So whereas Bitcoin’s block size limit is based on amount of data,
Ethereum’s block size limit is based on computational complexity.

Currently, the maximum block size in Ethereum is around 8 million gas. Basic transactions, or payments of ETH from one account to another (i.e., uploading or invoking a smart contract), have a complexity of 21,000 gas; so you can fit around 380 of those basic transactions into a block
(8,000,000 / 21,000). In Bitcoin, you currently get around 1,500-2,000 basic transactions in a 1MB block.

Because Ethereum’s rate of block generation is much higher than Bitcoin’s (250 blocks per hour on Ethereum vs six blocks per hour on Bitcoin), the rate of ‘block clashes’ increases. Multiple valid blocks can get created at almost the same time, but only one of them can make it into the main chain. The other one ‘loses,’ and the data in them is not considered part of the main ledger, even if the transactions are technically valid.

In Bitcoin, these non-mainchain blocks are called orphans, or orphaned blocks, and they do not form part of the main chain in any way and are never referenced again by any subsequent blocks. In Ethereum they are called uncles. Uncles can be referenced by a few of the subsequent blocks and although the data in them is not used, the slightly smaller reward for mining them is still valid.
Transactions that end up in orphaned blocks simply end up being remined on the main chain. They don’t cost the user any more gas, because the transaction in the orphaned block is treated as if it was never processed.

How is Ethereum Similar to Bitcoin?

Ethereum’s token is called Ether, shortened to ETH. This is a cryptocurrency that can be traded for other cryptocurrencies or other sovereign currencies, just like BTC. ETH ownership is tracked on
the Ethereum blockchain, just like BTC ownership is tracked on Bitcoin’s blockchain.

Like Bitcoin, Ethereum has a blockchain, which contains blocks of data (pure ETH payments as well as smart contracts). The blocks are mined by some participants and distributed to other participants who validate them. You can explore this blockchain on etherscan.io. Like Bitcoin, Ethereum blocks form a chain by referring to the hash of the previous block.

Like Bitcoin, the main Ethereum network is a public, permissionless network. Anyone can download or write some software to connect to the network and start creating transactions and smart contracts, validating them, and mining blocks without needing to log in or sign up with any other organisation.

When people talk about Ethereum they usually mean the main public permissionless version of the network. However, like Bitcoin, you can take Ethereum software, modify it slightly, and create private networks that are not connected to the main public network. The private tokens and smart contracts won’t be compatible with the public tokens though, just like private Bitcoin networks.

Like Bitcoin, mining participants create valid blocks by spending electricity to find solutions to a mathematical challenge. Ethereum’s PoW maths challenge, called Ethash, works slightly differently from Bitcoin’s, and allows more common hardware to be used. It is deliberately designed to reduce the efficiency edge of specialised chips called ASICs, which are common in Bitcoin mining. Commodity hardware is allowed to compete efficiently, and this allows for a greater decentralisation of miners. In practice though, specialised hardware has been created and so most blocks in Ethereum are created by one of a small group of miners.

On Ethereum’s roadmap there is a plan to move from electricity-expensive, proof-of-work mining, to a more energy-efficient, proof-of-stake mining protocol called Casper in a future release of the Ethereum software called Serenity. Proof-of-stake is a mining protocol in which your chance of creating a valid block is proportional to the number of coins (ETH) in your mining wallet - contrast this to proof-of-work, where your chance of creating a valid block is proportional to the amount of
computational cycles your hardware can crunch through.

How might this impact the community? For starters, this would dramatically reduce the energy footprint of the cryptocurrency. Miners will no longer need to consume electricity competitively in order to win blocks. On the other hand, some people think that proof-of-stake is less democratic, because those who already have accumulated a lot of ETH will have a higher chance of winning more blocks. So, the argument goes, new money will flow towards the wealthy, increasing the Gini
coefficient of Ethereum holders.

There are flaws in the ‘less democratic’ argument. With proof-of-work the high capital costs and expertise required mean that only a very small minority of people can actually make money mining, so it is not actually that democratic. Whereas with proof-of-stake, every ETH has an identical
chance of winning a block, so you can get started with much less capital. Think of it as an interest rate: if you have more money you get more interest, but at least those with small amounts of money can still get interest. Reducing the negative externalities of pollution caused by proof-of-work is a decent and honourable goal.

What is Ethereum?

The vision of Ethereum is to create an unstoppable, censorship resistant, self-sustaining, decentralised, world computer. To achieve this, Ethereum builds on the concepts we saw with Bitcoin. If you consider Bitcoin as trustless validation and distributed storage of (transaction) data,
Ethereum is trustless validation and distributed storage and processing of data and logic. Ethereum has a public blockchain running on 15,000 computers and the token on the blockchain is called Ether, currently the second most popular cryptocurrency.

Like Bitcoin, Ethereum is also a bunch of protocols written out as code which is run as Ethereum software which creates Ethereum transactions containing data about Ether coins (ETH) recorded on Ethereum’s blockchain. In contrast with Bitcoin, Ethereum transactions can contain more than just payment data, and the nodes in Ethereum are capable of validating and processing much more than simple payments.

On Ethereum, you can submit transactions that create smart contracts - small bits of general purpose logic that are stored on Ethereum’s blockchain on all of the Ethereum nodes. These smart contracts can be invoked by sending Ether to them. This is a bit like deploying a juke machine, then putting coins in to play music. When a smart contract is invoked, all the Ethereum nodes run the code and update their ledgers with the results. These transactions and smart contracts are run by all participants using a sort of operating system called a ‘Ethereum Virtual Machine’.

Ethereum’s blockchain can be interrogated using websites like etherscan.io. As with Bitcoin, there are also forks of the main Ethereum, such as Ethereum Classic, which is also a public blockchain. Each fork has a separate coin (Ethereum’s coin is denoted ETH whereas Ethereum Classic’s coin is denoted ETC). The forks have a shared history with Ethereum up to a certain point in time, after which the blockchains differ. Ethereum’s code can also be run as a private network, starting a new
blockchain with limited participants.

To participate in the Ethereum network, you can download some software called an Ethereum client, or you can write some yourself if you have the patience. Just like BitTorrent or Bitcoin, the Ethereum client will connect over the internet to other people’s computers running similar client software and start downloading the Ethereum blockchain from them to catch up with the latest state of the blockchain. It will also independently validate that each block conforms to the Ethereum protocol rules.

What does the Ethereum client software do? You can use it to: connect to the Ethereum network;
validate transactions and blocks; create new transactions and smart contracts; run smart contracts; mine for new blocks. Your computer becomes a ‘node’ on the network, running an Ethereum Virtual Machine, and behaves equivalently to all the other nodes. Remember in a peer-to-peer network there is no ‘master’ server and each computer is equivalent in status to any other.

Cryptocurrency Purchases

When you make up your mind to get involved with cryptocurrencies, the first step you must take is to buy the coins. As it is with every other investment, you must first have access to the tender and then use them to achieve success with your finances.

The most common place to buy crypto coins and trade with them is on an exchange. Exchanges are the places where you buy and sell crypto using fiat currencies, and there are various ways to ascertain how reliable the transaction is as well as its liquidity, spread fees, purchase and withdrawal limits, security, insurance, trading volume and user-friendliness. One of the very best exchanges you can use is Coinbase; it has a very user-friendly interface you can rely on when making a purchase. For you to transfer crypto coins from exchanges to your hardware wallet for long-term storage, you must do easy straightforward steps.

Make sure that you send only little amounts to test if the purchase process works before posting in bulk. If an error occurs in the process and you send huge sums, you might lose your coins and never regain them. There might be a small transfer fee charged at this point.

Some banks no longer allow users to utilize their credit card for crypto purchases, but there are still available options through which you can buy coins. If you are going to use Coinbase, you must first create an account and verify your identity then buy coins using your debit card.

Coinbase also has another company known as GDAX; a platform that gives users another idea of how crypto exchanges work. The platform has an intuitive interface with charting tools and trade history. These are the tools you will need as a trader to make sure you get the best out of your trade.

Bitfinex is a viral exchange that became popular in 2012; the website has been considered as the most advanced cryptocurrency trading platform currently. With an app that can be used by Android and iPhone, this exchange boost of three key features; exchange training, margin funding and margin trading.

Robinhood is quite a unique exchange that has a zero-fee feature and a very easy to use the platform. You can buy Bitcoin and Ethereum from your phone with no trading fees.

OKEx is very popular because it supports more than 145 cryptocurrencies. The platform has its cryptocurrency known as OKB, and it has experienced over $1.5 million in bitcoin future daily. This is one of the most trusted global cryptocurrency exchanges in the world.

Binance is one of the world biggest cryptocurrency exchange comprising wallet, labs, charity info etc. Binance has got its coin referred to as BNB, and it comes at a discount when there is a crypto-to-crypto payment.

Bitmex is a premier Bitcoin exchange that is based in Hong Kong; it is also the largest cryptocurrency according to market capitalization. According to reports, Bitmex has done over 2 billion USD transactions within 24 hours. The fact that it is an exchange that is easy to use makes it quite attractive for users and investors.

Purchasing cryptocurrencies is a step that makes you a full investor in crypto coins. You must have lessons from consistent trading that will aid your experience on this journey. While you trade huge amounts on trusted exchanges, test the other exchanges with little quantities until you are sure of their security and integrity.

What is Mining?

Mining is a process through which transactions for various cryptocurrencies are verified and added to the blockchain digital ledger. Mining is also known as crypto coin mining; altcoin mining or Bitcoin mining and it has raised interest as a topic and activity thus increasing the growth of crypto coins.

Every time a cryptocurrency transaction is done, there is a miner responsible for ensuring the authenticity of the information. When the details are verified the blockchain is updated with transaction details. The mining process entails a stiff competition between miners to solve complicated mathematical problems using a cryptographic hash function that is associated with a block containing the transaction data.

When a cryptocurrency miner cracks a code, he is rewarded. The reward is the privilege to authorize the transaction, and in return, the miner earns a small amount of cryptocurrency for himself. To maintain the competition with other miners the miner needs to have specialized hardware.

You can become a miner if you are interested in the process and want to earn some more cryptos. However, you should know that cryptocurrencies rise in popularity and value as such competition
increases. This means that organizations with more extensive resources and tools that most individuals cannot afford.

For you to start mining, you will need computer hardware that has a specialized graphics processing unit chip or an application-specific integrated circuit (ASIC). There is also a need for enough cooling means for the device, steady internet connection, a cryptocurrency mining software package and the membership of an online cryptocurrency exchange as well as an online mining pool.

Miners are record-keepers for cryptocurrency communities, and they use highly technical methods to verify the completeness, security and accuracy of currencies block chains. Miners create with new cryptocurrency units, and they can get up to 1% of the transaction value that is paid by buyers.

Though mining produces new cryptos most of the cryptocurrencies are designed to have a finite supply (which is a guarantee of value). This means that miners get fewer new units per new blockchain. The last Bitcoin unit will be mined in the 22nd century, so this gives miners enough time to get the most out of the mining experience for now.

Mining presents an opportunity for individuals and organizations to enjoy some benefits of being a part of the cryptocurrency process. With mining, you also gain insight into the coins that are trending and the best choices to make when investing. Miners always have first-hand information on the coins people can utilize and the coins that are vulnerable; this is a useful feature that makes mining a beautiful aspect of cryptocurrency.

What is Cryptocurrency?

Cryptocurrency refers to digital money; this is a type of currency that can be used to carry out transactions between individuals regardless of their location. Cryptocurrencies also referred to as virtual currencies were created by private individuals or groups, and they are not regulated by national governments. Cryptocurrencies are considered an alternative means of financial exchange that exist beyond the boundaries of monetary policy.

With cryptocurrencies, cryptographic protocols and complex codes are used to encrypt sensitive data transfers. Cryptocurrency developers build protocols on advanced mathematics and engineering making it difficult for the system to be duplicated or hacked into. The protocols also protect the identities of crypto users thus making transactions and fund transfer challenging to trace to specific groups.

Cryptocurrencies work with a decentralized control; this means that the supply and value systems are controlled by the activities of users and complex protocols built with codes. No central regulatory authorities are monitoring the process. Miners can also leverage on the computing power to record transactions while creating new cryptos paid by other users.

Additionally, cryptocurrencies can be exchanged for fiat currencies online. Every coin has a variable exchange rate with the currencies in the world such as Dollars, British Pound, European Euro etc. You should know that cryptocurrencies are vulnerable to hacks and thefts perpetrated by
cybercriminals.

However, there is a finite supply of cryptocurrencies. There are specific instructions on the source codes that outline the exact number of units that will ever exist. It has become increasingly difficult for miners to produce crypto units and when the limit is reached new cryptos will no longer be produced.

One feature of cryptocurrency is the fact that transactions can be done speedily across borders. With fiat currencies, there are no immediate assurances of recipients getting funds, especially concerning international payments. These particular challenges with fiat are taken care of with crypto coins as it offers a safer, faster and more reliable way of transacting funds. There is also the elimination of third parties with transactions as the numerous paperwork and bankers needed to make transfers possible with fiat aren’t required with cryptocurrencies.

Cryptocurrencies work effectively through the source codes and technical controls that support its systems. There are several types of crypto coins available currently in the market. The Bitcoin created an avenue for these coins to thrive as such other types of coins has made the market much more flexible. Users now have a pool of coins to choose from before making investment decisions.

Before you decide to invest with any coin, you will have first to carry out research first and ensure that you are making the right decision. The cryptocurrency market is a very volatile one that demands a lot of caution. Start investing, trading or buying with tiny sums of money. Starting small will help you study the market, learn and make progress as you trade.

Cryptocurrencies are quite volatile, but they have a lot of benefits for investors who can be smart with their investments. Before we get to the interests of cryptos, you should understand the importance of being careful with money before investing. Unlike other investment options, if you lose cryptocurrencies, you lose them for them. So, it is essential that you use the money you can let go of smoothly before making the investments. Always utilize money that wouldn’t cause a strain on you financially should anything go wrong. By being mindful with your crypto investments will help you make the right decisions with the right coins.

Most cryptocurrencies are crafted for deficiency; this is a feature that shows the extent of units that will ever exist. Crypto coins are very valuable tenders, and recently, they have proven to compete in terms of value with fiat. They do offer inflation protection which is unavailable to fiat currency users.

Cryptocurrency transactions are speedy. The average crypto transfer that is done on an international level is faster than a domestic transfer done on the same level. When you transfer funds to someone else, you will see the transaction get confirmed, and the recipient receives it within minutes.

There are two significant features of cryptocurrencies that make it very attractive for users; these are privacy and anonymity. Cryptocurrency users can employ the use of pseudonyms that are not connected to their personal information or accounts of users. There are layers of protections made possible by the crypto-security which ensures that personal details are not utilized nor compromised.

In some countries, it is always easy for those in authorities to freeze the assets and private bank accounts of very wealthy individuals especially those who are in violation of the ruling party’s decisions. Cryptocurrencies are immune from authoritarian caprices, the funds and records for cryptos are stored in various locations around the world. So, this means that it will be impossible for the government to take over the assets or investment of crypto users.

The security of cryptocurrency makes it easier for payment to be authenticated thus eliminating the need for other payments processes that attract extra charges. Cryptocurrency charges are usually less than 1% of the transaction value, and this competes successfully against the 1.5% to 3% paid for credit card processors and PayPal.

International transactions are not handled differently from domestic ones. Deals with cryptos are free or come with a nominal fee regardless of where the senders and recipients are located. Users of fiat currencies always must pay some special fees for international transactions, and at the end of the day, such transfers can be delayed.

With cryptocurrencies, there are no third parties. You get to transact with the recipient of your funds directly thus eliminating the stressful processes that are caused by third parties in banking institutions. This feature of the absence of third parties makes it possible for investors and users of crypto coins to trust the process even more and experience seamless transactions. The benefits of cryptocurrencies make it a desirable investment option. With cryptocurrencies, you can get the best out of the most exciting investment offer that is taking over the world.

Forex Trading (3)

The Forex trades 24 hours a day, and any time during those 24 hours you can turn on your computer and sit down to trade. The most important first step of success in trading currencies is determining market direction. The fact is if you want to make money currency trading, you will have to take a bullish or bearish position. One or the other - never both. You cannot make money taking a bullish and bearish position at the same time; you would be in a net zero position, making and losing the same amount of money with every pip movement.

People trade according to their personalities. Aggressive people love to scalp, while passive people prefer long-term trading. Figuring out your trading style is very important before you trade. However, whether you are a passive trader or an aggressive trader, you need to be able to determine market direction before you trade. You need to learn how to find the current trend before you enter the market, because you need to trade in the direction of the trend at all times. Do not fight the trend. Fighting a trend is like trying to swim upstream through violent forceful rapids. It doesn’t work. Traders can make many mistakes. The biggest mistake is trading in the wrong direction.

As the market moves, it will only move in one of three directions: up, down, or sideways. When it moves in any direction, it waves. Those waves become the emotional enemy of most traders. For some traders, it can take years to trust those waves and ride them to their end target. The more information you can gather as to why the market should bounce in a certain direction at a certain price point, the higher the probability for success.

In the currency market or on the Forex, each country around the world has approximately 20 major fundamental announcements annually for investors to monitor. The importance of the announcements shifts as the economy shifts. Governments report the health and overall economic well-being of a country to investors via fundamental announcements, which are the economic indicators of the country.

You can keep up with all major government reports that affect the Forex at www.markettraders.com or www.forextips.com, under the heading “Economic Reports”, or in leading newspapers, such as the Wall Street Journal, the Financial Times, or the New York Times. Although newspapers are great resources for information on fundamental announcements, the Internet is now the number one source for investors.

When a fundamental announcement is about to occur, investors usually stop buying or selling right before the announcement. If the news is good, prices may go up, and if it is bad, prices may go down. Either way, to play it safe, they usually wait until the announcement is read before they take
a position in the market. Within seconds after the announcement is read, a frenzy of buying or selling starts to take place, potentially creating a dramatic price change in only a couple of seconds.

Most fundamental announcements create a dramatic change in the market. The only thing in life that remains consistent is change. Currencies may aggressively react to fundamental announcements or they may not. Successful and educated traders respond, rather than react, to those announcements. They are well prepared and ready to switch from being a bull to becoming a bear. Trading on the Forex with or without fundamental announcements can create an environment where there are unexpected surprises, creating trading ranges of perhaps 150 to 300 pips in a single four- to five-hour trading session.

Your future depends on many things when you trade. In this market, it depends mostly on you - your education, your emotions, and what you do with them.

Forex Trading (2)

Price interest points, commonly known as pips, are usually expressed in decimals. Depending on the pair of currencies being traded, pips are usually the last numbers of the decimal.

A trader’s financial reward is measured in pips, which are then converted into dollars. Most traders on the Forex trade with what is called leverage. This is borrowing or using a broker’s money to trade. You acquire leverage by posting a bond or a deposit with a Forex broker who then allows you to trade using the broker’s money. When a trader executes a trade on the Forex, the trader is buying or selling currency in units referred to as lots (which is a set quantity of money). There are typically two types of lots that traders will trade. A $100,000 unit is called a regular lot, and a $10,000 unit is called a mini-lot. When you buy and sell a regular lot, you get paid $10.00 a pip versus $1.00 a pip on the mini-lot.

The average minimum deposit for trading with leverage is 1 percent, which means that for every $100,000 lot you trade, you must have $1,000.00 in your margin trading account. For mini-lots, you will need a minimum of $100.00 in your margin trading account on deposit. Trading can be a worthy full-time profession or a great way to earn secondary income.

The purpose of a broker is to facilitate the trade. After you open a trading account, the broker gives a trader the right to execute transactions, which includes certain rights and privileges, including the right to be a bull or a bear. The terms bull and bear were created by traders in the stock market in
the early 1900s to identify the direction someone was trading in the market. The term bull was derived from the way in which bulls attack or charge, moving upward. In contrast, bears move downward when they attack or charge.

Bulls, therefore, resemble a buying market, because they believe prices will continue to move upward, or rise, whereas bears resemble a selling market, because they believe prices are going move downward, or fall. Every trader has to make a decision to be either a bull or a bear before entering the market. Bulls enter the market buying (first) and exit selling (second). Bears do the opposite: they enter selling (first) and exit buying (second). To make a profit in the market, you must always buy low and sell high. Both bulls and bears are trying to do that; bears just reverse the transactions.

One of the most important and productive habits you can adopt is properly educating yourself about the Forex before you begin trading. If you move forward without the proper education, be prepared to lose your money, much like in a casino. You will be trading off your “gut feel” and emotion and placing yourself in the same position as that of a reckless gambler. Just like the casino, the market will be there to take all your money.

Bulls and bears fight aggressively to make the market go their way. For the Forex market to trade, there must be someone buying and someone selling simultaneously. In other words, one trader must be a bull going long and one must be a bear going short. Both traders are adamant about their positions, despite the fact that they rely on extremely accurate information, often from the same sources. What is amazing is they are adamant about the market going in opposite directions. In the market, the bulls and bears have different characteristics, yet they want the same thing - they both want to make a profit.

Bulls and bears enter the market buying or selling in hopes that more bulls or bears will enter after them, giving the market what is called bullish or bearish strength - creating a greater rally or greater dip. If their counterparts step in, the market will begin to move in their direction. Take the bulls, for
example. If you wanted to be a bull, you would enter the market and, if your analysis was right, more bulls would enter and the market would begin to rally and reach new highs, or what is called higher highs. Most of the time, after the bulls achieve a new high, frequently prices start to retrace, or fall back down.

Bulls and bears keep track of all the previous highs and lows, no matter how far back they go. When bulls achieve a new high - higher than a previous high - they do “scoring a point,” and after the point is scored, the market pulls back. Conversely, the bears, too, are trying to score points by taking the market lower and making lower lows. When the bears make a lower low, lower than a previous low, they “score a point,” which is followed by a pullback. Bulls and bears play this eternal game 24 hours a day, seven days a week. Bulls fight for control, proving their strength  by making new highs, and bears fight for the opposite.

Resistance occurs when the bulls move the market to a new high that is higher than a previous high and the bears jump in aggressively selling, attracting more sellers than buyers, interrupting the rally and creating a retracement or pullback from that high. The new high becomes the new level of resistance, which is defined as a market high or a price level where bears start selling enough to interrupt and reverse a rally.

Support occurs when bears move the market to a new low that is lower than a previous low and the bulls jump in aggressively, buying to support the price and attracting more buyers than sellers. That increased buying interrupts the dip and creates a retracement or pullback from that low. The new
low becomes the new level of support, which is where bulls start buying enough to interrupt and reverse a dip. Bulls on the Forex are the buyers who are looking for opportunities to buy a currency pair at a low price in order to sell it at a higher price for profit. Bears want to take the market to lower levels, enabling them to sell high and buy low, which is nothing more than buying low and selling high backwards.

Forex Trading (1)

Forex is an acronym for foreign exchange, a market where people exchange the currency of one country for the currency of another in order to do business  internationally. Typical situations in which such currency exchange is necessary include payments of import and export purchases and the sale of goods or services between countries. Forex is also called the cash market or spot interbank market.The spot market means trading on-the-spot, at whatever  the price is at that moment.

Prior to 1994, the Forex retail interbank market for small individual speculative investors or traders was not available. A speculative investor, or speculative trader, is one who looks to make a profit on price movement in the market and is not looking to hold onto any currency long-term. But with the average minimum transaction size of $1,000,000, smaller traders were all but excluded from participation in this market. Then in the late 1990s, retail market maker brokers (companies that facilitate the trades for speculative traders) were allowed to break up the large interbank units and
offered individual traders the opportunity to participate in the Forex market as we know it today.

Forex is considered the largest financial market in the world. The term market refers to a place where buyers and sellers are brought together to execute trading transactions. More than $1.5 trillion U.S. dollar is traded daily on the Forex. By comparison, $300 billion dollars is traded daily on the U.S. Treasury bond market and $100 billion dollars is traded daily on the U.S. stock market, for a total of $400 billion dollars per day. Forex trades nearly four times that volume daily, exceeding the daily combined activity of all the other financial markets.

Forex has no physical location - transactions are placed via the Internet or telephone - but is composed of approximately 4,500 international world banks and retail brokers. Individual traders wanting to profit by speculating on price changes can only access this market through a Forex broker, such as I-TradeFX.com. It is a good practice of a speculative trader to only deal with Forex brokers that are regulated by the governmental bodies in their respective countries.

Trading currencies involves the fluctuation of one currency in relation to another. That is the main difference between trading currencies and stock trading - you always have to deal with two instruments, or currency pairs, whereas in stock trading you only deal with one instrument. The definition of a currency pair, or currency cross, is trading one currency for another currency, and you need a currency pair to execute a trade on the Forex. Speculative currency trading, just like speculative stock trading, involves exchanging one currency for another in anticipation of a price change in your favor.

There are two types of traders on the Forex: consumer traders and speculative traders. A consumer trader wants long-term ownership and is not as concerned with daily price movements, whereas a speculative trader is only concerned with daily price movement, as that is where the profit potential is. Speculative traders are also called scalpers - they are trying to scalp a profit in a small price movement. Long-term position traders enter the market and stay in for a week, a month, or years. Short-term, or day traders, will enter the market for 5 minutes, 30 minutes, or even 4 hours, and then exit, but they are usually in and out within a 24-hour period.

Although brokers will assure you that Forex trading is commission-free,  it is important that you understand there still are costs involved. That cost is called the spread, which is what you will be charged to get access to the Forex market. The spread is the difference between the buy price and
the sell price of a specific currency.

Envision attending an auction where there are several buyers for a particular item. The auctioneer hopes to sell the item for $10.00 and has asked for bids. One bidder offers $4.00. The difference between the $4.00 bid and $10.00 asking price is $6.00, which is called the spread. As bidding gets closer to the asking price, the spread tightens up. When the bidding gets to $9.95, there is a $0.05 spread, and when the bidders agrees to buy it for $10.00 and the seller agrees to sell it, you have a transaction. There are spreads between all currency pairs that are traded, and they average 3 to 6 price interest points, or pips, on the major world currencies (which are considered to be the U.S. dollar [USD], the British pound [GBP], the Japanese yen [JPY], the European euro [EUR], and the Swiss franc [CHF]). The value of a pip averages about $10.00. Currencies from small countries are called off-brand currencies and can have spreads as much as 500 to 1,000 pips. The broker retains the spread, which is the difference between the buy and the sell price. This is done when a trader enters a trade and upon execution of the trade the spread, should the trade not go your way, is deducted from the trader’s account. Example: If the sell price is 4 pips lower, or $40.00 less, than the buy price, and you buy a currency and immediately go to sell it without any movement in your favor, you would lose $40.00, or 4 pips. To break even, the market would need to move up 4 pips in your direction. To make a profit, the market would need to move more than 4 pips in your direction.

What is Blockchain Technology?

You will see the phrase ‘blockchain technology,’ or commonly just ‘blockchain,’ in many different contexts, and it can be confusing because different people use the words to mean different things.
ETH is the Ethereum blockchain, a reference to the public Ethereum transaction database - but you can also create private Ethereum blockchains by simply running some node software on some
machines and having them connect to each other. Your private Ethereum network will create its own blockchain, and the miners will mine ETH just like in the public network. Your private ETH will not be compatible with the public ETH because your private Ethereum network has a different history from the public version.

All blockchains are distributed ledgers, but you can have distributed ledgers that don’t have blocks of data chained together and broadcast to all participants. Blockchain technologies are the rules or standards for how a ledger is created and maintained. Different technologies have different rules for participation, different network rules, different specifications for how to create transactions, different methods of storing data, and different consensus mechanisms. When a network is created, the blockchain or ledger of record is initially empty of transactions.

Some example blockchain technologies are: Bitcoin, Ethereum, NXT, Corda, Fabric, and Quorum.
Some blockchain technologies operate one way, others operate a slightly different way and you can have multiple instances of any blockchain technology, in separate ledgers.

Notable Cryptocurrencies and Tokens

There are many cryptocurrencies that either exist as blockchains in themselves or as tokens recorded in smart contracts on other blockchains, usually on Ethereum’s public chain. Onchainfx.com and Coinmarketcap.com do a good job in cataloguing these if they trade over a certain amount of volume per day.

Currency tokens (Primarily used as Money/Store of Value):
• Bitcoin (BTC) - the original cryptocurrency and store of value, created by pseudonymous Satoshi Nakamoto, launched in 2009.
• Ripple (XRP) - a token used to move value across the Ripple network, designed as a currency that was initially described to compete against banks then to be used by banks to improve foreign exchange and international payments. Created in 2012 by OpenCoin (rebranded to Ripple Inc in 2015).
• Litecoin (LTC) - an early Bitcoin clone with faster blocks and a different mining proof-of-work. Called ‘Silver to Bitcoin’s Gold’ by its founder Charlie Lee who announced that he sold all of his Litecoin in Dec 2017.
• Zcash (ZEC) - a privacy focused coin using advanced cryptography called zero knowledge proofs to shield transaction data. Created by Zooko Wilcox-O’Hearn in 2016.
• Dash (DASH) - another privacy focused coin, created as XCoin in 2014 by Evan Duffield, renamed Darkcoin, renamed DASH.
• Monero (XMR) - yet another privacy focused coin, uses ring-signatures to obscure payer and recipient addresses. Launched in 2014.

Platform tokens (i.e. those used as gas to power smart contracts):
• Ethereum (ETH) - the original smart contract enabled blockchain platform, created by a Vitalik Buterin and launched in 2015.
• Ethereum Classic (ETC) - fork of Ethereum which didn’t bail out DAO investors. Proponents like immutability. Forked from Ethereum in July 2016.
• New Economy Movement (NEM) - a blockchain with ‘smart assets’.
• EOS (EOS) - a new blockchain structure designed to be more scalable than Ethereum.

Utility tokens (Built for Specific-Use Networks):
• Augur (REP) - a token used for betting on things on a ‘prediction market,’ i.e. a betting platform. Launched in 2015 from San Francisco.
• Siacoin (SC) - a token used for paying for encrypted decentralised file storage. Launched in 2015.
• Golem (GNT) - a token used for paying for decentralised computations & calculations. Launched in 2016.
• Gnosis (GNO) - another prediction market coin. Launched in 2016 from Germany.

Brand tokens (Specific-Use on Single Entity’s Network):
• Basic Attention Token (BAT) - Token used to make micropayments in a web browser called Brave. Launched in 2017.
• Civic (CVC) - Something to do with identity verification on the blockchain. I hope it solves the problem of having too many passwords. Launched in 2017.
• Steem (STEEM) - Token used for making micropayments on social media and forum sites. Launched in 2016.

This is just a short list of the many tokens and platforms that exist today.

Cryptocurrency Forks

What is a cryptocurrency fork? When people use the word fork they can mean two different, but related things: a fork of a codebase; a fork of a live blockchain (a chainsplit). The difference is whether you’re creating an entirely new ledger, which is achieved by forking a codebase (the code behind the node software), or creating a new coin that has a shared history with an existing coin by forking a blockchain.

A fork of a codebase in general is where you copy the code of a particular program so you can contribute to it or adapt it. This is encouraged in open source software, where code is deliberately shared for anyone to tinker with.

In cryptocurrency, this means that you copy the code behind a popular cryptocurrency node software (e.g., Bitcoin Core), maybe tweak it and change a few parameters, and then run the code to create an entirely new blockchain starting from a blank ledger. You’d say you forked Bitcoin’s code to create a new coin. This is how many alt-coins (alternative coins) were created in 2013-14. Litecoin for example was created using a copy of Bitcoin’s code with some parameters changed, including the speed of block generation and the kind of calculations that the miners had to in the proof-of-work challenge.

The key here is that, when you run the new code, you create a new ‘empty’ blockchain ledger from scratch - with an entirely new Genesis block. In the popular open source code-sharing platform GitHub, you can easily fork (copy) a project’s code with a few clicks of a mouse. You then have your very own copy which you can edit. These codebase forks are common and encouraged in open source technology development, as they lead to innovation.A fork of a live blockchain, better described as a chainsplit, is more interesting. Chainsplits can happen by accident or on purpose.

An accidental chainsplit is when there is an uncontentious upgrade to the blockchain software and some proportion of the network omits or forgets to upgrade their software, leading to a number of blocks being produced by them that are incompatible with the rest of the network. According to BitMEX research, this has happened a few times in Bitcoin’s history, with three identified chainsplits lasting approximately 51, 24, and 6 blocks, in 2010, 2013, and 2015, respectively. So forks can occur even when there is no contention over rule changes, creating some temporary confusion as to the ‘real’ state of the blockchain during the period where there is more than one candidate blockchain. Accidental chainsplits tend to be resolved quickly with the small proportion of participants upgrading their software and discarding the incompatible blocks.

A deliberate chainsplit occurs when a group of participants of a live network thinks that things should be done a different way from the rest of the participants, and runs some new software with changes to the protocol rules to create a new coin that has a shared history with the old coin. This deliberately splits the chain at a specific block according to a well communicated plan. Deliberate chainsplits can be successful, with both assets continuing to live and develop, or fail, where there is not enough participatory interest and the value of the token drops to zero, and stops being mined.

To execute a successful deliberate chainsplit, you need to publicly rally and persuade a group of miners, bookkeepers, exchanges, and wallets that your new rules are better than the existing rules. They will need to agree to support your new coin, creating a community supporting a new coin that people can buy and sell, store and use. When the chain splits, you have created a new coin with different protocol rules but which has a shared history with the original coin. Anyone with a balance on the blockchain before the split now has a balance in two different coins after the split.
So the determination of whether something is a protocol upgrade, a failed fork, or a successful fork is really about who chooses to adopt the new rules. If new protocol rules are adopted by the vast majority of the community, then it is called a protocol upgrade, and those who don’t upgrade have a choice to maintain the old rules as an attempted fork or to join the majority. If new protocol rules are adopted by very few participants, you have an unviable fork which may ultimately fail. If new protocol rules are adopted by enough participants to maintain a community and interest then it is a successful cryptocurrency fork.

Sometimes the terms hard and soft fork are used. These terms refer to changes in the rules about what constitutes a valid transaction and block. A soft fork is a change in the rules that is backwards compatible, meaning that blocks created under the new changed rules will still be considered valid by participants who didn’t upgrade. A hard fork is a change in the rules that is not backwards compatible, so that if some participants fail to upgrade, there will be a chainsplit. In practice, if changes to protocol rules are tightened or more constrained, this results in a soft fork, whereas if consensus rules are loosened, then this is a hard fork.

Forks are trendy. It is easier to take something that is proven to already work than to build something from scratch. And, as cryptocurrencies tend to be open source, it is legal to copy the code, tweak it, and run it. Community building with a forked chain is easier than building a new blockchain too. Anyone who had a balance on the original chain will also have a balance on the new chain, so they are more likely to support a fork where they have a balance, rather than support a new blank blockchain. People saw that Bitcoin Cash successfully forked and retained some currency value, so this spurred many copycats to try the same. However, there is only so much energy in the cryptocurrency space, and there seems to be some ‘fork fatigue’. Some commentators predict that many future forks will fail.