Cryptocurrency Basics

Ross Nicoll bio photo By Ross Nicoll

I get a lot of questions through various mediums, and while I can’t read all of them let alone respond, I do try to see what comes up frequently. This post isn’t going to tackle individual questions, but instead will try to introduce ideas in cryptocurrency to help people better understand how it all works.

##Decentralisation means no-one is in control

One of the key tenets of Bitcoin and most blockchains is that they are decentralised, which is to say, there is no single person or organisation running them. The advantages to this is you can’t find your payment system has blocked you because of trolls, such as recently happened to ASMR creators, or if you’re a shop you can’t find PayPal has refunded a customer despite you shipping the item (as has happened to a friend of mine).

The disadvantage to this is no-one can reverse transactions, or tell you why your money moved, or block scammers.

You need to be comfortable with this, and understand the risks taken. You can use an escrow service as part of a transaction in order to have a mutually trusted third party handle contested payments, but you need to decide to do so and agree on that third party. If you’re curious you can read more on how this works (via Quora).

##Someone has to pay for the infrastructure

We get a lot off questions about the Dogecoin block reward, as there’s no set date for when it will reduce to zero (unlike Bitcoin). So the challenge is that miners have hardware and electricity costs that need to be paid. This is done via block rewards (newly created cryptocurrency) or transaction fees (which are awarded to the miner who creates the valid block). For Bitcoin the block reward amounts to about $80,000 USD per block. For Dogecoin it’s more like $3,000 per block. Dogecoin creates 10 times as many blockers, but even taking that into account we pay about 1/3rd of Bitcoin’s block rewards. We also charge a tiny fraction of their transaction fees; $0.005 for Dogecoin vs $5 for Bitcoin.