A cryptocurrency is a digital asset that uses cryptographic encryption to guarantee its ownership and ensure the integrity of transactions, and control the creation of additional units, that is, prevent someone from making copies as we would, for example, with a photo. These coins do not exist in physical form: they are stored in a digital wallet.

Cryptocurrencies have several differentiating characteristics with respect to traditional systems: they are not regulated or controlled by any institution and they do not require intermediaries in transactions. A decentralized database, blockchain or shared accounting record is used to control these transactions.

In line with regulation, cryptocurrencies are not considered a means of payment, they do not have the backing of a central bank or other public authorities and they are not covered by customer protection mechanisms such as the Deposit Guarantee Fund or the Fund Investor Guarantee.

Regarding the operation of these digital currencies, it is very important to remember that once the transaction with cryptocurrencies is carried out, that is, when the digital asset is bought or sold, it is not possible to cancel the operation because the blockchain is a record that does not allow deleting data. To «reverse» a transaction it is necessary to execute the opposite.

Since these coins are not physically available, you have to resort to a cryptocurrency digital wallet service, which is not regulated to store them.

A digital purse or wallet is actually a software or application where it is possible to store, send and receive cryptocurrencies. The truth is that unlike a physical money purse, what is really stored in wallets or digital purses are the keys that give us ownership and right over cryptocurrencies, and allow us to operate with them. In other words, it is enough to know the keys to be able to transfer the cryptocurrencies, and the loss or theft of the keys can mean the loss of the cryptocurrencies, without the possibility of recovering them.

There are two types of purses: there are hot and cold ones. The difference between the two is that the former are connected to the internet, and the latter are not. Thus, within the hot wallets we find web wallets, mobile wallets and desktop wallets, the latter only if the computer is connected to the internet. On the contrary, within cold wallets there are hardware wallets and paper wallets, which is simply the printing of the private key on paper.

These custodial services are not regulated or supervised.

The value of cryptocurrencies varies depending on supply, demand, and user engagement. This value is formed in the absence of effective mechanisms that prevent its manipulation, such as those present in regulated securities markets. In many cases, prices are also formed without public information to support them.

Cryptocurrencies work through the shared ledger or blockchain. This technology provides them with a high security system with the capacity to prevent, for example, that the same digital asset can be transferred twice or that it is falsified. Blockchain technology works like a large ledger where huge amounts of information can be recorded and stored. All of it is shared on the network and protected in such a way that all the data it houses cannot be altered or deleted.

This concept refers to the process necessary to validate the operations carried out through this type of digital assets. For example, if we take the practical case of a bitcoin currency: its mining would be based on the validation and recording of transactions in the blockchain registry.

In short, mining cryptocurrencies means successfully solving the mathematical problems that arise. The miners who have carried it out obtain cryptocurrencies in exchange.

To create cryptocurrencies, it is crucial to have knowledge in cryptography, or at least know how to program, in that case, to be able to clone code from another cryptocurrency, and thus be able to create it. Currently, there are thousands of cryptocurrencies, among which we find, for example, bitcoin or ether.

The answer is easy and forceful: yes, there is. Although in everyday language they are used as synonyms, they are not the same and there is often confusion with these terms and their definitions.

Tokens are digital assets that can be used within the ecosystem of a given project.

The main distinction between tokens and cryptocurrencies is that the former require another blockchain platform (not their own) to function. Ethereum is the most common platform for creating tokens, mainly due to its smart contract function. Tokens created on the Ethereum blockchain are generally known as ERC-20 tokens, such as Tether.

There is also another platform to create tokens, this is the Binance smart chain, known as BEP-20, and in which LADI has been created

The purpose of tokens is also different from cryptocurrencies, although they can also be used as a means of payment. For example, many tokens are created for use within decentralized applications (DApps) and their networks. These are called «utility tokens». Its main intention is to grant the holder access to the project, as with the BAT (Basic Attention Token). The BAT is an ERC-20 token (which means that its blockchain platform is Ethereum) made to improve digital advertising. Advertisers buy ads with BAT tokens, which are then distributed to publishers and browser users as compensation for hosting and display ads, respectively.

Since you will come across this word many times while researching cryptocurrencies, it helps to keep a few common connotations in mind. In addition to the general definitions in the previous section, there are also categories of cryptoassets that actually have the word «token» in their name. These are some examples:

DeFi Tokens In recent years, a new world of cryptocurrency-based protocols has emerged whose objective is to reproduce the functions of the traditional financial system (loans, savings, insurance and exchanges). These protocols issue tokens that perform a wide variety of functions, but can also be traded or held like any other cryptocurrency.

Control tokens These specialized DeFi tokens provide those who have them with voting power in the future of a protocol or an application that, being decentralized, does not have a board of directors or any other central authority. For example, Compound, the popular savings protocol, issues tokens called COMP to all users. This token gives holders the ability to vote on how Compound should be updated. The more COMP tokens you have, the more votes you will have.

Non-fungible tokens (NFTs) NFTs represent the ownership rights of a single real or digital asset. They can be used to make it more difficult to copy or share a digital creation (a problem that anyone who has visited a torrent site full of the latest movies and video games will know about). They have also been used to broadcast a limited number of digital works of art or sell unique virtual assets such as rare objects in a video game.

Security tokens Security tokens are a new class of assets whose objective is to be the crypto equivalent of traditional securities such as stocks and bonds. Its main use is to sell shares to a company (in a very similar way to which shares or parts of it are sold in traditional markets) or carry out other ventures (for example, buying and selling of real estate) without the need for a broker. Securities tokens have been reported to be both well-known and out-of-the-box companies as a potential alternative to other fundraising methods.

Cryptocurrency burning refers to the withdrawal from circulation of existing digital currencies or tokens. It is relatively common in the world of cryptocurrencies.

This process is carried out by the creators themselves, in order to eliminate a certain number of tokens from circulation and achieve certain effects on the value of the cryptocurrency and token.

There are several reasons behind the token burning process, but the most important one is usually related to deflation. This means that currencies are burned in order to curb inflation rates.

Some more reasons we found for burning cryptocurrencies are:

Encourage long-term commitment

The main reason coins burn is that they encourage long-term commitment and time spent on the project. Therefore, this allows greater stability of the prices of cryptocurrencies and tokens, since long-term investors do not seek to sell or spend their coins in the short term.

Improve spam protection

The token burning mechanism behaves as a form of protection against distributed denial of service (DDOS) attacks. Therefore, this prevents spam transactions from clogging the network. Normally, the burning of coins involves a cost for the execution of a certain transaction, so some projects have integrated a protection mechanism in which a small part of the amount sent is automatically burned.

Increase in the price of the currency

In general, newly created coins experience a strong appreciation, solely due to the very fact of the burning of coins. Whenever developers create a cryptocurrency, stakeholders invest in it, and the tokens that investors receive now have value due to demand. With burning, a greater demand is generated for a token that does not yet have enough demand to increase its price.

NFT corresponds to the acronym «non-fungible token», which we can translate as «non-fungible token» or «non-fungible asset», or, in other words, the meaning of NFT means that it is an asset that is unique, it cannot be modified and it cannot be exchanged for another of equal value, because there would not be an equal one. And these assets are also digital, that is, they have no correlation in the physical world (although sometimes they may).

To understand it better, an NFT would be like a unique work of art, for example, Michelangelo’s David, there is only one and it is in the Gallery of the Academy in Florence; If someone wanted to have that particular David, they should buy it (if it were for sale) or get a copy, in which case, we would no longer be talking about the original, which is what gives the sculpture value.

With the NFT it is the same, it is a unique digital asset, which although it can be copied, whoever owns the NFT owns the original, functioning as a kind of certificate of authenticity and having the rights associated with its acquisition.

In order to better understand what an NFT is, we must see how they work and what makes them possible.

Any digital content can be tokenized, that is, thanks to blockchain technology and smart contracts, it can be provided with a series of metadata that guarantee its authenticity, identify its author, its starting and acquisition value and all transactions that has lived since its creation (from who created it, who has tokenized it and who, where and for how much has it been sold).

As we said, when tokenize digital content (it can be a JPEG file, a meme, an ebook or even a twitt), a digital certificate of ownership and authenticity is created, which indicates that this content is unique and that the property rights are held by them. has the person who has acquired it (it is important not to confuse it with copyright, which will remain in the possession of the author of the work).

In this sense, the smart contracts of the NFTs can serve different purposes, for example, ensuring for the original artist a part of the benefits that may be produced by a future token sale.

These digital assets are bought and sold in NFT markets, where their creators or sellers (not always coincide) put them up for sale at fixed prices or through auctions.