Skillsfirst Level 3 Certificate in Introduction to Financial Trading (RQF) - UNIT 1: Principles of financial trading
Skillsfirst Level 3 Certificate in Introduction to Financial Trading (RQF) - UNIT 2: Principles of Financial Planning and Cash Flow in Financial Trading
Skillsfirst Level 3 Certificate in Introduction to Financial Trading (RQF) - UNIT 3: Understanding financial trading techniques

WHAT ARE CRYPTOCURRENCIES?

A crypto is a digital asset in the form of a virtual currency designed to work as a medium of exchange. The cryptocurrencies use cryptography to verify and secure transactions in addition to controlling the creation of new units of a specific cryptocurrency. They are therefore essentially limited entries held within a database that no one can change unless specific conditions are fulfilled.

This methodology is very unlike the traditional method of fiat currency as it is not centralised, controlled, authorised or managed by a single government, central bank, financial system or institution. The creation and settlement of cryptocurrencies is made away from the traditional financial system operations where money is created, transferred, borrowed, settled and exchanged on an ongoing daily basis. Therefore cryptocurrencies are decentralised and work on a system similar to file sharing which is closely related to peer-to-peer networks.

In summary the traditional financial system relies on privately or third party owned servers that match transactions and balances, which in essence means that an authority has control of your funds with all your personal details at hand. In a decentralised system used by cryptocurrencies, the process is managed by each and every single participant who needs to do the job of matching and settling transactions and this is where the phrase ‘Blockchain’ is used. A blockchain is nothing more than a public ledger of all transactions that ever happened within the network which is available to everyone, so everyone in the network can see every accounts balance.

Cryptocurrency transactions are merely a file which contains the senders and recipients public keys (aka wallet addresses) with the amount of coins transferred. These transactions must be signed off by the sender using their private key, so a broadcast of this transaction in made in the network and has to be confirmed.

In these cryptocurrency networks ‘miners’ exist and only they can confirm transactions by solving a cryptographic puzzle. Miners take transactions, validate them as legitimate and push them out over the network, which is added to every node in the overall database. Every transactions that is confirmed by a miner can’t be reversed or forged and for doing this work the miner is paid a reward and transactions fees for their work. In this way the cryptocurrency network is a binding consensus of all participants of the legitimacy of transactions and balances.

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