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NFT - How does cryptocurrency work?

How does Cryptocurrency work?

While cryptocurrencies serve as a means of transferring or storing money, they all rely on "blockchain," a form of public ledger technology that records data and keeps track of all transactions made over the network.

A blockchain is a virtual chain of blocks, each holding a batch of transactions and other data. Each block in the chain becomes immutable after it has been added to the chain, which means that the data contained inside it cannot be modified or erased.

The nodes in the network serve a range of functions, from storing a complete archive of all prior transactions to validating fresh transaction data. 

Blockchain technology provides the following benefits over traditional finance since it is maintained by a dispersed group of people, each of whom keeps a copy of their ledger:

There is no single point of failure in the blockchain ledger: if one node fails, the blockchain ledger remains unaffected.

There isn't a single, easily tainted source of truth.

The database is managed by the nodes collectively, and new additions are verified as legitimate transactions.

Consider having a group of computers function as a bank, updating user balance sheets regularly. The balance sheets of distributed ledgers, on the other hand, are not kept on a single server. Instead, many copies of the balance sheets are scattered among multiple computers, with each node, or computer connected to the network, functioning as its server. As a result, even if one of the computers fails, the consequences will be less severe than if a single server-based database fails, as is common in banking systems.

Cryptocurrencies can avoid the security flaws that plague traditional currency thanks to this infrastructure architecture. Attacking or manipulating the blockchain network is difficult because attackers must get control of more than 50% of the devices connected to the network. Depending on the size of the network, a coordinated assault might be prohibitively expensive. When you compare the amount of money required to target well-known cryptocurrencies like Bitcoin to the amount of money the attacker would gain at the end of the day, it's evident that such an operation isn't financially viable.

It is also worth noting that the scattered character of these digital assets contributes to their censorship resistance. Unlike banks, which are regulated by nations, cryptocurrencies have their databases dispersed throughout the globe. As a result, even if a government shuts down one of these computers or all of the computers under its authority, the network will continue to function since there are possibly thousands of additional nodes in other countries that are beyond the power of a single country.

Beginner 5 Hours

How does Cryptocurrency work?

While cryptocurrencies serve as a means of transferring or storing money, they all rely on "blockchain," a form of public ledger technology that records data and keeps track of all transactions made over the network.

A blockchain is a virtual chain of blocks, each holding a batch of transactions and other data. Each block in the chain becomes immutable after it has been added to the chain, which means that the data contained inside it cannot be modified or erased.

The nodes in the network serve a range of functions, from storing a complete archive of all prior transactions to validating fresh transaction data. 

Blockchain technology provides the following benefits over traditional finance since it is maintained by a dispersed group of people, each of whom keeps a copy of their ledger:

There is no single point of failure in the blockchain ledger: if one node fails, the blockchain ledger remains unaffected.

There isn't a single, easily tainted source of truth.

The database is managed by the nodes collectively, and new additions are verified as legitimate transactions.

Consider having a group of computers function as a bank, updating user balance sheets regularly. The balance sheets of distributed ledgers, on the other hand, are not kept on a single server. Instead, many copies of the balance sheets are scattered among multiple computers, with each node, or computer connected to the network, functioning as its server. As a result, even if one of the computers fails, the consequences will be less severe than if a single server-based database fails, as is common in banking systems.

Cryptocurrencies can avoid the security flaws that plague traditional currency thanks to this infrastructure architecture. Attacking or manipulating the blockchain network is difficult because attackers must get control of more than 50% of the devices connected to the network. Depending on the size of the network, a coordinated assault might be prohibitively expensive. When you compare the amount of money required to target well-known cryptocurrencies like Bitcoin to the amount of money the attacker would gain at the end of the day, it's evident that such an operation isn't financially viable.

It is also worth noting that the scattered character of these digital assets contributes to their censorship resistance. Unlike banks, which are regulated by nations, cryptocurrencies have their databases dispersed throughout the globe. As a result, even if a government shuts down one of these computers or all of the computers under its authority, the network will continue to function since there are possibly thousands of additional nodes in other countries that are beyond the power of a single country.

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Frequently Asked Questions for NFT

An NFT (Non-Fungible Token) is a unique digital asset stored on a blockchain, representing ownership of digital or physical items like digital art, music, or collectibles.

Investing in NFTs can be profitable but carries risks. Factors like NFT rarity, market demand, and the reputation of NFT creators influence value.

The most expensive NFT sold is "The Merge" by Pak, fetching $91.8 million. Another notable sale is Beeple's "Everydays: The First 5000 Days," sold for $69 million.

NFT flipping involves buying NFTs at a lower price and selling them at a higher price for profit, requiring market knowledge and timing.

An NFT collection is a series of related NFTs, often with shared themes or characteristics, like the Bored Ape Yacht Club.

NFT utility refers to the functional benefits an NFT provides, such as access to exclusive content, events, or services.

You can buy and sell NFTs on NFT marketplaces such as OpenSea, Magic Eden, and LooksRare, which operate on various blockchain networks.

NFT tokenization involves converting real-world assets into NFTs, enabling digital ownership and trading on the blockchain.

NFT rarity refers to how uncommon an NFT's attributes are within a collection, affecting its desirability and market value.

Gas fees are transaction costs on the blockchain incurred during NFT minting or transfers, varying based on network congestion.

NFT fractionalization allows an NFT to be divided into smaller parts, enabling multiple investors to own a fraction of a high-value asset.

 Minting an NFT involves converting your digital file into a token on the blockchain using smart contracts, making it purchasable and tradable.

An NFT roadmap outlines the future plans and developments for an NFT project, providing transparency to investors and the community.

An NFT airdrop is a distribution of free NFTs to wallet addresses, often used for promotional purposes or rewarding community members.

NFT provenance tracks the ownership history of an NFT, ensuring authenticity and verifying its origin.

NFT metadata contains information about the NFT, such as its name, description, and properties, stored on or off the blockchain.

To create an NFT, you can use NFT marketplaces like OpenSea or Rarible, where you upload your digital art or content and mint it using smart contracts.

NFT royalties are payments made to NFT creators each time their NFT is resold, enforced through smart contracts.

NFT staking allows holders to lock their NFTs in a platform to earn rewards, integrating DeFi elements into NFT ownership.

An NFT wallet is a digital wallet like MetaMask that stores your NFTs and allows interactions with NFT marketplaces and blockchain applications.



The NFT floor price is the lowest price at which an NFT from a particular collection is available on the market.

NFTs derive value from their uniqueness, ownership proof via blockchain, and demand in the digital art and collectibles markets.

NFT lending allows NFT owners to use their assets as collateral to borrow funds, integrating DeFi mechanisms.

NFTs are subject to taxation, with implications for NFT taxes depending on your jurisdiction. It's advisable to consult with a tax professional.

NFT insurance provides coverage against potential losses or damages to NFTs, offering security to investors.

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