Cryptocurrency All-in-One For Dummies. Peter Kent

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СКАЧАТЬ is an alternative to the traditional mining used to maintain the integrity of a blockchain network. It was designed by a blockchain platform called NEM to generate its own currency called XEM. According to finder.com, this is how harvesting works: “Every time someone carries out a transaction, the first computer to see and verify the transaction will notify nearby users of that transaction, creating a cascade of information. This process is called ‘generating a block.’ Whenever someone with more than 10,000 vested XEM generates a block in NEM, they receive the transaction fees on that block as payment.” Also, as explained earlier in this chapter, harvesting uses a PoI system rather than PoS and PoW.

      Open source

      Cryptocurrencies are typically open source. That means that miners, nodes, and harvesters alike can join and use the network without paying a fee.

      Public ledger

      A ledger is the age-old record-keeping system for recording information and data. Cryptocurrencies use a public ledger to record all transactional data. Everyone in the world can access public blockchains and see entire transactions happening with cryptocurrencies.

      Note that not all blockchains use a public ledger. Some businesses and financial institutions use private ledgers so that the transactions aren’t visible to the world. However, by doing so, they may contradict the original idea behind blockchain technology.

      Smart contracts

      Smart contracts are also called self-executing contracts, blockchain contracts, or digital contracts. They’re just like traditional contracts except that they’re completely digital. Smart contracts remove the middleman between the buyer and the seller so that you can implement features like automatic payments and investment products without the need for a central authority like a bank.

      A smart contract is actually a tiny computer program that’s stored and runs on a blockchain platform. Because of that, all the transactions are completely distributed, and no centralized authority is in control of the money. Also, because it’s stored on a blockchain, a smart contract is immutable. Being immutable means that after a smart contract is created, it can never be changed again; it can’t be tampered with, which is an inherited feature from blockchain technology.

      However, being immutable comes with its own disadvantages. Because you can’t change anything in the smart contract, that means that if the code has any bugs, you can’t fix them either. This makes smart contract security more difficult. Some companies aim to combat this problem by auditing their smart contracts, which can be very costly.

As time goes by, users can expect better coding practices and development life cycles to combat smart contract security problems. After all, smart contracts are still a pretty young practice, with their whole life of trial and error ahead of them.

Stick a Fork in It: Digging into Cryptocurrency Forks

      What you get from a cryptocurrency fork won’t fill your tummy, but it may fill your crypto wallet with some money! Many popular cryptocurrencies were born as a result of a split (fork) in another cryptocurrency like Bitcoin. The following sections explain the basics of these cryptocurrency splits and how you may be able to profit from them.

      What is a fork, and why do forks happen?

      Sometimes when a group of developers disagrees with the direction a specific cryptocurrency is going, the members decide to go their own way and initiate a fork. Imagine an actual physical fork. It has one long handle, and then it divides into a bunch of branches. That’s exactly what happens in a cryptocurrency fork.

      Some cryptocurrencies are implemented within open-source software. Each of these cryptocurrencies has its own protocol that everyone in the network should follow. Examples of such rule topics include the following:

       Block size

       Rewards that miners, harvesters, or other network participants get

       How fees are calculated

      

But because cryptocurrencies are essentially software projects, their development will never be fully finished. There’s always room for improvement. Crypto developers regularly push out updates to fix issues or to increase performance. Some of these improvements are small, but others fundamentally change the way the original cryptocurrency (which the developers fell in love with) works. Just as in any type of relationship, you either grow together or grow apart. When the disagreements among a group of developers or network participants intensify, they can choose to break up, create their own version of the protocol, and cause a potential heartbreak that requires years of therapy to get over. Okay, the last part doesn’t really happen.

      Hard forks and soft forks

      Two types of forks can happen in a cryptocurrency: a hard fork and a soft fork.

Most cryptocurrencies consist of two big pieces: the protocol (set of rules) and the blockchain (which stores all the transactions that have ever happened). If a segment of the crypto community decides to create its own new rules, it starts by copying the original protocol code and then goes about making changes to it (assuming the cryptocurrency is completely open source). After the developers have implemented their desired changes, they define a point at which their fork will become active. More specifically, they choose a block number to start the forking. For example, as you can see in Figure 2-1, the community can say that the new protocol will go live when block 999 is published to the cryptocurrency blockchain.

      © John Wiley & Sons, Inc.

      FIGURE 2-1: An example of a hard fork.

      When the currency reaches that block number, the community splits in two. Some people decide to support the original set of rules, while others support the new fork. Each group then starts adding new blocks to the fork it supports. At this point, both blockchains are incompatible with each other, and a hard fork has occurred. In a hard fork, the nodes essentially go through a contentious divorce and don’t ever interact with each other again. They don’t even acknowledge the nodes or transactions on the old blockchain. See Book 2, Chapter 5 for more about correcting actions with a hard fork on a blockchain like Ethereum. (And if you’re curious about forking in the context of cryptocurrency mining, flip to Book 6, Chapter 8.)

On the other hand, a soft fork is the type of breakup where you remain friends with your ex. If the developers decide to fork the cryptocurrency and make the changes compatible with the old one, then the situation is called a soft fork. You can see the subtle difference in the example shown in Figure 2-2.

      © John Wiley & Sons, Inc.

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