Introduction to crypto
Blockchain is a growing list or a chain of records organized into blocks. Each consequent block contains a timestamp and information about the previous block (cryptographic hash). The chain is stored and replicated among multiple devices that belong to many independent users. Because of that it’s almost impossible to change or to delete information that was once added to the blockchain. It’s only possible to add new information which will also be stored by all users.
Blockchain may be used to store any data. But because the technology was originally designed and implemented to create a cryptocurrency (Bitcoin), it’s most widely adopted application is to keep records of balances and transfers of e-money, known as cryptocurrencies. Today there are a few dozens of big blockchains (and hundreds of smaller ones): Bitcoin, Ethereum, Binance Smart Chain, Litecoin, Ripple, Cardano, Monero, Stellar, EOS, Cosmos, Polkadot, Tron, NEAR, Dogecoin, Solana and others.
Cryptocurrencies are e-money, with all information about balances and transfers kept in a blockchain. Bitcoin, which emerged in the end of 2008, became the first cryptocurrency and still is one of the most popular cryptocurrencies (if not the most popular). Today there are many thousands of cryptocurrencies. Here you can check the list of the main cryptocurrencies with its market caps.
There are two types of cryptocurrencies. The first type uses their own dedicated blockchains, such currencies are usually called “coins”. The second type is based on already existing blockchains shared by multiple cryptocurrencies, such currencies are usually called “tokens”.
Unlike common wallets, crypto wallets are not used to actually store funds: cryptocurrencies never leave a blockchain, moving a cryptocurrency from one address to another happens inside a blockchain. So the wallets are just the tool to interact with a blockchain, namely to see your balance and to generate transactions that constitute transfers of funds between addresses on the blockchain. You can compare it to the traditional banking system, where you have accounts that hold your funds and an internet banking website or a bank’s mobile app to manage these funds.
There are hardware and software wallets (there are also paper wallets, but they’re rarely used so we’re not going to speak a lot about them). A hardware wallet is a device usually resembling a flash drive. A software wallet is a program or an app that you install on your pc, laptop, phone, or tablet. Crypto wallets are also divided into “hot” and “cold” ones. A hot wallet is connected to the internet, a cold one is offline. A cold hardware wallet is the safest way to keep your funds. But when it comes to transferring funds, cold hardware wallets are less convenient than hot wallets. Therefore, cold wallets are best suited for storing your long-term savings, while hot wallets are more convenient for daily use.
After installing a software wallet on your device you can create a new account or import an existing one. In a way, this process resembles getting a banking app which, after you install it, allows you to connect it to your existing bank accounts or create new ones.
Every account has its own public key which can be seen by every user of the blockchain and a private key which shall be kept hidden. The address of the account is generated based on the hexadecimal value of the public key. This address consists of digits and latin letters and is used to send and receive funds. Private/public key pairs are often represented by a 12-18 word mnemonic phrase. Because it is easier to remember a 12 word phrase than a 256-bit long number, many wallets use special cryptographic algorithms to derive private/public key pairs from mnemonic phrases. Most software wallets also have another password which is set by the user and is used to log in to the wallet.
So after installing and configuring a wallet you will have 3 sets of letters-digits-words:
- A password that you use to log in to the wallet and to approve the transactions (you set this password by yourself so it’s best to memorize it);
- A private key (or a mnemonic phrase) that you have to keep safe as it allows to connect any device to your account;
- An address (addresses) which you use to receive funds (for every blockchain there’s its own address, but you can always see this address when you open the wallet so it’s not that important to memorize or to write these addresses down).
The so-called first-generation blockchains (e.g. Bitcoin or Litecoin) are used only to keep records about balances and transfers of one cryptocurrency tied to that blockchain. Then the Ethereum blockchain emerged. In addition to keeping the records of balances and transfers of its main cryptocurrency Ether (or ETH), Ethereum also allows execution of code, known as smart contracts.
The following description is a little bit simplified but a smart contract can be seen as a computer program that describes what happens after a set conditions are met. Example given, in the case of Help Each Other the concepts of “campaign” and “donation” are described with code. The conditions to open a campaign and to donate to an existing campaign are also coded, as well as the process of what happens (amount of funds on the donor’s account decreases and amount of funds on the fundraiser’s account increases).
Blockchains that support smart contracts are often called second-generation blockchains, and most new blockchains are of this type.
The second-generation blockchains allow users to create tokens - the cryptocurrencies that don’t have their own blockchains but work on the same blockchain as other tokens. The terms “token format” or “token standard” are used to refer to standards describing on what blockchain these tokens exist. Some examples of token standards are ERC-20, TRC-20, and BEP-20. ERC-20 exists on the Ethereum blockchain, while BEP-20 exists on the Binance Smart Chain, TRC-20 exists on the Tron blockchain.
Some tokens have variants on many blockchains. E.g. USDT token exists on more than 10 formats (Ethereum, Binance Smart Chain, Tron, Solana, Heco, Tomochain, Fantom, Algorand etc). In that case you need to use the so-called “bridges” to move a token from one blockchain to another. Don’t send tokens from one blockchain to another directly, this will result in the loss of funds. Accordingly, if you use USDT you always need to know whether you use USDT ERC-20, USDT BEP-20, USDT TRC-20 or some other form of USDT.
Any new record on a blockchain (from deploying a smart contract to transferring tokens) requires paying a fee that’s distributed among miners and validators of this blockchain (i.e. the users that ensure the independence of the blockchain). This fee is paid in the main currency of the blockchain. So to send to someone ERC-20 tokens you need a small amount of ETH (main currency of the Ethereum blockchain). And to send to someone BEP-20 tokens you need to have a small amount of BNB (main currency of the Binance Smart Chain).
Stablecoins are the cryptocurrencies tied to fiat (common) currencies or to some assets (gold, oil, real estate, bonds etc) and therefore are minimally volatile. Most existing stablecoins are tied to the US dollar with an exchange rate 1:1. Usually the exchange rate fluctuations range $0.99-1.01 per one stablecoin.
Binance USD (BUSD) is a US dollar based stablecoin approved by The New York State Department of Financial Services (NYDFS). The BUSD tokens are generated by an American financial company Paxos Trust. For every unit of BUSD, there is one U.S. dollar held in reserve by Paxos. So the total value of BUSD is equal to the total value of US dollars kept in Paxos' bank account. Every time new US dollars are credited to this account the corresponding amount of BUSD tokens is generated. In order to take US dollars from this account Paxos burns (destroys) the corresponding amount of BUSD tokens. Paxos publishes an audit of its US dollar reserves every month.
Token BUSD exist in BEP-20, ERC-20 and BEP-2 formats.
Binance Coin (BNB) is the main cryptocurrency for two blockchains founded by the world's largest cryptoexchange Binance: Binance Chain and Binance Smart Chain. In Binance Chain BUSD has BEP-2 format, in Binance Smart Chain BUSD has BEP-20 format.
As of now Help Each Other project is deployed to Binance Smart Chain. Accordingly, to interact with the project you need a wallet connected to Binance Smart Chain, some BUSD BEP-20 tokens and a small amount of BNB BEP-20 to pay transaction fees. Here we provide you with guides on how to install and to configure a wallet and where to buy these cryptocurrencies. If you have any questions, please, contact us via email or via Telegram, we’ll do our best to help you.
In future, we plan to deploy Help Each Other smart contracts on the other blockchains as well.