A Look at the Layers of Cryptocurrency
Cryptocurrency has been a hot topic ever since the release of Bitcoin. Bitcoin is the first decentralized cryptocurrency. A decentralized system has no servers. Participants have the freedom to execute transactions. As an alternative to Bitcoin, people can use a fork. The fork has the same components as a decentralized system even though it functions differently. In regards to the security of crypotcurrency, there are multiple layers that must be addressed.
Exchanges are written with a custom coding. The exchange is a centralized web service often found in a data center. Trust and credibility are points of emphasis. When the trust isn’t there, data breaches and security incidents occur more often than they should. Over the last few months, hackers have stolen millions of dollars in cryptocurrency from companies due to exchange problems. Many of the companies that were impacted by the hackers did not take the appropriate security measures. Once coins or tokens have been taken from an exchange, it’s difficult to try to get them back. Companies should research the security protocols on different websites. It may also benefit them to find out if the exchange is involved in any bounty programs.
Protocol is very important. If hackers compromise the protocol, they can damage the entire network. Most of the coins are unique network protocols. Companies should make sure that the crypotcurrency protocol is centralized. Companies should also play close attention to the genesis, which helps decide the outline of the network. Many tokens are based on Ethereum instead of smart contracts. Be aware that Ethereum is not completely decentralized, as it was hacked a few years ago.
In regards to cryptocurrencies, there are two types of wallets that companies can choose from: hot wallets and cold wallets. If companies choose a hot wallet, their coins are controlled by the wallet provider. In some cases, companies may not have a say in the status of the blockchain infrastructure. The accounts are primarily outside of a blockchain system. Examples of cold wallets include software and hardware, depending on the system.
Mining pools and crypto exchanges were not created so that they could be added to different blockchain protocols. Many blockchain protocols are flawed when it comes to decentralization. Remember that there may be security breaches in the ecosystem when the infrastructure is not centered around the blockchain technology. The principles may be violated. If your assets rely on blockchain protocols, it’s important that you have a clear understanding of the three layers of cryptocurrency.
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