The rising popularity and practical applications of cryptocurrencies have led to an increasing interest in everything crypto. Participants hope to ride the golden wave of crypto, which includes investing in crypto assets and other opportunities. Read on to learn more about the crypto ecosystem, its functions, and its core components.
The term crypto ecosystem refers to a network of crypto-related processes and functions. Each participant aims to fulfill or benefit from various activities that keep the crypto environment alive and active in the crypto ecosystem. Some of the core components of the crypto ecosystem are blockchain protocols and developers, miners and stakers, crypto exchanges, investors, and crypto media. Let’s discuss some of these aspects in detail.
Characteristics of cryptocurrency
Cryptocurrency became popular as a monetary system that is highly decentralized and unregulated. Every cryptocurrency network relies on its network of computer nodes and does not have a central authority with veto power.
Cryptocurrencies benefit from techniques that secure data from manipulation, theft, or control. Cryptos rely on cryptographic techniques that authenticate access for owners and prevent hacking. In crypto, private keys are used to prove ownership of blockchain addresses and to validate transactions. These features protect users from unauthorized access to funds.
This feature ensures that transactions cannot be undone. Cryptos function within a system that is difficult to manipulate, where transactions are recorded on the blockchain, and private keys determine access. These features secure the ownership of cryptocurrencies.
With cryptocurrency, users are not required to identify themselves during transactions. The only requirements for transacting on decentralized crypto networks are a digital identity (which can be anonymous) and access to a digital wallet.
Top cryptocurrencies are designed to ensure that the supply of crypto coins is limited, offering protection from inflationary forces. Cryptos such as Bitcoin and Litecoin have set a maximum supply, meaning that the supply will be limited to a specific number. Once the supply is capped, the demand for particular cryptos is set to rise, which has a positive impact on its market value. An exception to this is that some cryptos, such as Ethereum, have an infinite supply.
How does the new crypto ecosystem function?
The crypto ecosystem is a well-oiled system where a network of participants fulfills their objectives and meets specific needs to ensure seamless operations. Core functions of the crypto ecosystem start at the blockchain protocol, where a blockchain developer builds a cryptocurrency that uses blockchain technology. At this level, the developer creates features, designs roles, and sets parameters within which a cryptocurrency will operate. Developers of specific crypto are usually in-house, but sometimes, several developers can collaborate or volunteer to offer their services.
Once a cryptocurrency launches, miners or stakers play the vital role of updating and verifying transactions to the blockchain. Depending on the engineered consensus mechanism (proof-of-work or proof-of-stake), miners or stakers ensure that transactions can be processed fast and cheap.
Another important aspect of the crypto ecosystem is that investors use crypto exchanges to buy, sell, or exchange coins. With crypto media providing all participants with a platform for information, the ecosystem functions to benefit all stakeholders.
Components of the crypto ecosystem
The blockchain protocol is an essential component of the crypto ecosystem and comprises cryptography, P2P networks, and consensus mechanisms. The blockchain protocol builds on the idea that a new network can exist on top of the internet using P2P networks that save identical copies of transactions. The application of cryptographic techniques and consensus mechanisms completes the makeup of the blockchain protocol. Cryptography ensures the security and transparency of the network. At the same time, the consensus mechanisms (proof-of-stake or proof-of-work models) make it impossible for any bad actors to cheat or manipulate the system.
Miners and stakers
In the crypto ecosystem, miners and stakers are the two important players. Blockchains that use the proof-of-work (PoW) consensus mechanism have miners, while those that apply the proof-of-stake (PoS) model involve stakers.
In the crypto-mining process, miners play a vital role in securing the network and processing each transaction. Crypto ecosystems that use miners include Bitcoin, Ethereum, Dogecoin, and Litecoin. In the staking process, stakers lock their coins to earn the privilege of being selected to create new blocks. Stakers are also validators because they validate new transactions added to the cryptocurrency blockchain network.
To understand what blockchain developers do, it’s important to distinguish between the two major types. Blockchain developers are important to the crypto ecosystem, where they create the foundations on which the crypto operates. In every crypto ecosystem, blockchain developers can be either:
- Core blockchain developers: They design the architecture and security of the blockchain system. These developers create the foundation used by all other users in the ecosystem.
- Blockchain software developers: They build applications (apps) that run on blockchain architecture and protocol. Since they create apps that can also run on the blockchain, the role of these developers is comparable to that of web developers.
Blockchain developers are professionals whose input and roles can be used to evaluate the validity of a cryptocurrency. They can be academics with an in-depth understanding of blockchain and have the technical skills to keep them running optimally. Developers can be in-house or freelance volunteers.
Crypto exchanges like CoinSwitch are marketplaces where buyers and sellers congregate. The crypto market is complex and crypto exchanges fulfill vital needs by making it easy for those looking to buy or sell crypto.
Institutional and retail investors
In the cryptocurrency ecosystem, there are both institutional and retail investors who operate to achieve their unique goals. Institutional investors have huge funds at their disposal that can be directed toward active investment. These investors have been slow to adopt cryptocurrency because of their size and diverse shareholders. Still, institutional investors such as endowment funds, foundations, insurance companies, and hedge funds hold a significant amount of crypto in the market.
Retail investors are individual investors who enter the crypto game for personal gains. These investors constitute a majority of the crypto community and their decisions can drive the growth and fall of cryptos. When retail investors lose faith in a specific cryptocurrency, they can react by selling off their shares, which affects the crypto value.
Crypto players use different social and official platforms to learn about market trends. In a data-driven marketplace, crypto media platforms have emerged as reputable sources of information. Crypto media sites can either be startups or those affiliated with traditional media platforms such as Forbes or Yahoo.