Cryptocurrency is a brand new market with various players playing different roles. This article explains who is participating and how.
The main players are:
– Coin inventors
– Coin issuers
– Cryptocurrency users
– Cryptocurrency exchanges
– Wallet providers
– Trading platforms
– Coin inventors
Coin inventors are organizations or individuals that have developed the technical bases of a cryptocurrency and place the initial rules for its usage. Sometimes, their identity is known (Ripple, Litecoin, Cardano), but frequently they remain unknown (Bitcoin, Monero). Some stay involved in preserving and enhancing the cryptocurrency’s code, and underlying algorithm (without administrator’s powers), although others simply disappear (Bitcoin).
Coin issuers are organizations or individuals that offer coins to cryptocurrency consumers upon the coin first launch, either against payment (through a crowdsale) or free of cost. The main purpose is to finance the coin’s further development or boost its original recognition.
The coins these coin issuers provide to cryptocurrency consumers are created (pre-mined) before this coin’s official launch. Coins that are dispersed this way are partially pre-mined (cryptocurrency users can nevertheless generate more coins after the launch) or are wholly pre-mined.
Not all of the coins have a recognizable coin issuer, nor are coins pre-mined or has been its own entire source pre-created.
A coin issuer can be the same person as the coin inventor, or a different individual or organization.
Miners participate supporting transactions on the blockchain by solving a cryptographic puzzle. As explained above, the practice of mining relates to cryptocurrencies which are based on a PoW consensus mechanism. A miner supports the system by harnessing computing power to confirm transactions and is rewarded with newly mined coins.
Miners may be cryptocurrency users, or, even more commonly, parties who have created a new business from mining coins to sell them for fiat money (such as USD and EUR) or for different cryptocurrencies. Some miners set up big pools of miners to bundle computing power.
Currently, the risks associated with so-called mining companies appear to be underestimated.
A first, and most important, the participant is a cryptocurrency user. A cryptocurrency consumer is a natural person or legal entity who obtains coins to use them
– to buy virtual or real merchandise or services from retailers,
– to make P2P payments, or
– to hold them and expect to gain on a value.
Cryptocurrency user can obtain coins in distinct ways:
– buy coins on an exchange using fiat currency or a different cryptocurrency;
– buy coins directly from another user through a trading platform – we will name this form of trade as a P2P trade;
– if a cryptocurrency relies on a PoW consensus mechanism, the user can mine a brand new coin (participate in the validation of trades by solving using a cryptographic puzzle and also be rewarded a brand new coin);
– selling goods or services;
– Receive coins as a donation.
Cryptocurrency exchanges are entities or persons that offer exchange services to cryptocurrency consumers, typically against payment of a certain fee (a commission). They let cryptocurrency users to sell their coins to get fiat currency or purchase new coins using fiat currency.
Many exchanges allow users to purchase only a specific selection of coins.
A lot of cryptocurrency exchanges operate as custodian wallet providers (Bitfinex). In general cryptocurrency exchanges offer their customers a wide array of payment options.
Trading platforms also play an essential part in the crypto-community market. They allow cryptocurrency users to purchase coins with fiat money (or another cryptocurrency). Trading platforms are marketplaces that bring together various cryptocurrency users that are looking to buy or sell coins.
We will call trading platforms a P2P (peer-to-peer) or DEX (decentralized exchanges).
They differ from cryptocurrency exchanges in many ways. First and foremost, they don’t buy or sell coins themselves. Second, they are not run by an entity or company that manages and processes all trades, but they’re operated exclusively by software (i.e., there is no central point of authority).
Trading programs simply match a buyer with a seller, allowing them to run a deal online or perhaps locally in-person (a face-to-face transaction, frequently executed in money).
Wallet providers are entities that provide cryptocurrency users digital wallets or e-wallets that are used for holding, transferring and storing coins.
A wallet holds user’s cryptographic keys (see above). A wallet provider typically translates a cryptocurrency consumer’s transaction history into an easily readable format, which looks like a normal bank account.
There are several kinds of wallet providers:
– Hardware wallet providers offering cryptocurrency users with special hardware solutions to independently store their cryptographic keys
– Software wallet providers offering cryptocurrency users with applications that enable them to get into the network, send and get coins and locally rescue their cryptographic keys;
– Custodian wallets providers that hold coins in the name of cryptocurrency holder.