Cryptocurrency FAQ

Cryptocurrency is a digital or virtual currency that uses cryptography for security. Unlike traditional currencies issued by governments, cryptocurrencies operate on decentralized networks based on blockchain technology. They enable peer-to-peer transactions without the need for intermediaries like banks.

Cryptocurrencies work through a distributed ledger technology called blockchain. When someone sends cryptocurrency, the transaction is verified by network participants (miners or validators), recorded on the blockchain, and then the recipient receives the funds. This process eliminates the need for traditional banking systems.

Bitcoin is the first and most well-known cryptocurrency, created in 2009 by an anonymous person or group using the pseudonym Satoshi Nakamoto. It's a decentralized digital currency that allows peer-to-peer transactions without a central authority. Bitcoin has a limited supply of 21 million coins.

Bitcoin was the first cryptocurrency and primarily serves as digital money. Other cryptocurrencies (altcoins) often have different purposes: Ethereum enables smart contracts, Ripple focuses on fast international payments, and Litecoin offers faster transaction times. Each has unique features, consensus mechanisms, and use cases.

Cryptocurrency legality varies by country. Many nations like the US, UK, and Canada have legalized it with regulations. Some countries like China have banned it entirely, while others are still developing their regulatory frameworks. Always check your local laws before buying or trading cryptocurrency.

Cryptocurrency prices are highly volatile due to factors like market speculation, regulatory news, adoption rates, technological developments, market sentiment, and relatively small market size compared to traditional assets. The 24/7 trading nature and limited liquidity also contribute to price swings.

Yes, cryptocurrency investing carries significant risks. Prices can drop dramatically, and you could lose your entire investment. Other risks include exchange hacks, wallet losses, regulatory changes, and market manipulation. Never invest more than you can afford to lose.

You can buy cryptocurrency through exchanges like Coinbase, Binance, or Kraken. The process typically involves: creating an account, verifying your identity, linking a bank account or credit card, and placing a buy order. Some platforms also offer mobile apps for easy purchasing.

Market capitalization (market cap) is the total value of a cryptocurrency, calculated by multiplying the current price by the total supply of coins. It's used to rank cryptocurrencies by size and gives an indication of the project's relative importance in the market.

Altcoins are any cryptocurrencies other than Bitcoin. The term is short for "alternative coins." Examples include Ethereum, Litecoin, Ripple, and thousands of others. Each altcoin typically has different features, use cases, or technological improvements compared to Bitcoin.

Blockchain is a distributed ledger technology that maintains a continuously growing list of records (blocks) linked using cryptography. Each block contains a timestamp and link to the previous block, creating an immutable chain. This technology enables cryptocurrencies and many other applications.

Transactions are verified through consensus mechanisms like Proof of Work (Bitcoin) or Proof of Stake (Ethereum 2.0). Network participants validate transactions by solving complex mathematical problems or staking tokens. Once verified, transactions are added to blocks and become part of the permanent record.

A hash is a unique digital fingerprint created by mathematical algorithms. In blockchain, each block has a hash that identifies it uniquely. If any data in the block changes, the hash changes completely, making it easy to detect tampering and ensuring the integrity of the blockchain.

Smart contracts are self-executing contracts with terms directly written into code. They automatically execute when predetermined conditions are met, without requiring intermediaries. Ethereum is the most popular platform for smart contracts, enabling decentralized applications (dApps).

Public blockchains are open to everyone and fully decentralized (like Bitcoin and Ethereum). Private blockchains are restricted to specific organizations and offer more control but less decentralization. Consortium blockchains are semi-decentralized, controlled by a group of organizations.

Proof of Work (PoW) is a consensus mechanism where miners compete to solve complex mathematical puzzles to validate transactions and add new blocks. The first to solve the puzzle gets rewarded with cryptocurrency. Bitcoin uses PoW, but it requires significant energy consumption.

Proof of Stake (PoS) is a consensus mechanism where validators are chosen to create new blocks based on their stake (ownership) in the network. It's more energy-efficient than Proof of Work. Ethereum transitioned to PoS in 2022, and many newer blockchains use this mechanism.

A fork is a change to the blockchain's protocol rules. A soft fork is backward-compatible, while a hard fork creates a permanent split. Hard forks can create new cryptocurrencies (like Bitcoin Cash from Bitcoin) or upgrade existing ones (like Ethereum's transitions).

Scalability refers to a blockchain's ability to handle a large number of transactions quickly and cost-effectively. Bitcoin processes about 7 transactions per second, while Ethereum handles around 15. Solutions include layer-2 scaling, sharding, and alternative consensus mechanisms.

Layer-2 solutions are built on top of existing blockchains to improve scalability and reduce fees. Examples include Lightning Network for Bitcoin and Polygon for Ethereum. They process transactions off the main chain and then settle on the main blockchain.

Cryptocurrency trading involves buying and selling digital assets to profit from price movements. Traders can use various strategies like day trading, swing trading, or HODLing (holding long-term). Trading can be done on centralized exchanges, decentralized exchanges, or peer-to-peer platforms.

Trading involves frequent buying and selling to profit from short-term price movements, while investing is holding assets for long-term growth. Traders focus on technical analysis and market timing, while investors often use fundamental analysis and believe in the long-term potential of projects.

Trading pairs show the exchange rate between two cryptocurrencies. For example, BTC/USD shows how many US dollars one Bitcoin costs, while ETH/BTC shows how much Bitcoin one Ethereum costs. Major pairs include BTC/USD, ETH/USD, and various altcoin/BTC pairs.

Technical analysis involves studying price charts, patterns, and indicators to predict future price movements. Common tools include moving averages, RSI, MACD, and support/resistance levels. It's based on the belief that historical price patterns tend to repeat.

Fundamental analysis evaluates a cryptocurrency's intrinsic value by examining factors like technology, team, adoption, partnerships, tokenomics, and real-world use cases. It helps investors identify undervalued projects with strong long-term potential.

HODL is a misspelling of "hold" that became a popular crypto strategy meaning to hold onto cryptocurrencies long-term regardless of price volatility. It originated from a Bitcoin forum post in 2013 and now stands for "Hold On for Dear Life."

Dollar-cost averaging is an investment strategy where you regularly invest a fixed amount regardless of price. This reduces the impact of volatility by buying more when prices are low and less when prices are high, potentially lowering your average cost over time.

Leverage trading allows you to borrow funds to increase your trading position size. For example, 10x leverage means you can trade with 10 times your actual capital. While it amplifies potential profits, it also magnifies losses and can lead to liquidation if trades go against you.

Stop-loss orders automatically sell your position when the price drops to a specified level, limiting losses. Take-profit orders automatically sell when the price reaches a target level, securing profits. These tools help manage risk and emotions in trading.

Market manipulation involves artificially inflating or deflating cryptocurrency prices through coordinated buying/selling, spreading false information, or pump-and-dump schemes. Due to lower regulation and smaller market size, crypto markets can be more susceptible to manipulation than traditional markets.

A cryptocurrency wallet is a digital tool that allows you to store, send, and receive cryptocurrencies. It doesn't actually store the coins but holds the private keys that give you access to your cryptocurrencies on the blockchain. Wallets can be software-based or hardware devices.

Hot wallets are connected to the internet and include mobile apps, desktop software, and exchange wallets. They're convenient but less secure. Cold wallets are offline, like hardware wallets or paper wallets, offering better security but less convenience for frequent transactions.

Private keys are secret cryptographic codes that prove ownership of cryptocurrency and allow you to spend it. Public keys are derived from private keys and can be shared safely - they're used to receive funds. Think of the public key as your address and the private key as your password.

A seed phrase (mnemonic phrase) is a series of 12-24 words that represents your wallet's private keys in human-readable format. It's used to restore access to your wallet if you lose your device. Never share your seed phrase with anyone and store it securely offline.

A hardware wallet is a physical device that stores your private keys offline. Popular brands include Ledger and Trezor. They're considered the most secure way to store cryptocurrency long-term because they're immune to online hacking attempts and malware.

Yes, if you have your seed phrase. Most wallets provide a 12-24 word recovery phrase during setup. If you lose your wallet or device, you can use this phrase to restore access to your funds on a new wallet. Without the seed phrase, recovery is usually impossible.

Cryptocurrency transactions are irreversible. If you send crypto to the wrong address, you generally cannot recover it unless you know the owner of that address. Always double-check addresses before sending, and consider sending a small test amount first for large transactions.

A multi-signature (multisig) wallet requires multiple private keys to authorize a transaction. For example, a 2-of-3 multisig wallet needs 2 out of 3 possible signatures to spend funds. This adds security by distributing control among multiple parties or devices.

It's generally not recommended to keep large amounts of cryptocurrency on exchanges for extended periods. While convenient for trading, exchanges are targets for hackers and you don't control your private keys. Use the principle "not your keys, not your coins" and move funds to your own wallet for long-term storage.

A paper wallet is a physical document containing your cryptocurrency addresses and private keys, often in QR code format. It's a form of cold storage that's completely offline. While secure from online threats, paper wallets can be damaged, lost, or stolen, and they're not user-friendly for frequent transactions.

Cryptocurrency mining is the process of validating transactions and adding them to the blockchain by solving complex mathematical problems. Miners compete to solve these problems first, and the winner receives newly created cryptocurrency as a reward. Mining secures the network and processes transactions.

Bitcoin mining involves miners using powerful computers to solve cryptographic puzzles. They collect pending transactions, create a block, and compete to find a hash that meets the network's difficulty requirements. The first miner to solve the puzzle broadcasts the solution and receives Bitcoin rewards.

Mining requirements vary by cryptocurrency. Bitcoin mining requires specialized ASIC (Application-Specific Integrated Circuit) machines. Some altcoins can be mined with GPUs (graphics cards) or even CPUs. You'll also need reliable internet, adequate power supply, and cooling systems.

Mining profitability depends on factors like cryptocurrency price, mining difficulty, electricity costs, and equipment efficiency. As more miners join the network, difficulty increases, reducing individual profits. Many miners have moved to regions with cheap electricity or joined mining pools to remain competitive.

A mining pool is a group of miners who combine their computational power to increase their chances of solving blocks and earning rewards. When a pool successfully mines a block, the reward is distributed among members based on their contributed hash power. This provides more consistent, smaller payouts.

Mining difficulty is a measure of how hard it is to find a new block in the blockchain. The network automatically adjusts difficulty based on the total mining power to maintain consistent block times. As more miners join, difficulty increases; as miners leave, it decreases.

Hash rate is the speed at which a mining device can perform hash calculations, measured in hashes per second. Higher hash rates increase the chance of solving blocks and earning rewards. Network hash rate indicates the total computational power securing the blockchain.

Staking is the process of holding and "staking" cryptocurrencies in a Proof of Stake network to help secure the network and validate transactions. In return, stakers earn rewards. It's considered more energy-efficient than mining and typically requires less technical knowledge.

Cryptocurrency mining, particularly Bitcoin, consumes significant amounts of electricity, raising environmental concerns. However, many miners are increasingly using renewable energy sources, and newer cryptocurrencies use more energy-efficient consensus mechanisms like Proof of Stake.

Bitcoin has a maximum supply of 21 million coins, expected to be reached around 2140. After that, miners will only receive transaction fees as rewards, not new Bitcoin. The network will continue to function, but the incentive structure will rely entirely on transaction fees.

DeFi (Decentralized Finance) refers to financial services built on blockchain technology that operate without traditional intermediaries like banks. DeFi applications include lending, borrowing, trading, insurance, and more, all powered by smart contracts and accessible to anyone with an internet connection.

DeFi lending platforms allow users to lend their cryptocurrencies and earn interest, or borrow against their crypto holdings. Smart contracts automatically manage the lending process, including collateral requirements, interest rates, and liquidations. Popular platforms include Aave, Compound, and MakerDAO.

Liquidity pools are smart contracts that hold cryptocurrency pairs to facilitate decentralized trading. Users provide liquidity by depositing equal values of two tokens and earn fees from trades. These pools enable automated market making and are essential for decentralized exchanges.

Yield farming involves using DeFi protocols to earn rewards by providing liquidity, staking tokens, or participating in other activities. Farmers often move their funds between different protocols to maximize returns. While potentially profitable, yield farming carries significant risks including smart contract bugs and impermanent loss.

Impermanent loss occurs when the price ratio of tokens in a liquidity pool changes compared to when you deposited them. If you had simply held the tokens instead of providing liquidity, you might have had more value. The loss is "impermanent" because it only becomes permanent when you withdraw.

A decentralized exchange is a cryptocurrency exchange that operates without a central authority. Users trade directly from their wallets using smart contracts. Popular DEXs include Uniswap, SushiSwap, and PancakeSwap. DEXs offer more privacy and control but may have lower liquidity and higher fees.

Governance tokens give holders voting rights in decentralized protocols. Token holders can propose and vote on changes to the protocol, such as fee structures, new features, or fund allocations. Examples include UNI (Uniswap), AAVE (Aave), and COMP (Compound).

A DAO (Decentralized Autonomous Organization) is an organization governed by smart contracts and token holders rather than traditional management. Members vote on proposals using governance tokens. DAOs can manage funds, make decisions, and execute actions automatically based on community consensus.

Flash loans are uncollateralized loans that must be borrowed and repaid within the same blockchain transaction. They enable complex arbitrage strategies and have been used in both legitimate DeFi strategies and malicious attacks. If the loan isn't repaid, the entire transaction is reversed.

DeFi risks include smart contract bugs, protocol hacks, impermanent loss, high gas fees, regulatory uncertainty, and rug pulls. Unlike traditional finance, DeFi lacks deposit insurance and regulatory protections. Users must carefully research protocols and understand the risks before participating.

An NFT (Non-Fungible Token) is a unique digital asset that represents ownership of a specific item or piece of content on the blockchain. Unlike cryptocurrencies, NFTs cannot be exchanged on a like-for-like basis because each one is unique. They're commonly used for digital art, collectibles, and gaming items.

NFTs work by creating a unique token on a blockchain (usually Ethereum) that points to a specific digital file or asset. The blockchain records ownership and transaction history, while the actual content is often stored on IPFS or other decentralized storage systems. Smart contracts can also add utility and royalty features.

NFT value comes from factors like scarcity, utility, community, creator reputation, and market demand. Some NFTs provide access to exclusive communities, events, or future drops. Value is also driven by speculation, cultural significance, and the belief that digital ownership will become more important.

To buy an NFT, you need a cryptocurrency wallet with the appropriate tokens (usually ETH), then visit an NFT marketplace like OpenSea, Rarible, or Foundation. Connect your wallet, browse collections, and place bids or buy at fixed prices. Always verify the authenticity and check the creator's reputation.

While the digital content can be copied, the NFT itself (the blockchain record of ownership) cannot be duplicated. However, NFTs can be stolen if someone gains access to your wallet. The value lies in provable ownership and authenticity, not in preventing copying of the underlying content.

Minting an NFT is the process of creating a new NFT by uploading digital content to a blockchain. The creator pays gas fees to record the NFT on the blockchain. Many platforms offer easy minting tools that don't require technical knowledge, making NFT creation accessible to artists and creators.

NFT royalties are payments that creators receive every time their NFT is resold. This is programmed into the smart contract and typically ranges from 2.5% to 10% of the sale price. Royalties provide ongoing income for creators and incentivize the creation of high-quality digital art.

NFTs on Ethereum previously had high energy consumption due to Proof of Work mining. However, Ethereum's transition to Proof of Stake in 2022 reduced energy consumption by over 99%. Many NFT platforms are also moving to more eco-friendly blockchains like Polygon and Solana.

Utility NFTs provide holders with specific benefits beyond just ownership, such as access to exclusive events, communities, games, or services. They might function as membership passes, gaming assets, or tickets. This utility can create ongoing value and engagement beyond speculative trading.

An NFT collection is a series of related NFTs, often with similar themes, artwork styles, or utility. Famous collections include CryptoPunks, Bored Ape Yacht Club, and Art Blocks. Collections often have different rarity levels for individual pieces, with some traits being more valuable than others.

Cryptocurrency regulation varies significantly by country and is still evolving. Some nations have embraced crypto with clear frameworks, others have banned it entirely, and many are still developing regulations. Common regulatory focuses include consumer protection, anti-money laundering (AML), and tax compliance.

In most countries, cryptocurrency transactions are taxable events. This includes selling crypto for fiat currency, trading one crypto for another, and using crypto to purchase goods or services. Tax treatment varies by jurisdiction, so consult a tax professional familiar with cryptocurrency regulations in your area.

KYC (Know Your Customer) and AML (Anti-Money Laundering) are regulatory requirements for cryptocurrency exchanges and services. KYC requires identity verification, while AML involves monitoring transactions for suspicious activity. These measures help prevent fraud, money laundering, and other illegal activities.

The classification of cryptocurrencies as securities depends on the jurisdiction and specific token. In the US, the SEC uses the Howey Test to determine if a token is a security. Bitcoin and Ethereum are generally not considered securities, but many other tokens might be, affecting how they can be traded and regulated.

If cryptocurrency is banned, you may lose access to local exchanges and services. However, the decentralized nature of blockchain means the network itself continues to operate. Some people use VPNs or peer-to-peer trading, but this may violate local laws. Always comply with your local regulations.

A CBDC (Central Bank Digital Currency) is a digital version of a country's fiat currency issued and controlled by the central bank. Unlike cryptocurrencies, CBDCs are centralized and government-controlled. Many countries are exploring or piloting CBDCs as a response to cryptocurrency adoption.

Cryptocurrency losses can often be claimed as capital losses for tax purposes, potentially offsetting gains from other investments. Keep detailed records of all transactions, including dates, amounts, and purposes. Tax treatment of losses varies by jurisdiction, so consult a tax professional for specific guidance.

Regulatory uncertainty refers to the unclear and evolving legal status of cryptocurrencies in many jurisdictions. This uncertainty can affect market prices, business operations, and investor confidence. As regulations become clearer, markets often stabilize, but the process can take years.

While governments can ban cryptocurrency exchanges and services within their borders, completely shutting down Bitcoin is extremely difficult due to its decentralized nature. The network operates globally across thousands of nodes, making it nearly impossible to shut down entirely without global coordination.

Crypto businesses typically must comply with registration requirements, KYC/AML procedures, reporting obligations, and consumer protection measures. Requirements vary by jurisdiction and business type. Many countries require money transmission licenses or similar regulatory approvals for crypto exchanges and services.

Keep your cryptocurrency safe by using hardware wallets for long-term storage, enabling two-factor authentication, keeping private keys offline, using reputable exchanges, keeping software updated, and never sharing private keys or seed phrases. Consider using multisig wallets for additional security.

Common crypto scams include fake exchanges, phishing websites, Ponzi schemes, fake airdrops, romance scams, fake celebrity endorsements, rug pulls, and social media impersonation. Always verify sources, never share private keys, and be skeptical of "guaranteed" returns or "free" cryptocurrency offers.

A rug pull is when cryptocurrency developers abandon a project and steal investors' funds, often by removing liquidity from trading pools or selling their large token holdings. This is particularly common with new DeFi projects and meme coins. Always research projects thoroughly before investing.

Identify fake crypto websites by checking for HTTPS encryption, verifying the exact URL spelling, looking for professional design and proper grammar, checking domain registration dates, reading reviews, and confirming official social media links. Always bookmark legitimate sites and access them directly.

If your cryptocurrency is stolen, immediately secure your remaining assets by moving them to new wallets, change all passwords and enable 2FA, report the incident to relevant authorities and the exchange (if applicable), document everything for potential legal action, and learn from the experience to prevent future thefts.

Social engineering in crypto involves manipulating people into revealing private keys, passwords, or other sensitive information through deception. This can include impersonating support staff, creating fake urgent situations, or building trust over time before requesting access to wallets or accounts.

Honeypots are malicious smart contracts that allow users to buy tokens but prevent them from selling. They appear to be legitimate trading opportunities but contain hidden code that blocks sell transactions. This is a common scam in the DeFi space, particularly with new or unknown tokens.

Backup your wallet by securely storing your seed phrase in multiple physical locations, using metal backup plates for fire/water resistance, considering multisig setups, regularly testing your backup recovery process, and never storing backups digitally or in cloud services. Keep backups updated when you create new wallets.

A smart contract audit is a security review conducted by experts to identify vulnerabilities, bugs, and security flaws in smart contract code. Audits help ensure contracts work as intended and protect user funds. Always check if DeFi projects have been audited by reputable firms before investing.

Signs of crypto Ponzi schemes include guaranteed high returns, pressure to recruit others, lack of transparency about how profits are generated, complex or vague business models, no real product or service, and payments to early investors using new investor funds. Be extremely cautious of "too good to be true" opportunities.

Atomic swaps are peer-to-peer exchanges of cryptocurrencies from different blockchains without using intermediaries. They use smart contracts to ensure that either both parties receive their intended cryptocurrencies or neither does. This technology enables truly decentralized cross-chain trading.

Wrapped tokens are cryptocurrencies from one blockchain that are represented on another blockchain. For example, Wrapped Bitcoin (WBTC) represents Bitcoin on the Ethereum blockchain. This allows tokens to be used in DeFi applications and smart contracts on different chains while maintaining their value.

Cross-chain interoperability refers to the ability of different blockchain networks to communicate and share data with each other. This enables users to move assets between blockchains and use applications that span multiple networks. Projects like Cosmos, Polkadot, and various bridge protocols work on this challenge.

Sharding is a scaling technique that splits a blockchain into smaller, parallel chains called shards. Each shard processes a subset of transactions, allowing the network to handle more transactions overall. Ethereum 2.0 plans to implement sharding to improve scalability and reduce fees.

Zero-knowledge proofs allow one party to prove to another that they know a value without revealing the value itself. In cryptocurrency, this enables privacy-focused transactions and scaling solutions. Examples include zk-SNARKs used by Zcash for private transactions and zk-rollups for Ethereum scaling.

MEV refers to the maximum value that can be extracted from block production beyond standard block rewards and gas fees. This includes profits from transaction reordering, front-running, and arbitrage opportunities. MEV can affect transaction costs and fairness in DeFi protocols.

Rollups are layer-2 scaling solutions that execute transactions off the main blockchain but post transaction data on-chain. Optimistic rollups assume transactions are valid unless challenged, while zk-rollups use zero-knowledge proofs to verify correctness. Both significantly reduce costs and increase throughput.

Tokenomics refers to the economic design of a cryptocurrency token, including supply mechanisms, distribution, inflation/deflation, utility, governance rights, and incentive structures. Good tokenomics align stakeholder interests and create sustainable value for the ecosystem.

A 51% attack occurs when a single entity controls more than 50% of a blockchain's mining power or staked tokens, potentially allowing them to double-spend coins, reverse transactions, or halt the network. While theoretically possible, 51% attacks are extremely expensive and difficult to execute on major networks.

The blockchain trilemma suggests that blockchains can only optimize for two of three properties: decentralization, security, and scalability. For example, Bitcoin prioritizes decentralization and security but sacrifices scalability. Various projects attempt to solve this trilemma through different technological approaches.

Sidechains are separate blockchains that run parallel to a main blockchain and are connected through two-way pegs. They allow for experimentation with new features and scaling solutions while maintaining connection to the main chain. Polygon is a popular sidechain for Ethereum.

Front-running occurs when someone observes a pending transaction and places their own transaction with higher gas fees to execute first, profiting from the price movement. This is common in DeFi and can be done by miners, bots, or other users monitoring the mempool.

Slashing is a penalty mechanism in Proof of Stake networks where validators lose a portion of their staked tokens for malicious behavior or protocol violations. This includes double-signing, being offline for extended periods, or attempting to attack the network. Slashing helps secure the network by making attacks costly.

Cryptocurrency arbitrage involves buying a cryptocurrency on one exchange where the price is lower and selling it on another where the price is higher, profiting from the price difference. Arbitrage opportunities exist due to market inefficiencies but are often quickly eliminated by automated trading bots.

A consensus algorithm is a mechanism used by blockchain networks to agree on the validity of transactions and the state of the ledger. Different algorithms include Proof of Work, Proof of Stake, Delegated Proof of Stake, and Practical Byzantine Fault Tolerance, each with different trade-offs in terms of security, energy consumption, and decentralization.

A mempool (memory pool) is where unconfirmed transactions wait before being included in a block. Miners or validators select transactions from the mempool, often prioritizing those with higher fees. Mempool analysis can provide insights into network congestion and optimal fee levels.

Blockchain oracles are third-party services that provide external data to smart contracts, such as price feeds, weather data, or sports scores. Since blockchains cannot directly access off-chain data, oracles bridge this gap. Chainlink is the most popular oracle network, providing decentralized data feeds.

Coins are native to their own blockchain (like Bitcoin on Bitcoin blockchain or Ether on Ethereum), while tokens are built on existing blockchains using smart contracts. For example, USDC is a token on Ethereum, while ETH is Ethereum's native coin. Coins typically serve as the primary currency for their network.

Cryptographic hashing is a mathematical function that converts input data of any size into a fixed-size string of characters. It's one-way (irreversible), deterministic (same input always produces same output), and avalanche effect (small input changes dramatically change output). Bitcoin uses SHA-256 hashing for security and mining.