This guide is intended for those who are new to cryptocurrencies and wish to learn more about it before they start claiming free cryptocurrencies from faucets. First, we need to understand what blockchain technology is about as the whole concept of cryptocurrencies is built on the blockchain foundation.
Blockchain is a digital and decentralized ledger that can record all transactions of anything with a value. This ledger is transparent and can be assessed by anyone through the internet. The reason why blockchain technology was developed is to exclude the involvement of a third party in transactions i.e. decentralization. This enhances security and privacy as third parties are prone to error and corruption no matter how trust-able they are. Time and cost are both saved as well if there is no third party involvement.
The records kept in a blockchain are called blocks. Each block is connected to the previous block with a time stamp. So to modify any single transaction block, we need to alter all of the subsequent blocks as well. This is simply impossible to be done unnoticed and without consensus. Hence, blockchain is resistant to modification unlike traditional ledger.
Cryptocurrencies are developed utilising blockchains to record their transactions. For traditional currencies, we rely on banks as third parties to record and facilitate our peer-to-peer transactions. In the case of a cryptocurrency, all transactions occur through the blockchain and unlike a bank, blockchain is decentralized and not controlled by anyone.
Each cryptocurrency has its own blockchain i.e. public ledger. To use a cryptocurrency, we need to create a wallet linked to the blockchain. This is called blockchain wallet and intended for use of that particular cryptocurrency. For example, Bitcoin wallet is used for Bitcoin transactions. Blockchain wallet is a private wallet which can only be accessed by the user.
To avoid confusion, microwallets we use to store cryptocurrencies claimed from faucets are not blockchain wallets. Microwallets are third parties just like banks to ease payment transactions from faucet owners to us. Some faucets do facilitate direct payment into blockchain wallet. However, we need microwallets for their exchange services as it is not possible to convert one cryptocurrency to another using only blockchain wallets for the time being. If you ever try to force a transaction from let’s say a Bitcoin wallet to an Ethereum wallet, it will only result in a transaction error and you are going to lose the amount of Bitcoin carried with the transaction.
Here is a diagram to ease understanding of the payment process from faucets to us, the users.
Since microwallets are third parties , it is important for us to use just the ones with good reputations. Check this blog out to see which microwallets are safe and reliable.
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Cryptocurrency Faucet Expert 