Ever since bitcoin made its mark on the internet in 2009, the online marketplace has been a lot different than how it was before. Cryptocurrency is the new way of carrying out financial transactions online with a market value of over $220 billion. More cryptocurrencies have been introduced after the success of bitcoin, and in this starter’s guide, we will learn more about what cryptocurrencies are and how do they work.
What is cryptocurrency?
There is no physical form of cryptocurrency like the fiat currencies. It is a digital currency which can be used for seamless, direct and speedy transactions between parties. You can have full control over your payments and accounts with total transparency. Since you are totally independent, you do not have to rely on central banks to allow your transactions. It manages your money is a distributed fashion that keeps your money safe and encrypted. You can make transactions directly in within seconds where the bank transactions can take hours and days.
How do the cryptocurrencies work?
Cryptocurrencies were developed over the foundation of a cryptographic invention known as blockchain technology. Blockchain supports multiple technologies, including cryptocurrency, without which blockchain would not exist.
Blockchain is a set of blocks made of complex mathematical problem based on cryptographic technology. The computers aim to solve their problems, and when they solve one problem, a block is complete. Whats makes a block unique is that when information inside of a block is changed, the block becomes invalid or broken. The only way to fix the block is to replace the wrong data with the original data.
Mining is the solving of blockchain to convert into the blockchain. People who solve these problems using computers are called miners. Mining can be very difficult and requires powerful processors to solve the blockchain puzzles. These computers can be costly and require heavy GPUs. For solving these math problems, the miners get rewarded with digital currency.
The miner needs to make sure that the transactions are valid and they do this by ensuring the person they are getting the coins from have enough coins. Miners can examine the existing blockchain or check the wallet of the person they are trading with. Since wallet can be public, it raises a few privacy concerns, but you can have as many wallets as you want. There are also some technologies and currencies that provide complete anonymity.
Security is the ultimate concern while dealing with currencies. There are several security measures for cryptocurrencies which are designed to ensure that miners and the complete network are secure. On a personal level, each wallet is highly secured with a private key which only gives access to the owner. The underlying blockchain is also secured against hacking as any alteration in the information of a block can make it invalid. For now, blockchain technology is highly encrypted and secured, which is why it is also used for creating security software.