What and How does Cryptocurrency work

Have you ever heard of cryptocurrencies? You might have seen about them on social media and other advertising platforms. Have you wondered the reason behind emerging of cryptocurrency technology?  Cryptocurrencies are digital currency and digital assets. Sounds interesting, right. The concept of cryptocurrency is socially inept yet knowledgable. But the concept of cryptocurrency is very hard to understand for most people. Bankers, consultants, scientists and everyone has a basic knowledge of cryptocurrency. Many companies have already known its importance.

Do you want to know about what is cryptocurrency and how does it work?

Cryptocurrency is a decentralized digital asset that acts as a medium of exchange.

Do you think this medium of exchange is secure? Of course, they are. They use very strong cryptography to secure the transactions and transfer of assets. Cryptocurrencies are decentralized as they are opposed by the central banks. Cryptocurrencies are processed by a ledger technology called mining.

Cryptocurrency work through a distributed ledger technology. Distributed ledger technology is an agreement of replicated, shared, synchronized data that which is spread across different cities, sites and countries. One of the distributed ledger technology is Blockchain. Cryptocurrencies are processed by Blockchain technology. Breaking the complex meaning, cryptocurrency is a limited entry in a database where no one can change it.

Cryptocurrency is a network of peers. Each peer consists of records of transaction details of all accounts and the cryptocurrency balance of all the accounts.

Bitcoin is the very first decentralized cryptocurrency. Bitcoin is an open source software released in 2009. After bitcoins over 4000 altcoins are created. Satoshi Nakamoto is the inventor of Bitcoin. He developed a peer to peer electronic system. His main motto was to achieve a consensus without a central authority.

The advantage of the decentralized network is that with a single network your job of transactions will be done. It is very important to save a list of all the transactions to check for the possibilities of double transactions. They are so secure that nobody can hack.

How are cryptocurrency created?

Cryptocurrencies are created by a process called mining. It is a process used to create digital coins. Mining is the currency validation. When a cryptocurrency transaction is made, a miner is responsible for updating the blockchain with the transactions.

The process of mining is like a competition with other miners to solve the problems with hashing cryptography. Hashing is the process of receiving inputs of any length and delivers the output of fixed length. Bitcoin transactions are taken as input and tough hashing the output of fixed length is obtained. With the blockchain function with the transaction data. The miner will be rewarded with a cryptocurrency for resolving transactions. Isn’t that cool.

Advantages of bitcoin

  • Can be transferred directly from person to person
  • You don’t have to visit a bank which makes the fees very lower
  • Can be used in any country
  • Your account can’t be hacked
  • No arbitrary limits
  • Minimizes fees
  • No cost
  • Easy setup
  • No special charges

After knowing all about cryptocurrencies and how they are created. The next question that gets into your mind is how do cryptocurrencies work?

There are many exchange currency exist where you can buy and sell bitcoins for fiat money (inconvertible paper money which has a government legal tender)such as dollars, euros and other currencies. Bitcoins capture your digital wallet on your mobiles and desktops. You know, its actually easier to send a bitcoin than an email. You can buy anything using bitcoins. As earlier said Bitcoin transactions are secured by miners. After the transactions are recorded in public ledger anyone can view the code as the software is an open source.

What is the difference between fiat money and cryptocurrency?

Fiat Money Cryptocurrency
  •  Centralized
  •  Decentralized
  •  Stable and controllable
  •  Works as a medium of exchange
  •  Paper money and coins
  •  Digital currency
  •  Backed by government
  •  Can be backed by a number of things
  •  The value of fiat money may decrease with time
  •  The value of bitcoins remains the same
  •  For fiat money centralized transactions are necessary
  •  Cryptocurrencies are available by just a click on the button
  •  High transaction fees
  •  Lower or no transaction fees
  •  Centralized money transfer from a bank to a person
  •  Peer to peer electronic cash

Cryptocurrency is safe, secure and user- friendly where both the miner and the customer can be benifited.

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