Lots of people keep asking what is Cryptocurrency and how does it work? Everybody has lots of confusion about cryptocurrency Lots of people don’t know how they work. So, in this article, I will answer all your questions. I will gonna tell you what is cryptocurrency, How it is started, how it works and what cryptocurrency mining.
Cryptocurrencies become the global phenomena lots of individuals around the world want to take knowledge and invest in these currencies. These currencies are attracting lots of people. In this post, I will give you the whole detail about cryptocurrencies.
WHAT IS CRYPTOCURRENCY
Currencies which have all the things listed below can be called as cryptocurrencies
- DIGITAL: All cryptocurrencies are digital and only exists on computers or phones. There is no notes and coins. You can buy, sell and exchange them online.
- PEER TO PEER: Cryptocurrencies can be passed from one person to another person online you don’t need any third party like PayPal, Paytm, Banks etc.
- DECENTRALIZED: Cryptocurrencies don’t have any central server. They are distributed to thousands of servers.
- ENCRYPTED: Crypto means hidden. In cryptocurrencies, everybody has a special code so, it’s almost impossible to hack cryptocurrencies. All the transaction in cryptocurrencies is safe and secure.
- GLOBAL: Every country has its own currencies so, it’s very difficult to exchange them like you can’t exchange dollars with rupees. Cryptocurrencies are currencies without boundaries. You can exchange these currencies easily without any problem.
HOW IT STARTED
During the 90’s most of the people didn’t even know how to use the internet. However, there were some clever folks who knew the power of the internet.
Some of there clever folks, called “cypher punks” thought that govt. has total control over there money and they won’t even trust third parties so, they thought of using cryptography which allows the users to have more control over there money and information. The only goal of cypher punks was digital cash but they failed.
In 2009, the first digital cash system was created “BITCOIN” and it was created by Satoshi Nakamoto.
In 2008, Satoshi Nakamoto published the bitcoin whitepaper which helped the other users to design cryptocurrency. On 12th January 2009, 10 bitcoin had been transferred to a coder named Hal Finney. In 2010 the first transaction had been made. A programmer bought 2 pizzas for 10,000 BTC. Today 10,000 BTC equals to around $40 million.
MINING: The miners of cryptocurrency try to solve some mathematical problems to place the next block in the blockchain and claim there reward
EXCHANGE: You can buy, sell, exchange and trade the currencies
WALLETS: These wallets are a kind of a software which enable the users to send and receive cryptocurrencies and monitor their transactions.
HOW IT WORKS
Every cryptocurrency consists of a network of peers. Every peer has lots of information like a history of all transactions, a balance of every account etc. The transaction is a file that says ” M gives XBTC to N ” and is signed by M’s private key. after signed by M, the transaction is sent from one peer to every other peer. The transaction is immediately known by the whole network but the transaction takes a time to be confirmed.
Cryptocurrencies are all about the confirmation. Only minors can confirm the transactions. Minors take the transaction, stamp then as legit and spread the transaction in the network. After the transaction is confirmed, every node has to add it to the database and it becomes the part of the blockchain.
Minors get the token of the cryptocurrency as a reward for their work.
WHAT IS CRYPTOCURRENCY MINING
Cryptocurrency mining can only be done by the crypto minors. It is not like a coal mine where we use a shovel. Let us take an example to understand this process easily:
- Suppose Anna announces that she is sending 1 BTC to Tony
- Miners will take the information and encrypt it, it is called hashing. To this information, they add other transaction information and hash them too. More and more information will be added and hashed until they form a block.
- Now the Miners will race against each other to guess the encrypted code that will be given to the new block before it added into blockchain. The minor who will get the code will be added to a new block in a blockchain.
- Now, all other nodes verify the transaction. They will check the whole blockchain and make sure the new information matches. This is called confirmation.
- Tony will get the BTC.
Crypto mining needs lots of computer power. On the bitcoin network, the minor who confirms the new block information is rewarded with 12.5 BTC.
Cryptocurrency has the power to change our life totally. The future of the cryptocurrencies are too bright they will surely gonna grow way too high in near future. In April 2011, one bitcoin = 1$ and in September 2018 one bitcoin = 6,295.76$.
What’s your opinion about cryptocurrency tell us in the comment.