Are you curious about what is Cryptocurrency and how it works? Firstly, Cryptocurrency is a form of digital money that is designed to be secure and also anonymous.
It is a currency which is associated with the internet and uses cryptography. Also, it is the process of converting legible information into an almost untraceable code, which also tracks purchases and transfers. Cryptography was originally needed for secure communication during Second World War. But, now it has evolved with the elements of mathematical theory and computer science. And, now it has become a way to secure communication, information and money online.
Some basics of Cryptocurrency
The first ever Cryptocurrency was Bitcoin, created in 2009 and still it is the best known. The cryptocurrencies have grown so much since the past decade. And today there are more than 1,000 available on the internet. Cryptocurrencies run on a totally new monetary system, which is not regulated by any centralized authority or tracked by a formal institution. Cryptocurrencies are supported by decentralized peer-to-peer network called as blockchain. Blockchain technology keeps track of Cryptocurrencies, whether they are being held in a digital wallet or being used in trading. Click here to know more about Blockchain Technology.
However, to run such system, it requires an infrastructure that ensures there is no cheating and gaming the system is not possible. In this system each and every person has a public and private encryption key. Furthermore, the sender and the receiver must sign off on payments to create a digital signature. Which is possible through the encryption key. Also, every transactions are verified, the system is anonymous and there is totally transparent.
How Cryptocurrency works
Each Cryptocurrency contains a ledger, which makes all transactions public so that total visibility is possible. The idea of having a ledger is to force everyone to ‘play fair’ and also takes away the risk of double spending.
Furthermore, the ledger is simply a list of entries which is stored in a database. Without fulfilling a specific condition you cannot change the ledger. The ledger and the Cryptocurrency blockchain is not owned by anyone. They are decentralized which means they self-run and are self-governed without the interference of outside parties.
How the transactions are verified
Let’s say that you invest in Cryptocurrency, such as Bitcoin, through a major Cryptocurrency exchange. And after purchasing it, you spent it. At first, the transaction is unconfirmed which means the transaction is not yet official. It is only verified after going through a verification process. Once it is confirmed, the transaction becomes part of the record of transactions housed on the blockchain.
Now, Cryptocurrency Miners verifies the transaction and finally add them to the public ledger. The process of verification is solved by using a complex math problems in a powerful computer.
The Miners are rewarded for their work, after adding a block to the ledger. The reward varies which is based on the Cryptocurrency. For example, Bitcoin was originally rewarded 50 BTCs, but now the reward has decreased to half i.e. 12.5 BTCs.