How Does Cryptocurrency Works
Basic Concepts of How Does Cryptocurrency Works
Cryptocurrency is a virtual currency. It is a decentralized digital currency transferred between peers and confirmed in the public ledger via a process known as mining. First, we take a simplified look at the basic concepts of how does cryptocurrency works and then we will do the overview of the other properties.
Click on Below Video: How Does Cryptocurrencies Work?
How does Cryptocurrency Works?
1. Public Ledgers
All confirmed transactions from the source of a cryptocurrency’s creation are stored in the public ledger. The identities of the coin purchasers are encrypted, and the system uses other cryptographic techniques to secure the legitimacy of the record keeping. The ledger ensures that corresponding “digital wallets” can calculate an exact spendable balance. Every transaction can be verified to ensure that each transaction relates only coins currently owned by spender.
Click on Below Video: Public Ledgers Tutorial
In a cryptocurrency transaction process, the transfer of funds between two digital wallets is called a transaction. That transaction gets submitted to a public ledger and awaits confirmation. Wallets use an encrypted electronic signature when a transaction is done. The signature is encrypted in a piece of data which is called a cryptographic signature, and it provides a mathematical confirmation that the transaction came from the owner of the wallet. The transaction confirmation process takes a bit of time while “miners” mine. Mining confirms the transactions and adds them to public ledger.
Click on Below Video: Cryptocurrency Transaction
The process of confirming transactions and adding them to a public ledger is called mining process. To add a transaction to the ledger, the miner must solve a complex computational problem. Mining is an open source so anyone can confirm the transaction.
Click on Below Video: What is Bitcoin Mining?
First, the “miner” solve the puzzle adds a “block” of transactions to the ledger. The way in which blocks, transactions and public blockchain ledger work together to ensure that no one individual can quickly add or change a block at will. Once a block is added to a ledger, all correlating transactions are permanent, and they add in small transaction fee to the miner’s wallet. The mining process is what gives value to coins and is known as a proof of work system.
Other Properties of Concurrency
Cryptocurrency uses a system of cryptography to control the creation of coins and to verify transactions.
2. Open Source
Cryptocurrencies are open source. It means that developers can create APIs without paying any fee and anybody can use or join the network.
A centralized government controls most currencies in circulation so a third party can regulate its creation. Cryptocurrency’s creation and transactions both are open sources, controlled with code, and rely on “peer-to-peer” networks. No single entity can affect the currency.
A physical object defines traditional forms of currency, but crypto-currency is all digital. Digital coins are stored in digital wallets and transferred to other digital wallets.
5. Proof of Work
Most cryptocurrencies use a proof-of-work system. This scheme uses a hard-to-compute but easy-to-verify the computational problem to limit exploitation of cryptocurrency mining. It is related to a difficult to solve “captcha” that requires lots of computing power.
Click on Below Video: Pros and Cons of Cryptocurrency
To learn more on how does cryptocurrency works, visit some of the other, more technical crypto blogs on our website to dive deeper into the inner functioning of cryptocurrency.