What is cryptocurrency?
Every beginner needs a set of guidelines. This rule applies not only to playing the piano or building houses but to pretty much anything including dealing with cryptocurrency. In this new exciting world, a newbie might feel lost and confused, but this problem is easily solved with a decent guide that explains what is cryptocurrency as such and how it works on a very basic technical level. ChangeNOW is about to deliver some useful info on cryptocurrency for beginners.
What is cryptocurrency?
Cryptocurrency is a distributable digital currency that allows users to make direct, fast and efficient transactions. You hold full control over your cryptocurrency, so there is no need in relying on a third party – as we do in banks – to validate your transactions or perform them.
Cryptocurrencies are stored in digital wallets that are used to manage the payments and keep the coins secure. The wallets are protected with master keys (also known as private keys) which are basically a form of a very complex password. The master key in the thing that allows you to access the wallet and make transactions.
How do cryptocurrencies work?
Blockchain. I am sure you have heard of this word. The blockchain is a cryptographic invention that cryptocurrency (as well as many other things) is based on. Let’s put it like this – blockchain can live without crypto, but crypto cannot live without blockchain. But what exactly is this mysterious blockchain? It is a mathematical problem based on cryptographic technology that computer is trying to solve. Once it is solved, the block is complete. When a new block is being created, the system takes data from the previous block, creating a chain (yes, that’s where the name is coming from). If any data in one of the blocks is altered, the chain breaks and becomes invalid. So, the older the data is, the more secure the blockchain becomes.
What is mining?
Miners bundle together transactions and solve mathematical problems. This requires powerful computers and can be extremely challenging as these computers are usually very expensive and need lots of electricity to function properly. In order to encourage people to mine, there are usually prizes for their work such as new coins, transaction fees or both.
Besides actual problem solving, miners also validate the transactions. This is done by ensuring that a person attempting the transaction has enough money in the wallet with the help of existing blockchain. Blockchains are available for anyone to view, so it is possible to see the transactions made as well as the wallets. This might seem to be an issue of privacy, but, if you are concerned about it, there are technologies that allow complete anonymity while maintaining the integrity of the blockchain.
Distribution and Confirmation.
When miners solve a new block, it gets announced to the network to get acceptance. First transactions are verified by other miners to avoid fraud and then add new blocks to the latest blockchain. As additional blocks are added, older transactions are considered confirmed. Logically, the more confirmations, the more trusted the block is. As network verifies the transaction ledger, it is called distributed ledger.