How Cryptocurrency Works

how cryptocurrency works

How cryptocurrency works | In this article we will discuss on the topic “how cryptocurrency works”. Cryptocurrency like bitcoin, ethereum, ripple, litecoin, NEO are digital format of currency which runs on a different monetary set-up.

If you are a new user, just understand it simply. Cryptocurrency is like using a debit card or paypal, but the numbers on screen correspond to cryptocurrency instead of traditional fiat currency like pound or dollar. If you want to enter in this game than you should set-up a coinbase account.

“Coinbase is a secure platform, that allows peer to peer transaction like buy, sell and store cryptocurrency . You can transacts among Bitcoin, ethereum, bitcoin cash, litecoin etc. Coinbase is also a largest Bitcoin broker which is available to its users in over 55 countries. Basically it provides all-in-one solution like wallet, broking and exchange service for all big cryptocurrencyes ”.


How does cryptocurrency work

If you understand the basics of digital, then it will be very easy for you to understand how does cryptocurrency work. You must be doing mobile recharge online through credit card, debit card or net banking, digital transmission is also there. The only difference is, normal card transaction is not encrypted but transaction done with cryptocurrency is.

A complex digital system works in normal online transactions also. It also happens when a person does some shopping with his card in a store and transfers the amount of the bill. Currency transfers from one account to another and a mature digital banking system works while all these process happens.  But the difference is, normal digital transaction system operates under the care and protocols of a set governing body, whereas cryptocurrency is not controlled by any government body but on algorithmic ecosystem of blockchain. Decentralization is the basic nature of blockchain, which makes cryptocurrencies immune to the way government control and interfere the ecosystem.

In order to understand “how cryptocurrency works?” we need to know what is cryptocurrency. To get deeper we will divide this topic into 3 parts and understand each part separately.  1-what cryptography is,  2- what is blockchain and 3- what the relationship between block-chain and cryptocurrency is. After understanding each part separately, we will understand how cryptocurrency works

Definition according to Wikipedia–  Cryptocurrency is a digital asset works as a medium of exchange like currency, but uses very strong cryptography system to secure financial transactions, manage its creation, and verify the transfer of assets.

Name of some main cryptocurrencyes – Bitcoin, Ethereum, XRP, Tether, Bitcoin Cash, Bitcoin SV, Litecoin Etc.

What is cryptography

If you want to understand that how cryptocurrency works, you must understand that what crypticur is.  Here the  word suggests crypt means hidden and graphy means writing. Basically cryptography is a technique of protecting information and communications by using some organized or random codes. It can only be read by those for whom the information is intended.  If we understand it according to computerized cryptography techniques, this is a mathematical concepts and calculation based set of algorithmic system.

how does cryptocurrency works

Whenever a message is sent from one device to another device using these techniques, the algorithm ciphers that message in such a way that it is almost impossible to decode it without the decipher code.

This type of deterministic set of rules are used to generate cryptographic key, data privacy, digital signing and email communication.These methods are also used in card or online transaction to protect unwanted theft and phishing etc.

Techniques of cryptography

Here we are trying to understand that how does cryptocurrency works. It is also to know about the cryptography technique.

Cryptology is closely related to the obedience of cryptanalysis. Technique like merging images and words, changing words with another predefined words and other classified way to hide the information while transmission or storage are some popular techniques.

Blockchain and its relation with the topic “how cryptocurrency works”

ones you understand that what is blockchain and how it is linked with cryptocurrency, you really will understand that how really cryptocurrencies work.  Blockchain is a decentralized and digital public ledger or a special type of database.  Like the Internet, blockchain is also a revolutionary chapter in the history of time. Just as the Internet is made up of thousands of computer users, a blockchain is formed from a series of data blocks. In blockchain, the data are marked as separate blocks, and these blocks are interlinked. The process of data collection and transfer is digital and cryptographically secured. Blockchain technology can be called a combination of Internet, cryptography and blockchain protocol regulation techniques.

In cryptocurrency transaction once any transaction is entered into the blockchain, it cannot be removed nor can it be amended. It also does not require a reliable third party such as a bank for transactions. Details of each transaction are recorded in the ledger after being verified by networked.

how cryptocurrency work

What  is the relationship between block-chain and cryptocurrency

Blockchain is a decentralized encrypted digital ledger that is formed by connecting blocks one after another. This ledger is open to all, but it is not possible to change or amend it at any level. Whenever a transaction is completed, the details of that transaction are recorded in one block and the details of the next transaction are recorded in the next block along with the reference to the previous block.

The relationship of blockchain and cryptocurrency is like that of some banks and your deposits in it. If you transfer your money online from the bank, then the amount in your account decreases, and in bank statement you see a different amount which remains after the transfer. At this point, the bank acts as a blockchain and the bank account is like a block within the chain. In cryptocurrency blockchain there is direct fund transfer from one person to another. There is no mediator whereas in bank transfer bank acts as mediator and regulator. And the same process explains the relationship between cryptocurrency and blockchain.

How Bitcoin transaction works

When a person pays bitcoin in exchange for something, he sends bitcoin direct from his wallet to the address of another person. This transmission is peer-to-peer, but it occurs in a process. The sender initiates the transaction with their wallet and then wallet signs it with the private key of the sender. This transaction is further propagated between the network nodes and the miners include this transaction as a block so that it can be mined. The mining process starts, solving a complex mathematical puzzle with the help of high power computers. Any minor who can solve it first has to propagate the proof of work to network nodes. After being confirmed by network nodes the block is included in the chain. The transaction is complete.


How cryptocurrency works.

These days many type  cryptocurrencies are in circulation . The technology and record-keeping system used in each asset class may also be different.  Some cryptocurrencies do not run through the  blockchain system . but in this article we are discussing on cryptocurrencies based on blockchain only

Blockchain based cryptocurrency basically has 3 pillors. Cryptography technique + Currency + Blockchain. Here ledger  of the transaction remains in the form of a decentralized but encrypted virtual chain of blocks

Every transaction is accounted in one block of this chain for always. Once a transaction is validated, when entered in the blockchain, it cannot be deleted or changed because, each block is connected to its previous block through a hashed encrypted code.

To amend a single entry would mean the whole chain, which is impossible. Whenever a person makes a transaction, that transaction generates a high-level encrypted combined key by using their public key and private key.  Which is further propagated into the network of the nods of that cryptocurrency. Minors present in the network validate and enter the same into the blockchain.

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