• 14 Jun, 2024

What is a Cryptocurrency and How Does it Work?

What is a Cryptocurrency and How Does it Work?

Cryptocurrency is a fairly new form of money that functions in a totally different manner from the conventional currency we use on a daily basis. The main difference is that it's an online currency, which means that there aren't physical notes or coins that you could carry around in your pocket.

The term "crypto" in cryptocurrency refers to the particular method of decrypting and encrypting data called cryptography that is utilized to protect all transactions between users. Cryptography plays an essential function in allowing users to easily transfer coins and tokens among themselves and without intermediaries like a bank. It helps keep the balance of every person's account and make sure that the network stays safe.

CryptoCurrency Works on Block chain Technology

Blockchain technology is the basis for cryptocurrency Blockchain is an electronic ledger that records transactions. The ledger (or database) is distributed through computer systems on a network. There is no single system that controls the ledger. Instead, a distributed network of computers maintains a blockchain and authenticates transactions.

Blockchain advocates claim that it will improve transparency, improve trust and increase the security of data that is distributed across networks. Some critics say that blockchain technology can be slow, inefficient costly, and require a lot of energy.

Two fundamental aspects of cryptography are applicable to cryptocurrencies namely hashing and digital signatures

  • Hashing verifies data integrity, preserves the blockchain's structure and encodes the account information of people and transactions. It also creates cryptographic puzzles that make block mining feasible.
  • Digital signatures let a person have a piece of encrypted data without divulging the data. Through cryptocurrencies, this technique is utilized to verify the transactions in monetary value and also to prove ownership.

The types of cryptocurrencies

Ethereum (ETH)

Litecoin (LTC)

Cardano (ADA)

Polkadot (DOT)

Bitcoin Cash (BCH)

Stellar (XLM)