The Basics of Cryptocurrency and the Way It Works


In the time we live in, technology has made incredible strides compared to any time in the past. This development has redefined human life in almost every aspect. In fact, this evolution is a continuous process and thus, human life on earth is constantly improving day by day. One of the last inclusions in this aspect is cryptocurrencies.

Cryptocurrency is nothing but digital currency, which has been designed to enforce security and anonymity in online money transactions. It uses cryptographic encryption to generate money and verify transactions. New parts are created by a process called extraction, while transactions are recorded in a general ledger, called the transaction block chain.

Little backtracking

The evolution of cryptocurrency is mainly attributed to the virtual world of the Web and involves the procedure of transforming readable information into code, which is almost non-crackable. This makes it easier to track purchases and transfers involving the currency. Cryptography, since its introduction in World War II to secure communications, has evolved in the digital age, mingling with mathematical theories and computer science. Thus, it is now used to secure not only communications and information, but also money transfers over the virtual web.

How to use cryptocurrency

It is very easy for ordinary people to use this digital currency. Just follow the steps below:

  • You need a digital wallet (obviously, to store the currency)
  • Use the wallet to create unique public addresses (this allows you to receive the currency)
  • Use public addresses to transfer funds into or out of the wallet

Cryptocurrency wallets

A cryptocurrency wallet is nothing other than software, capable of storing private and public keys. In addition to that, it can also interact with different blockchains, so that users can send and receive digital currencies and also keep track of their balance.

How digital wallets work

Unlike conventional wallets that we carry in our pockets, digital wallets do not store currency. In fact, the blockchain concept has been so cleverly mixed with cryptocurrency that currencies are never stored in any particular place. They also don't exist in cash or in physical form. Only records of your transactions are stored in the blockchain and nothing else.

A concrete example

Suppose a friend sends you digital money, for example in the form of bitcoin. What this friend is doing is transferring ownership of the coins to your wallet address. Now, when you want to use that money, you unlock the fund.

To unlock the fund, you need to match the private key of your wallet to the public address to which the coins are assigned. It is only when these private and public addresses match, that your account will be credited and that your wallet balance will increase. Simultaneously, the sender's balance of digital currency will decrease. In transactions related to digital currency, the actual exchange of physical coins never takes place.

Understand the address of cryptocurrency

By nature, this is a public address with a unique character string. This allows a user or owner of a digital wallet to receive cryptocurrencies from other people. Each public address generated is associated with a corresponding private address. This automatic correspondence proves or establishes ownership of a public address. As a more practical analogy, you can think of a public cryptocurrency address as your email address to which others can send emails. Email is the currency people send you.

Understanding the latest version of the technology, in the form of cryptocurrency, is not difficult. It takes a little bit of interest and spending time on the net to clarify the basics.

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