A cryptocurrency is a digital currency created through code. They operate autonomously outside the confines of traditional banking and government systems.
Cryptocurrencies use cryptography to secure transactions and regulate the creation of other units. Bitcoin is the original and by far the most famous cryptocurrency. Today, more than 1000 cryptocurrencies are available for trading online.
Cryptocurrencies fall under the umbrella of digital currencies, alternative currencies and virtual currencies. They were created to provide an alternative payment method for online transactions.
As a decentralized currency, its development is not overly constrained or influence d by governments, while the cryptocurrency economy is monitored by peer-to-peer internet protocols. The individual units that make up a cryptocurrency are encrypted strings of data encoded to represent one unit.
Bitcoin is considered the first decentralized cryptocurrency. Like all cryptocurrencies, it is controlled through a blockchain transaction database, which acts as a distributed public ledger.
A characteristic of most cryptocurrencies is that they are designed to slowly reduce production. Therefore, only a limited number of currency units will circulate.
Key Features of Cryptocurrencies
There are a number of key principles that govern the use, exchange, and trading of cryptocurrencies.
Encryption
Cryptocurrencies use advanced encryption techniques in a number of ways . Cryptography evolved from the need for secure communication methods in World War II, aiming to convert easily readable information into encrypted code. Cryptography has come a long way now, and in today’s digital world, it is largely based on computer science and mathematical theory. It also draws on communications science, physics and electrical engineering.
Two main elements of cryptography apply to cryptocurrencies – hashing algorithms and digital signatures:
Hash Algorithm
Verify data integrity, maintain blockchain structure, and encode people’s account addresses and transactions. It also generates cryptographic puzzles that make block mining possible.
Digital Signature
Allows individuals to prove that they possess a piece of encrypted information without revealing that information. For cryptocurrencies, this technology is used to sign currency transactions. It proves to the network that the account owner has agreed to the transaction.
Blockchain Technology
A blockchain is a decentralized public ledger or list of cryptocurrency transactions. Completed blocks consist of the latest transactions and are recorded and added to the blockchain.
In chronological order, they are stored as open, permanent and verifiable records. This allows everyone to track transactions without the need for central record keeping.
Blockchain technology creates a record that cannot be changed without the consent of the rest of the block. .
Block Mining
Block mining is the process of adding new transaction records to the blockchain as blocks. During this process – using bitcoin as an example – new bitcoins are created, increasing the total number of tokens in circulation. Mining requires a specific piece of software for solving mathematical puzzles, and this verification that the legitimate transactions that make up a block is a block. When the software resolves a transaction, miners receive a certain amount of bitcoin. The faster a miner’s hardware can process math problems, the more likely it is to validate transactions and earn bitcoin rewards.
