The Basics of Cryptocurrency and How It Works

In the times we live in, technology has made incredible advancements compared to any time in the past. This evolution 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 latest inclusions in this aspect is encryption.

Cryptocurrency is nothing but digital currency, which was designed to impose security and anonymity in online monetary transactions. It uses cryptographic encryption to generate currency and to verify transactions. New coins are created by a process called mining, while transactions are recorded in a public ledger, which is called Transaction Block Chain.

Little step back

The evolution of cryptocurrency is mainly attributed to the virtual world of the web and involves the procedure of transforming readable information into a code, which is almost uncrackable. Thus, it becomes easier to track purchases and transfers involving currency. Cryptography, since its introduction in the Second World War to secure communication, has evolved in this digital age, mixing with mathematical theories and computer science. Thus, it is now used to ensure not only communication and information, but also money transfers in the virtual web.

How to use cryptocurrency

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

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

Cryptocurrency wallets

A cryptocurrency wallet is nothing more than a software program, which is able to store private and public keys. In addition to this, it can also interact with different blockchains, so users can send and receive digital currency and also keep track of their balance.

How digital wallets work

In contrast to the conventional wallets that we carry in our pockets, digital wallets do not store currency. In fact, the concept of blockchain has been so cleverly confused with cryptocurrency that currencies are never stored in a particular place. Nor do they exist anywhere in hard cash or physical form. Only records of your transactions are stored in the blockchain and nothing else.

A real life example

Well, a friend sends you a digital currency, say in the form of bitcoin. What this friend does is it transfers the ownership of the coins to your wallet address. Now, when you want to use that money, you have unlocked the fund.

To unlock the fund, you need to match the private key in your wallet with the public address that the coins are allocated to. Only when both private and public addresses match, your account will be credited and the balance in your wallet will be inflated. Meanwhile, the sender’s balance of the digital currency decreases. In transactions related to digital currency, the actual exchange of physical coins never takes place in any instance.

Understand cryptocurrency address

By nature, it is a public address with a unique string of characters. This allows a user or owner of a digital wallet to receive cryptocurrency from others. Each public address, which is generated, has a corresponding private address. This automatic match proves or establishes ownership of a public address. As a more practical analogy, you can consider a public cryptocurrency address as your email address to which others can send emails. Emails are the currency people send you.

Understand the latest version of technology, in the form of cryptocurrency is not hard. One needs a little interest and spend time on the net to get the basics clear.