What is Cryptocurrency? Cryptocurrency is a form of a digital asset. It is based on a network that is distributed across a large number of computers. This decentralized structure allows it to exist outside the control of governments and central authorities! To understand how all of this works, you must first understand what cryptocurrency is! Continue reading for Cryptocurrency Information and Support!
Cryptocurrency Definition
As a digital asset, cryptocurrency must meet the following requirements:
- Digital: Cryptocurrency only exists on computers. There are no coins and no notes! There are also no reserves for crypto! As a result, it is only secured by computer-generated math!
- Decentralized: Cryptocurrencies do not have a central computer or server. Instead, they are distributed across a network of thousands of computers. Therefore, a decentralized network is created without a central server.
- Peer-to-Peer: Cryptocurrencies pass from person to person online. Users do not deal with each other through banks or some other 3rd party! They deal with each other directly! As a result, there are no trusted third parties in cryptocurrency!
- Pseudonymous: This means that you do not have to give any personal information to own and use cryptocurrency!
- Trustless: No trusted third parties means that users don’t have to trust the system for it to work! Therefore, users are in complete control of their money and information at all times!
- Encrypted: Each user has their own special codes. This stops information from being accessed by other users! It is called cryptography, and is nearly impossible to hack!
- Global: Countries have their own currencies called fiat currencies. Sending fiat currencies around the world is difficult! On the other hand, Cryptocurrencies are easily sent all over the world which solves the fiat issues!
Although cryptocurrency must meet all of the above requirements, the thing that makes cryptocurrency different from fiat currencies and other attempts at digital cash is blockchain technology!
How Does Blockchain Work?
In the beginning, a blockchain is a database of every transaction that has ever happened using a particular cryptocurrency! Then groups of information called blocks are added to the database one by one and form a very long list. Therefore, a blockchain is a linear chain of blocks! However, once information is added to the blockchain, it can NEVER be deleted or changed. Therefore, it stays on the blockchain forever where everyone can see it! That, my friends, is the blockchain!
How Does Cryptocurrency Work?
Bitcoin Mining
Now that you understand the blockchain, let’s move on to how cryptocurrency works. Cryptocurrency transactions are verified using a process called “mining”. This is where people (called miners) try to solve mathematical puzzles first to place the next block on the blockchain and claim a reward! Bitcoin mining might sound like something you do with a shovel and a hard hat but it’s actually more like accounting! I know that this can all be quite overwhelming! Maybe an example can help clarify things.
Example
- Gary owes Mary 10 BTC (Bitcoin).
- Gary announces that he is sending Mary 10 BTC to the Bitcoin network.
- Then miners take the information and encrypt it. This is known as hashing.
- To this information, they add other transaction information and hash that too!
- More and more information is added and hashed until there is enough to form a block.
- The miners now race against each other! Before the block is added to the blockchain, the miners must guess the encrypted code (or block hash) that is given to the new block!
- Then the lucky miner that guesses the right code gets to add the new block to the blockchain!
- Now, all the other nodes on the network verify the transaction information in the new block. They check the whole blockchain to make sure that the new information matches. If it does, then the new block is valid, and the winning miner can add the new block to the blockchain! This is called confirmation.
- After confirmation, Mary receives 10 BTC from Gary.
On the Bitcoin network, new crypto is rewarded to miners who confirm new blocks of information! This is why it’s called mining! Instead of mining for gold or coal, crypto miners are digging for new Bitcoin! Mine for FREE Bitcoin HERE! Now that you know how blockchains and crypto mining work, let’s talk about how they are used.
Using Cryptocurrencies
Using cryptocurrencies isn’t like using fiat currency. You can’t hold cryptocurrency in your hand and you can’t open a cryptocurrency account! As a result, cryptocurrency only exists on the blockchain! So how is the cryptocurrency accessed?
Public and Private Keys
First, users access their cryptocurrency using codes called public and private keys. The keys work similarly to email. If you want to read your emails or send an email, you need to enter your email password. This is how private keys work. Therefore private keys are like passwords for cryptocurrency. Just remember, everyone sees your Public Keys! Only you see your private keys! Keeping your private keys safe is extremely important! Because whoever has both the private and public keys owns the cryptocurrency!
Wallets
Second, the public and private keys are stored in wallets. They enable users to send and receive digital currency as well as monitor their balance. Crypto wallets can be online, offline, software, hardware, or even paper! Wallets can also be free by download or hosted by a website.
Exchange
Third, the wallets are kept on an Exchange. We recommend Coinbase. An exchange is usually an online website where you can buy, sell or trade cryptocurrencies. Buying and selling cryptocurrencies is a very big business! The total value of all the cryptocurrencies in the world is more than 350 billion US Dollars! Therefore, a cryptocurrency market is an exciting place. Traders can make millions and then lose it all in a very short period of time!
In summary, cryptocurrency has changed the way people think about money! A lot of critics say it’s all hype. Well, I have some bad news for those people. Cryptocurrency is here to stay and it’s going to make the world a better place!
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