Cryptocurrency can be defined as the encrypted and decentralized digital currency which can be tranferred in between two peer and get confirmed in public ledger through a process called mining.
Basic Terminologies of Cryptocurrency
To understand how Crptocurrency actually works, you'll need to understand some basic concepts.
Public Ledgers: Public Ledgers is a list of all the confirmed transactions taken place from the start of creation of a Cryptocurrency. The list includes the identity of coin owners which is totally encrypted and the amount of Cryptocurrency he/she earned from start to present time through mining process. The Amount is specified in terms of "BTC". Public Ledgers can also be called as "Transcation Blockchain".
Transactions: Transactions can be defined as the transfer of funds between two digital wallets. It works in such a manner like, when a transaction is made, the digital wallet use the encrypted digital signature to provide the mathematical proof that the transaction is coming from real owner of the wallet. This confirmation process takes a bit of time approximately 10 minutes in case of Bitcoin, while "Miner" mine.
Mining: Mining is simply a process of confirming the transactions and adding it to Public Ledgers. In order to add the transaction to Public Ledger, "Miner" must solve an increasingly-complex computational problem which is similar to simple mathematical puzzle.
Cryptographic: Cryptocurrency uses the cryptographic method or encrption method to control the creation of coin and to verify the transaction.
Decentralized: Cryptocurrency is decentralized. It means that no single entity can regulate the Cryptocurrency while in case of other currencies, central government is required to regulate it. Both the creation and transaction of cryptocurrency are open-source and controlled by code. It rely on peer-peer networks.
Proof of Work: Most cryptocurrencies uses the "Proof of Work" schemes to compute the increasingly-complex computational problem. Generally, the "Proof of Work" schemes is used to avoid the exploitation of cryptocurrency mining. It is similar to solving the captcha which requires lots of computing powers.
How Cryptocurrency works
Cryptocurrency is used to make digital transaction between two digital wallets. Cryptocurrency like Bitcoin is decentralized i.e., do not regulate by central government, so the charges deducted to make transactions are way less as compared to the charges deducted from the transactions we make in other currencies.
Details of all the confirmed transactions between any two peer on the network are stored in the Public Ledgers or "Transaction Blockchain".
In this, with creation of every account number, its unique private key is generated along with it. When a transaction is made, the transaction message and unique private key generated get combined to generate the digital signature of the account owner. This generated digital signature is used to confirm that transaction is initiated from the side of real owner account. After confirming the real identity of owner, miners confirms the transaction and add it to the public ledger.
Public Ledger stores the list of name of account owner and its balance. This list is public to all, but instead of name, account number is displayed which provides some level of annonymity. NOTE THAT: Every account owner holds one copy of Public Ledger.
To understand with more clearity, let's take an example.
Suppose there are two users, "Alice" and "Bob" who make the transactions in cryptocurrency say Bitcoin.
Alice wants to sell his lawn to Bob at the price of 5 Bitcoin. When a transactaion is made from Bob side to send the 5 Bitcoin to Alice, Miner confirms the transaction after checking whether the sender has sufficient balance or not and digital signature. After confirming, the list of Public Ledger gets update where balance of Alice increased by 5 Bitcoin while balance of Bob get reduced by 5 Bitcoin.
Several currency exchanges are present in different countries where you can buy and sell Bitcoins in dollars, Euros and more.
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