Cryptocurrency basics and how it works

In the times we live in, technology has made incredible progress compared to any time in the past. This evolution has changed 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 cryptocurrencies.

Cryptocurrency is nothing but a digital currency that has been developed to ensure the security and anonymity of online monetary transactions. It uses cryptographic encryption to both create currency and verify transactions. New coins are created through a process called mining, while transactions are recorded in a public ledger called the transaction block chain.

A little way back

The evolution of cryptocurrency is mainly related to the virtual world of the Internet and involves the procedure of converting legible information into a code that is almost impossible to crack. This makes it easier to track purchases and transfers involving currency. Cryptography, since its introduction during World War II to secure communications, has evolved into this digital age, blending with mathematical theories and computer science. Therefore, it is now used to provide not only communication and information, but also money transfers through a virtual network.

How to use cryptocurrency

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

  • 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 to or from your wallet

Cryptocurrency wallets

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

How digital wallets work

Unlike the regular wallets we carry in our pockets, digital wallets do not store currency. In fact, the blockchain concept has been so intelligently mixed with cryptocurrency that currencies are never stored in a specific location. They are also nowhere to be found in monetary or physical form. The blockchain only stores records of your transactions and nothing else.

An example from life

Let’s say a friend sends you digital currency, say Bitcoin. What this friend does is it transfers ownership of the coins to your wallet address. Now, when you want to use this money, you unlock the fund.

To unlock the fund, you need to match the private key in the wallet with the public address that the coins are assigned to. Only if these private and public addresses match will your account be credited and your wallet balance will increase. At the same time, the balance of the sender of the digital currency will decrease. In digital currency transactions, the actual exchange of physical coins never takes place anyway.

Understanding Cryptocurrency Address

By its nature, it is a public address with a unique string of characters. It allows the user or holder of a digital wallet to receive cryptocurrency from others. Each public address that is created has a corresponding private address. This automatic matching 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. Emails are the currency people send you.

It is not difficult to understand the latest version of technology in the form of cryptocurrency. It takes a bit of interest and time on the net to understand the basics.