Cryptocurrency, a digital asset designed to work as a medium of exchange refers to digital money or virtual currency that uses cryptography to secure its transactions and verify the transfer of assets. Today, cryptocurrencies have turned into a global phenomenon known to most of the people for the remarkable rise in its Value.
People are now keen to have more awareness regarding cryptocurrencies and some got huge profits from this decentralized digital cash. The 21st century is surely going to be the era of cryptocurrency rule.
THE WORKING MECHANISM, EXPOSED
Cryptocurrency has no centralized banking and economic systems and is accessible by everyone. But this decentralized feature is what makes it a bit complicated and technical for the common people to use and transact with others. In the decentralized network, there is no involvement of a single server due to which every single entity in the network has to maintain a list of all transactions.
For easy understanding, cryptocurrencies are basically limited entries in a database accessible to all but only if they fulfill specific conditions. Currently, there are several kinds of cryptocurrencies like Bitcoin, Ethereum, Ripple, Litecoin etc from which Bitcoin is the first and most popular cryptocurrency.
Considering an example, we can easily understand the working of cryptocurrencies. When someone requests a transaction, it gets assigned with a public key cryptography for encryption. This transaction request is then broadcasted to a peer to peer network consisting of computers till it reaches its destination. This transaction is known to every computer in the network and gets validated in each for further traversal. Transaction gets confirmed when they get place in a block which is mined by miners( who can mine a block after solving hash calculation needed to mine a block) . Once confirmed and verified by the sender, it becomes a part of historical transactions called blockchain and traverses to another node and is confirmed again as newer blocks are formed.
MINERS TO THE RESCUE
Since cryptocurrency is decentralized, it needs to be verified at each node of the network for maintaining the authenticity and preventing any forged transactions. Miners play an effective role for this purpose. When any transaction arrives at a node or to a miner, miners starts the process of Mining. Mining is the process of solving mathematical equations of algorithm on which that cryptocurrency depends, complexity of this is measured by hashing power, which tells us how much hashing power is needed to mine a new block.
When they are solved as per that day’s complexity/Hashing power requirement a block is created in which transactions are mostly included and the miner is rewarded with what is owed for creation of a block. and in this way transactions are inserted in Blockchain by process of Mining.
Miners can be anyone with required skills/hashing power to decrypt the encryption. They also require computer systems with high-end graphics and memory for mining purpose and get rewarded with a token of cryptocurrency each time they solve their cryptographic puzzle and validate a transaction block for adding into blockchain.
TRANSACTIONS HAVE NOT BEEN THIS EASY
Cryptocurrency have no direct connection with the real-world economy, so it cannot called related to any kind of bank or any other digital money. It is very fast and has global acceptance. Whether the transaction takes place within or outside the country, it ensure faster money transfer. Except in case of adverse laws, no permission is required to use or transact any kind of cryptocurrency and it is accessible by all. it has no physical form and no intrinsic value i.e. it cannot be redeemed for any kind of commodity.
With the continuous rise in value, cryptocurrencies are now a field of attraction and fascination among people. People are now keen to invest their money in cryptocurrencies considering these as digital gold, whose value has been increasing at a superfast rate. Being free from any bank or political influence and possessive of incredibly dynamic properties, cryptocurrencies are now making their way to be the currency of future.