The basics of cryptocurrency and the way it works

In the times we live in, technology has made incredible advances 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 therefore 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 designed to impose security and anonymity in online money transactions. It uses cryptographic encryption to generate currency as well as to verify transactions. New coins are created by a process called mining, while transactions are recorded in a public ledger, called a chain of transaction blocks.

A little comeback

The evolution of cryptocurrency is largely attributed to the virtual world of the Web and involves the process of converting readable information into code, which is almost impossible. Therefore, it becomes easier to track purchases and transfers that involve currency. Cryptography, since its introduction in World War II to ensure communication, has evolved into this digital age, merging with mathematical theories and computing. Therefore, it is now used to protect not only communication and information, but also money transfers via a virtual network.

How to use cryptocurrency

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

  • You need a digital wallet (obviously, to store currency)
  • Use your 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 a software program that can store both a private and a public key. In addition, it can also interact with various blockchains so that users can send and receive digital currencies and also track their balance.

How digital wallets work

Unlike conventional wallets that we carry in our pockets, digital wallets do not store money. In fact, the concept of blockchain is so cleverly blended with cryptocurrency that currencies are never stored in a particular location. Nor do they exist anywhere in cash or in physical form. Only records of your transactions and nothing else are stored in the blockchain.

A real life example

Suppose a friend sends you digital currency, say in the form of bitcoin. What this friend is doing is transferring ownership of the coins to your wallet address. Now, when you want to use that money, you unlock the fund.

To unlock the fund, you must pair the private key in the wallet with the public address to which the coins were assigned. Only when these private and public addresses match will your account be assigned and the balance in your wallet will increase. At the same time, the condition of digital currency senders will decrease. In digital currency-related transactions, the actual exchange of physical coins never occurs in either case.

Understanding cryptocurrency addresses

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

Understanding the latest version of cryptocurrency technology is not difficult. It takes a little interest and spending time online to clarify the basics.