Since the advent of Bitcoin in 2009, cryptocurrencies have multiplied and it is now relevant to question the functioning of a cryptocurrency. These currencies are now the subject of trade, speculation and even used to buy goods and services.
To address the question of how they work, we must first look at what cryptocurrencies are concretely.
Once their nature is clarified, it is worth looking at the concept of blockchain, the role that computing plays and the process of creating a virtual currency. All this makes it possible to better understand how a cryptocurrency works. What is a cryptocurrency?
Today there are more than 2,000 cryptocurrencies around the world. These cryptocurrencies have acquired over time a growing place in the world of finance. They are digital assets that work through a computer network, thanks to blockchain technology.
Unlike traditional currencies, cryptocurrencies do not require the presence of a trusted third party, an institution that would ensure the verification of transactions and ensure the prevention of fraud. To be considered currencies in their own right, these assets must:
- Be intermediaries of exchange and allow to buy goods and services, but also to invest;
- Build up reserves of value and make it possible to save, to accumulate wealth and thus, to sustain the economy;
- To serve as a unit of account and allow exchanges of all kinds between various economic actors, regardless of the currencies they use and the countries in which they live.
Today, cryptocurrencies are used for various purposes and recognized by a majority of actors, even institutional ones. Following the news on crypto currencies allows you to know the multiple uses. The mode of operation of a cryptocurrency
Understanding how cryptocurrencies work requires identifying the role that IT plays or how transactions are secured in the absence of a central bank responsible for monitoring and guaranteeing them. The role of IT
On the occasion of a transfer of money between two economic actors, banks have the function of verifying that the amounts to be transferred are actually available and to validate or not the transaction: they play the role of trusted third party.
The operation of a cryptocurrency differs from that of conventional currencies by the absence of banks among others. For these virtual currencies, it is the computer network, made up of computers, that performs the function of trusted third party and guarantees exchanges.
The validation of transactions is done by means of the computing power of the computers that make up the network and whose resources are dedicated to this task.
There is no central authority responsible for dedicating computing power to the validation of transactions. Anyone can therefore dedicate their computer to this task: it is mining. Minors are encouraged by remuneration derived from the calculations made. Securing exchanges
In addition to managing transactions, in the traditional monetary system, central banks also have the task of securing these transactions, but also of controlling and regulating the issuance of money. Click here to learn more.
For the operation of a cryptocurrency, all these missions are carried out by the computer network thanks to a specific technology: the blockchain. Also called blockchain, this technology refers to a computer protocol.
In fact, the blockchain corresponds to a public ledger, freely accessible, and which contains copies of all transactions made through the cryptocurrency. This page presents how to access the Bitcoin blockchain.
Since the protocol is in charge of the computer network, it is distributed among all the computers that make up this network. It is therefore impossible to falsify until proven otherwise, and what is marked there is definitively so, without the possibility of alteration. The issuance of cryptocurrency
For the operation of a cryptocurrency, the blockchain is made of blocks, comparable to pages of an account book. When a new block is created, for a defined period of time, entries are numerically encoded on this block, depending on the transactions made.
The computing power of the computer network consisting of computers is then used to verify the authenticity of the entries. This is the mining phase; it is intensive in computer resources and ensures the operation of the network.
Once this stage of the operation of a cryptocurrency is completed, miners receive remuneration for the task performed.
