You’ve probably heard of cryptocurrencies: Bitcoin, Ethereum, and Dogecoin have all become words we hear in the news or read online. But what exactly is cryptocurrency and how does it work?
Cryptocurrency vs Regular Currency
For now, we hope you have some money in your pocket in the form of dollars, euros or rupees, depending on what your country offers as currency. This money gains value through a rigorous system that is managed in part by governments, as well as by certain market mechanisms that are very involved in getting here. This article from De Balans serves as a powerful introductory book.
Cryptocurrency is fundamentally different from this. Instead of being physically present – banknotes and coins in your pocket – it exists entirely digitally, without the authority of the government to support it. Instead, it relies on free-market mechanisms to determine its value: what people are willing to pay for it determines its value.
Of course, without a central issuing authority, inflation can become a real problem: anyone can claim to have a thousand or a million cryptocurrencies at any given time, and there’s nothing anyone can do to stop it. If you create your own U.S. dollars, you will be arrested for counterfeiting. If you create a cryptocurrency out of nothing, nothing happens. Cryptocurrency Blockchain
This issue was one of the biggest issues related to cryptocurrency until it came to Satoshi Nakamoto – which is a pseudonym for a person or group, which no one knows for sure except Satoshi – with the blockchain. It’s a very complex technology, but the bottom line is that it’s an online ledger that anyone can view, but not everyone can customize.
Just like a ledger that an old-fashioned accountant would keep (for example, it is bent over the Ebenezer Scrooge is a ledger), the blockchain records how many cryptocurrencies are and who owns and spends them. It does this in so-called blocks, hence the name “blockchain”. Below is an example of a working ledger.
The ledger keeps track of how much of a cryptocurrency (Bitcoin in the example above) was issued, when it was issued, and who issued it. While your identity is protected by a pseudonym — random numbers and letters called hashes — when using most cryptocurrencies, none of them are truly anonymous, with few exceptions. Even Bitcoin is not “anonymous” as many people think. Putting crypto in cryptocurrency
The ledger is only one side of the equation. While it’s very good to have an overview of the cryptocurrencies coming in or going out, ledgers can be easily manipulated. You used to use an eraser or some bleach to hide expenses, now you can do the same with some advanced tools.
One way to protect against these problems is the openness of blockchain technology: if everyone can see what’s going on at any time, it should be easy to quickly see if something strange is going on. The other way is to take advantage of the power of encryption, or encrypt the input data and then decrypt it if necessary.
In the case of cryptocurrencies, this is usually done with passwords to ensure that the user is the same as he says, or rather that his wallet – where the cryptocurrency is stored – is his. Since the wallet username is usually hashed, as we’ve seen before, it’s important to make sure users remember their passwords.
There are many examples of people who have forgotten their password and shut themselves off from cryptofortune. Buying and Mining Cryptocurrency
Now that the cryptocurrency theory is out of the way, let’s see how it works in practice. To start using cryptocurrencies, you need to go to an exchange like Coinbase أو Kraken To buy the cryptocurrency of your choice with ordinary money. We have a guide on how to buy Bitcoin if you want to know more; The guide also applies to other cryptocurrencies.
There are other ways to get most of the cryptocurrency, namely through the so-called mining. However, this is not the same as swinging an axe: instead, a computer checks whether new blocks of existing cryptocurrency are real or fake. Then the payment for this service will be made in the same currency. It is the only way to issue new units of cryptocurrency and therefore the best way to get more of it.
Given the insane amount of computing power required to process the data needed to verify new blocks, there’s a chance smoke will come out of your custom-made gaming machine before you’ve mined even a few dollars. A lot of computing power is needed, actually mining is no longer the domain of enthusiasts, but a field for entire companies. Even criminal gangs are involved — and make millions. Storing and spending Bitcoin
Assuming you just bought the cryptocurrency of your choice, you still need a place to store it: unlike cash, bitcoin and ethereum can’t be sewn into your mattress. For this you need a wallet. These come in the form of software and hardware and can store your blockchain information.
Software wallets are often offered by exchanges – although you can sign up for a separate wallet, Bitcoin .site It includes a selection – which is simply an online service where Bitcoin can be stored. Many of them were well protected, although they often fell prey to hackers.
The alternative is a hardware wallet, which is really just a private USB stick that tracks the blockchain for you. Examples are Vault و Ledger. It’s pretty cool though, so again, if you lose or forget your password, your encryption is gone.
Once you’ve found the wallet, all you have to do is decide what to spend it on. Many online services allow you to pay with cryptocurrency, and this is very simple: just click on the right buttons and you’ll be fine. Alternatively, you can leave it in your wallet and watch the price rise higher and higher (or fall altogether).
