You’ve probably heard of cryptocurrencies: Bitcoin, Ethereum, and Dogecoin have 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 that 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 is valued in part by a rigorous system run by governments, as well as by certain market mechanisms that are very much about getting here. This article from The Balance serves as a powerful introductory book.
Cryptocurrency is fundamentally different from this. Instead of having a physical banknote and coin 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 own a thousand or a million cryptocurrencies at any moment, and there’s nothing anyone can do to stop it. If you create your own U.S. dollar, you will be arrested for counterfeiting. If you create a cryptocurrency out of thin air, nothing happens. Cryptocurrency blockchain
This problem was one of the biggest problems with cryptocurrency until it came to light. Satoshi Nakamoto – this is a nickname for a person or group that no one knows for sure except Satoshi – with the blockchain. This is a very complex technology, but it becomes an online ledger that everyone can see, but not everyone can change.
Much like the ledger that a former accountant would keep (for example, this ledger leaning over Ebenezer Scrooge is the ledger), the blockchain records how many cryptocurrencies there are and who owns them and spends them. It does this in so-called blocks, hence the name “blockchain”. The following is an example of a working ledger.
The ledger keeps track of how much of any cryptocurrency (Bitcoin in the example above) was spent, when it was spent, and who spent it. Although your identity is protected by a pseudonym (random numbers and letters called hashes), none of them are truly anonymous when using most cryptocurrencies, with a few exceptions. Even Bitcoin is not as “anonymous” as many people think. Putting crypto in cryptocurrency
The notebook is only one side of the equation. While it’s very good to have a record of cryptocurrencies entering or exiting, ledgers can be easily manipulated. You used to use an eraser or 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 anyone can see what’s happening at any given time, it should be easy to quickly tell if there’s anything strange going on. The other way is to take advantage of the strength of the encryption or encrypt the input data and then decrypt it as needed.
In the case of cryptocurrencies, this is usually done with passwords to ensure that it is the same as what the user says, or rather, that the wallet in which the cryptocurrency is stored belongs to him. Since the wallet username, as we have already seen, is usually hashed, it is important to ensure that users remember their passwords.
There are many examples of people forgetting their passwords and locking themselves into the crypto fortune. Buying and mining cryptocurrencies
Once the theory of cryptocurrency has disappeared, let’s take a look at how it works in practice. To start using cryptocurrencies, you will need to go to an exchange like the one below. Coinbase أو Sea Monster to buy the cryptocurrency of your choice using regular money. If you want to know more, we have a guide on how to buy Bitcoin; The guide also applies to other cryptocurrencies.
There are other ways to obtain most of the cryptocurrency, namely through so-called mining. But this is not the same as swinging an axe: instead, a computer checks whether new blocks of the existing cryptocurrency are real or fake. Then the payment for this service is made in the same currency. It is the only way to issue new cryptocurrencies and therefore the best way to get more.
However, given the incredible amount of computing power required to process the data needed to validate new blocks, there’s a chance of smoke coming out of your custom-made gaming machine before you mine a few more dollars. A lot of processing power is needed, in fact, mining is no longer the domain of enthusiasts, but an area. for all companies. Even criminal gangs are involved and make millions. Store and spend Bitcoin
Assuming you’ve just bought the cryptocurrency of your choice, you still need a place to store it: Unlike cash, bitcoin and ethereum can’t be planted in your bed. For this you will need a wallet. These come in the form of software and hardware, and the blockchain can store your information.
Software wallets are usually offered by exchanges – but you can sign up for a separate wallet. Bitcoin.site Includes a selection – this is an online service where only Bitcoin can be stored. Although they often fall prey to hackers, the security of many of them was good.
The alternative is a hardware wallet, which for you is almost exclusively a private USB stick that tracks the blockchain. Examples are the safe deposit box و the general ledger. It’s pretty cool though, so again, if you lose or forget your password, your encryption will be lost.
Once you’ve decided on your wallet, all you really need to do is decide what you’re spending it on. Many online services allow you to pay in cryptocurrency, and it is very easy to do this: you just need to click on the right buttons and there will be no problem. Alternatively, you can leave it in your wallet and watch its price rise and fall (or fall altogether).