WHAT IS CRYPTO CURRENCY & HOW IT WORKS

 

A digital or virtual form of money, cryptocurrency uses cryptographic methods to restrict the creation of new units, secure transactions, and validate asset transfers. This is a description of how cryptocurrencies operate:

1 Decentralised Network:

 Unlike centralised institutions like banks or governments, cryptocurrencies run on decentralised networks of computers, called nodes. A single entity cannot control the money or the network thanks to its decentralised structure.

2 Blockchain Technology:

 The majority of cryptocurrencies are powered by blockchain technology. A distributed ledger known as a blockchain keeps transparent and tamper-evident records of every transaction made via a network of computers. The blockchain has a record of transactions in each block.

3 Peer-to-Peer Transactions:

 Thanks to cryptocurrencies, users may send and receive money directly to and from other members of the network, bypassing the necessity of middlemen like banks or payment processors. A decentralised, transparent process involves broadcasting transactions to the network, having network nodes verify them, and then recording them on the blockchain.

4 Cryptography

The safeguarding of the confidentiality and authenticity of cryptocurrency transactions is largely dependent on Cryptography. It entails securing transactions, regulating the production of new units, and validating the transfer of assets through the application of cryptographic algorithms. To establish digital signatures that authenticate transactions and safeguard user privacy, public-key cryptography in particular is frequently utilised.

5 Mining and Consensus Mechanisms: 

The validation of transactions and network security are achieved by a lot of cryptocurrencies through a process called mining. In exchange for their use of potent computers to solve challenging mathematical riddles, miners are paid with newly created coins and transaction fees. To reach consensus among network users and avoid double-spending, different cryptocurrencies use different consensus techniques, such as Proof of Work (PoW) or Proof of Stake (PoS).

6 Wallets and Addresses:

 Digital wallets allow users to conduct cryptocurrency transactions by storing their cryptographic keys and facilitating payment sending and receiving. To send and receive money on the network, each user has a distinct cryptographic address that acts as their digital identity.

In general, cryptocurrencies allow for fast peer-to-peer transactions and financial sovereignty for users by providing a decentralised, transparent, and safe substitute for conventional payment methods and forms of currency.