By now, you probably have heard of at least Bitcoin, the most famous cryptocurrency out there, and if you are reading this article, it means just like me when I first started, you are wondering what cryptocurrencies are, so without further ado, let’s dive into it.
What Is A Cryptocurrency
Unlike traditional monetary systems, cryptocurrencies are digital or virtual money designed to work as a medium of exchange. Transferred between peers, a technology called blockchain records it on a digital public ledger. It uses cryptography to secure and verify transactions as well as to control the creation of new units of a particular cryptocurrency. Since it is controlled by users and computer algorithms and not a central government, it is decentralized, which is what makes it so unique, so if you do not trust the government or the traditional monetary systems, cryptocurrencies are the exact thing for you. The blockchain is hosted on many computers across the globe, so it is distributed, and in order to trade you must sign up in a cryptocurrency exchange website and put your crypto holdings in it, just like stock exchanges
How Does Cryptocurrency Work
“Cryptocurrency Wallets” software is how the transactions between peers are sent, the person making the transaction has to use the wallet software in order to transfer the funds from one account to another. In order to transfer the balance, you must have the private key associated with the needed account. Going forward, before the transactions get added to the public ledger, they encrypted and broadcasted to the cryptocurrency’s network. Transactions are then recorded on the public ledger via a process called “mining”. The amount of transactions is public, but from where or whom they are coming from are encrypted. Just like in the banking system, where when you own a bank account, you own the money in it, Each transaction leads back to a unique set of keys. Whoever owns a set of keys, owns the amount of cryptocurrency associated with those keys.
What Is Blockchain
In one of our previous article, we have covered blockchain in a simplified mattered, anyhow, I am still going to explain blockchain briefly in order for you to understand everything fully. The blockchain is basically a set of rules, a database protocol for sorting data into blocks, the blocks, or the cells are filled with spreadsheets where data is stored and are linked together in order, by cryptographic code called “hashes.” This database is generally decentralized and distributed on many computers instead of being stored in one central location or managed by one central entity.
Can You Buy Things With Cryptocurrency?
Of course, after all, it is a currency, it can be as a medium of exchange of any goods and services that accepts crypto as a payment method, and the most common used cryptocurrency as a payment method is Bitcoin. The entire world is slowly accepting cryptocurrencies as a medium of exchange, just recently, the state of Ohio declared they are going to accept Bitcoins for tax payments.
How Does Cryptocurrency Work? (for Beginners). Retrieved from https://cryptocurrencyfacts.com/how-does-cryptocurrency-work-for-beginners/
Cryptocurrency Oversimplified: A Beginner’s Guide To Crypto was originally published in Data Driven Investor on Medium, where people are continuing the conversation by highlighting and responding to this story.