What is a CryptoCurrency?
A cryptocurrency (or crypto currency) is a digital asset designed to work as a medium of exchange that uses cryptography to secure its transactions, to control the creation of additional units, and to verify the transfer of assets. Cryptocurrencies are a type of digital currencies, alternative currencies and virtual currencies. Cryptocurrencies use decentralized control as opposed to centralized electronic money and central banking systems. The decentralized control of each cryptocurrency works through a blockchain, which is a public transaction database, functioning as a distributed ledger.
How CryptoCurrencies Work
The basics for a new user
As a new user, you can get started with Crytpocurrencies without understanding the technical details. Once you have installed a Crypto wallet on your computer or mobile phone, it will generate your first Cryptocurrency address and you can create more whenever you need one. You can disclose your addresses to your friends so that they can pay you or vice versa. In fact, this is pretty similar to how email works, except that cryptocurrency addresses should only be used once.
Balances – block chain
The block chain is a shared public ledger on which the entire Crypto network relies. All confirmed transactions are included in the block chain. This way, Crypto wallets can calculate their spendable balance and new transactions can be verified to be spending Cryptocurrencies that are actually owned by the spender. The integrity and the chronological order of the block chain are enforced with cryptography.
Transactions – private keys
A transaction is a transfer of value between Cryptocurrency wallets that gets included in the block chain. Crypto wallets keep a secret piece of data called a private key or seed, which is used to sign transactions, providing a mathematical proof that they have come from the owner of the wallet. The signature also prevents the transaction from being altered by anybody once it has been issued. All transactions are broadcast between users and usually begin to be confirmed by the network in the following 10 minutes, through a process called mining.
Processing – mining
Mining is a distributed consensus system that is used to confirm waiting transactions by including them in the block chain. It enforces a chronological order in the block chain, protects the neutrality of the network, and allows different computers to agree on the state of the system. To be confirmed, transactions must be packed in a block that fits very strict cryptographic rules that will be verified by the network. These rules prevent previous blocks from being modified because doing so would invalidate all following blocks. Mining also creates the equivalent of a competitive lottery that prevents any individual from easily adding new blocks consecutively in the block chain. This way, no individuals can control what is included in the block chain or replace parts of the block chain to roll back their own spends.