Basics of cryptocurrency and the way it works

In the times we live in, technology has made incredible advances over any time in the past. This evolution has redefined human life in almost every aspect. In fact, this evolution is an ongoing process and therefore human life on earth is improving day by day. One of the latest inclusions in this aspect is cryptocurrencies.

Cryptocurrency is nothing but digital currency, which is designed to impose security and anonymity in online money transactions. It uses cryptographic encryption both to generate currency and to verify transactions. New coins are created by a process called mining, while transactions are recorded in a public ledger called the Transaction Block Chain.

Little backtrack

The evolution of cryptocurrency is mainly attributed to the virtual world of the web and involves the procedure of transforming readable information into code, which is almost inexplicable. This makes it easier to keep track of purchases and transfers that involve currency. Cryptography, since its introduction in World War II to ensure communication, has evolved into this digital age, merging with mathematical theories and computer science. It is therefore now used to secure not only communication and information, but also the transfer of money via the virtual web.

How to use cryptocurrency

It is very easy for ordinary people to use this digital currency. Just follow the steps below:

  • You need a digital wallet (obviously, to store currency)
  • Use a wallet to create unique public addresses (this allows you to receive currency)
  • Use public addresses to transfer funds to or from your wallet

Cryptocurrency wallets

A cryptocurrency wallet is nothing but a software program that can store both private and public keys. In addition, it can communicate with various blockchains, so that users can send and receive digital currency and track their balance.

The way digital wallets work

Unlike conventional wallets that we carry in our pockets, digital wallets do not store money. In fact, the blockchain concept is so cleverly mixed with cryptocurrencies that currencies are never stored in a particular location. Nor do they exist anywhere in cash or in physical form. Only records of your transactions are stored in the blockchain and nothing more.

A real life example

Suppose a friend sends you some digital currency, say in the form of bitcoin. What this friend is doing is transferring ownership of the coins to your wallet address. Now, when you want to use that money, you unlock the fund.

To unlock the fund, you need to pair the private key in your wallet with the public address to which the coins were assigned. Only when these private and public addresses match will your account be credited and your wallet balance increase. At the same time, the state of the sender of digital currency will decrease. In digital currency transactions, the actual exchange of physical coins never takes place in any case.

Understanding cryptocurrency addresses

By nature, it is a public address with a unique string of characters. This allows the user or owner of a digital wallet to receive cryptocurrency from others. Each public address that is generated has a corresponding private address. This automatic match proves or establishes ownership of the public address. As a more practical analogy, you can consider a public cryptocurrency address as your email address to which others can send email. Emails are the currency that people send you.

Understanding the latest version of the technology, in the form of cryptocurrency, is not difficult. One needs to take a little interest and spend time online to clarify the basics.