Basics on cryptocurrency
What is a cryptocurrency and the basics on how it works.
What is a cryptocurrency ?
A cryptocurrency is a digital currency designed to work as a medium of exchange. We name it cryptocurrency since the cryptography is the main body of his operation. This is why cryptocurrencies are secure and can be used in a lot of domain as, for example, proof of payment in front of a court, contract between two parties and so more.
How does it work ?
The major part of cryptocurrencies use the blockchain to ensure the transactions between parts. Blockchain is the system that centralize all of the transaction of a cryptocurrency. Each crypto have is own blockchain even if the technology behind is in the most part the same.
When somebody send some crypto to another, he "simply" send a request to the blockchain by specifying the sender wallet, the recipient wallet, the amount to send and the fees. The request is instantly injected in a block of transaction that integrate the blockchain. The block wait now some confirmations to be validated.
How does validations work ?
Once the transaction is in the blockchain, the block must be validated by the people who keep the blockchain alive, the miners. A miner is somebody that use the calculation capacity of a computer to decrypt a block, a block contains one or more transaction. Once the block is decrypted, this mean that the transactions inside are validated by the miner. In other words, the community accept the transaction. Since the blockchain is public. Everybody can now see that the transaction is done and validated by the community.
- Why the blocks are validated a lot of times
The block isn't validated itself several times. In fact, all the next blocks, once validated, confirm the validity of previous blocks. This mean that more blocks are validated, more a previous block is validated and more the transactions inside are valid. This is why some corporation wait multiple confirmations on a transaction before accepting it.
What is the interest of mining ?
You remember the transaction ? One sender, one recipient, one amount and one fee. The fee will be the reward for the miner that will decrypt your block and validate your transaction. More a transaction have a large fee, more the miners will try to decrypt it. This is why a transaction with a large fee will only take some minutes to be verified and transaction with a low fee can take some days, or more...
The advantages of the cryptocurrency
Even if the transactions and the wallets content are public, the big advantage of the cryptocurrencies is the anonymization. Indeed, even if you can see all the transactions, it is pretty impossible to associate the transactions and the wallet with the real world. For example, you can generate a new bitcoin address for each transaction, split a transaction into an infinity of small one, ...
While classic currencies depends on governments, cryptocurrencies are made to be independant. It's the community that validates the transactions and governments can't interfere there. And more important, it's the community that decides the evolution of each crypto. An evolution like a new technology, the size of blocks that contains transactions, the amount of coins in the market, ... All of these changes must be validated by the community.
As long as I speak about changes. We will enter in a period of changes for the bitcoin. From July 17' till next year, some changes will be "tested" and that can influance the value of bitcoin and therefore the other crypto. I will make a post soon about this futur period... Stay alert on your feed ;)
