What's the big buzz about Cryptocurrency. Even I came to know a few days ago, That's why I wanna share my understanding with you and if I'm wrong at any point please feel free to correct me.Let's begin :-)
Cryptocurrency is an encrypted decentralized digital currency transferred between peers and confirmed in a public ledger via a process known as mining.
Public Ledgers: All confirmed transactions from the start of a cryptocurrency’s creation are stored in a public ledger. The identities of the coin owners are encrypted, and the system uses other cryptographic techniques to ensure the legitimacy of record keeping.
Transactions: A transfer of funds between two digital wallets is called a transaction. That transaction gets submitted to a public ledger and awaits confirmation. When a transaction is made, wallets use an encrypted electronic signature (an encrypted piece of data called a cryptographic signature) to provide a mathematical proof that the transaction is coming from the owner of the wallet.
Mining: In simple terms, mining is the process of confirming transactions and adding them to a public ledger. In order to add a transaction to the ledger, the “miner” must solve an increasingly-complex computational problem (sort of like a mathematical puzzle). The mining process is what gives value to the coins and is known as a proof-of-work system.
OMG!!! Cryptocurrencies are typically open source. That means that developers can create APIs without paying a fee and anyone can use or join the network.
The transaction is known almost immediately by the whole network. But only after a specific amount of time it gets confirmed.
Confirmation is a critical concept in cryptocurrencies. You could say that cryptocurrencies are all about confirmation.
As long as a transaction is unconfirmed, it is pending and can be forged. When a transaction is confirmed, it is set in stone. It is no longer forgeable, it can‘t be reversed, it is part of an immutable record of historical transactions: of the so-called blockchain.
On a blockchain, transactions are recorded chronologically, forming an immutable chain, and can be more or less private or anonymous depending on how the technology is implemented. The ledger is distributed across many participants in the network — it doesn’t exist in one place. Instead, copies exist and are simultaneously updated with every fully participating node in the ecosystem.
Only miners can confirm transactions. This is their job in a cryptocurrency-network. They take transactions, stamp them as legit and spread them in the network. After a transaction is confirmed by a miner, every node has to add it to its database. It has become part of the blockchain.
For this job, the miners get rewarded with a token of the cryptocurrency, for example with Bitcoins. Since the miner‘s activity is the single most important part of cryptocurrency-system we should stay for a moment and take a deeper look on it.
Principally everybody can be a miner. Since a decentralized network has no authority to delegate this task, a cryptocurrency needs some kind of mechanism to prevent one ruling party from abusing it. Imagine someone creates thousands of peers and spreads forged transactions. The system would break immediately.
So, there is a rule that the miners need to invest some work of their computers to qualify for this task. In fact, they have to find a hash – a product of a cryptographic function – that connects the new block with its predecessor. This is called the Proof-of-Work.
Proof of work is a protocol that has the main goal of deterring cyber-attacks such as a distributed denial-of-service attack (DDoS) which has the purpose of exhausting the resources of a computer system by sending multiple fake requests.
Cryptocurrencies make it easier to transfer funds between two parties
in a transaction.
These transfers are facilitated through the use of public and private
keys for security purposes.
These fund transfers are done with minimal processing fees, allowing
users to avoid the steep fees charged by most banks and financial
institutions for wire transfers.
Because cryptocurrencies are virtual and do not have a central
repository, a digital cryptocurrency balance can be wiped out by a
computer crash if a backup copy of the holdings does not exist.
Since prices are based on supply and demand, the rate at which a
cryptocurrency can be exchanged for another currency can fluctuate
widely.
I would suggest you watch the amazing video (tamil) who has explained clearly about cryptocurrency
#Thank you so much for spending time to read this. See you soon in my next post
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