What is Cryptocurrency? Detailed Guide

A cryptocurrency is a digital currency that is very secure and uses cryptographic proof to validate the transactions and enable people to buy, sell and trade them securely. It is a form of payment that is truly decentralized and it does not require any third-party authority like the Central Bank to verify the transactions between two people. There are a lot of cryptocurrencies out there and Bitcoin is one of the most famous Cryptocurrency ever.

On 31st October 2008, Satoshi Nakamoto invented the First ever cryptocurrency Bitcoin, and published a paper on the internet where he said A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another party without going through a financial institution.
Cryptocurrency offers greater control over an individual’s finance and It is easier to transfer, and withdraw your funds with very lower transaction fees. Unlike banks, Debit or Credit Cards are vulnerable and can get hacked very easily.

Cryptocurrencies are very popular these days as they are revolutionizing the financial system. They have become an Investment source where it offers higher returns if it is done by good research and knowledge. To know more what is cryptocurrency you should know advantages of cryptocurrency.

Advantages of Cryptocurrencies

  1. Easy to Transfer funds whenever, wherever, and at any time.
  2. 100% secure and there is no chance to get hacked.
  3. Lower transaction cost.
  4. Fast Transaction It takes 11minutes to 1 hour to transfer your funds.
  5. No third-party Involvement.
  6. Exchange for Goods and Services.
  7. Transactions are 100% verified on a public Ledger.

Use Cases of Cryptocurrency

Cryptocurrencies can be your best medium to transfer money to your loved ones from anywhere to everywhere you want in just a few minutes.

  • Let’s say, You have to send $5,000 to your friend for an emergency purpose. The traditional way of the banking system will take at least 3-15 days to transfer your funds to your friend’s Bank account, But With cryptocurrencies like Bitcoin(BTC), Ethereum(ETH), etc. You can send your funds almost instantly, BTC takes 10 Minutes and other cryptocurrencies can be sent instantly, Transaction cost is also cheaper than Traditional transaction cost.
  • Cryptocurrencies have now entered the market as many mainstream companies and investors are accepting the cryptocurrency to buy their products, Whether it’s product-based or App-based.

For Example – Tesla was one of the major companies that allowed cryptocurrencies like Bitcoin to purchase their Car.

  • And, Paypal also announced on 30 March 2021 that users can buy and send through the crypto on their Application.
  • It has a Store of Value. For example, you were buying something for 10$ a few years back and now the same thing costs you 20$ this means that a particular product is not getting expensive but your currency is losing value.

On the other hand, Cryptocurrencies are a good option to buy and store for the long term as they always increase in value with rising demand. So, Eventually, if you buy crypto its value will increase instead of losing value over time.

  • Cryptocurrencies can be used for Lending and Borrowing. Traditionally if you want to buy a loan you have to wait in a long queue and fill up multiple forms and it will take a lot of time. But in cryptocurrency you can lend and borrow within few minutes.

Whereas cryptocurrency allows individuals to lend and borrow funds instantly without waiting or paperwork. As crypto is a borderless currency, you can lend or borrow funds from wherever you are. 

What is Cryptocurrency (Blockchain) and How does it work?

A Blockchain is the chain of Blocks that contains information like Date, time, Amount, and in some cases Public Address of the sender and receiver. A blockchain is a distributed ledger that is complete to anyone. When someone’s data has been recorded inside a blockchain, it becomes very difficult to change it.

A Blockchain is a Digital Ledger where the participants’ transactions are duplicated and sent across the network of computer systems working for the blockchain.

As Blockchain is stored in multiple networks of computers, It is very hard to tamper with your data in Blockchain.
Each block in the chain contains the number of transactions you do and every time a new transaction occurs the record of that transaction is added to the participant’s ledger.

Bundles of transaction data called “BLOCKS” are chronologically added to the ledger, forming a “CHAIN” = BLOCKCHAIN.

BLOCK – Each Block contains some:-

  1. DATA  – Stored Inside a block depends on the type of blockchain. For Example Bitcoin blockchain stores the details about a transaction here, as the sender, receiver, and the amounts of coins.
  2. HASH of the block – You can see it as a Fingerprint it identifies the block and all its contents and it is always as unique as you use your fingerprint on your mobile phone. Once a block has been created, its hash is being calculated. Changing something inside the block will change the hash. Hashes are very useful when you want to detect the changes to blocks. If the fingerprint of the block changes, it no longer is the same block.
  3. HASH OF PREVIOUS BLOCK – This creates a chain of blocks and this makes a blockchain very secure as they all are interconnected to each other with Hash and Previous Hash.

For Example – We have three Blocks that are interconnected to each other and as you can see each block has the Hash and Hash of the previous block. 

Blockchain-cryptomusketeers

Block no 3 points to block number 2 and number 2 points to number 1. And the 1st block is a bit special as it cannot point to the previous block because it’s the first one we call, this Genesis Block.

Now, If someone tries to tamper with the second block. This causes the hash of the block to change as well. It will make block 3 and all the following blocks invalid because they no longer store the valid hash of the previous block. So, changing tampering in the single block will make all blocks invalid.
But using Hash is not enough to prevent tampering with your data. Computers these days are very strong and can calculate hundreds of thousands of hashes. One can effectively tamper with a block and recalculate all the hashes of other blocks to make your blockchain valid again. To make this stronger, Blockchain has something called Proof Of Work.

Proof Of Work- It’s the mechanism that slows down the creation of new blocks. In the Bitcoin case, It takes about 10minutes to calculate the required proof-of-work and add a new block to the chain. This makes it very hard to tamper with the blocks because if you try to tamper with the blocks you’ll need to recalculate the proof-of-work for all the following blocks.

So the security of the blocks ensures hashing and proof-of-work mechanism.

Also, there is one more way that blockchains secure themselves and it is by being distributed. Instead of using a central entity that controls the chain, Blockchain uses a peer-to-peer network and everyone is allowed to join. When someone joins the network, he gets a full copy of the blockchain. Then the node can use this to verify that everything is in order.

How does blockchain work

When Someone creates a new Block:- That new block is sent to everyone on the network. Each node then verifies the block to make sure that it hasn’t been tampered with. If everything goes right, each node adds the block to its blockchain.
All the nodes in this network create consensus. They make sure which blocks are valid and which are not. Blocks that are tampered with will be rejected by the other nodes in the network.

To successfully tamper with the blockchain you have to tamper all the blocks on the chain, redo the proof-of-work for each block and control more than 50% of the peer-to-peer network. Only then you can temper the block and this is near to impossible to do.

What is a Blockchain Node?

“Node” is a Decentralized ledger that has records of all your cryptocurrency transactions and this information is available for everyone with the help of a connected device. It ensures that every transaction is recorded in chronological order and distributed to a series of devices.

A Blockchain has many blocks and these blocks’ data are stored on Nodes. We can compare it with a small server which has every information.
Example: When a miner adds a new block of transactions to the blockchain, the Node sends the information of the block to all the nodes of the network.

The node can accept and reject the transactions based on the Block’s validity of Signature and transactions. If Node accepts a new block transaction, It adds that block on top of the rest of the blocks already stored in the blockchain.

FAQs

What is Cryptocurrency investment?

Cryptocurrency investment is just that you exchange your real currency like Indian Rupee, Dollars to buy ‘coins’ and ‘token’ of a certain kind of cryptocurrency.
Here are some examples where you can buy cryptocurrency
1.CoinDCX
2.WazirX
3.Zebpay
4.Coinbase
5.Binance.US

What is Cryptocurrency Mining?

Crypto mining is the process where regular computers and computers with high-end GPUs verify the transactions and add the new transactions to the blockchain, it uses the proof-of-work method. The miner gets some amount of the currency by doing crypto mining.

Types of cryptocurrency

There are a thousand types of cryptocurrencies, but here are some top cryptocurrencies:
1.Bitcoin (BTC)
2.Ethereum (ETH)
3.Tether (USDT)
4.BNB (BNB)
5.USD Coin (USDC)

MUST READ :11 Best Ways To Earn Bitcoin For Free

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Translate »
Copy link
Powered by Social Snap