If you have just started with cryptocurrency you might feel a little bit lost and confused. Understanding the concepts that are fundamental to cryptocurrency is a challenge. We all learn in a different way and one explanation could work for you or you’ll need a different one. To learn how cryptocurrency work you need to understand the basic concepts. There are a few specific things that will help you at the beginning.
Don’t worry if you don’t understand anything at first – each new video, explanation, or article that you learn from will make your understanding of cryptocurrency clearer until, eventually, it clicks.
We have described the basics of cryptocurrencies below, trying to simplify things to make a somewhat complex system easier to understand.
What is cryptocurrency?
Cryptocurrency exists only on computers it is a digital currency and it works between peers, that means that there is no middleman standing between the users. Transactions are recorded on a digital public ledger known as a blockchain.
Transactions and the ledger are encrypted using cryptography. It is also decentralized, which means it is controlled by users with a computer algorithm and not a central government. Bitcoin is one of many cryptocurrencies, some of the other popular ones are Etherium, Litecoin and Ripple.
The Cryptocurrency Basics
To be able to understand how cryptocurrency works you need to learn the groundings on which it is built. Transactions are sent between peers from “wallets” which link public codes and are related back to users private passwords also known as “keys”. All transactions are recorded on a “blockchain” which is a public ledger of transactions. The users that have a certain cryptocurrency have access to the blockchain if they download a wallet. The transaction amounts are public, but who sent the transaction is encrypted.
Whoever owns the key to the wallet, owns the amount of cryptocurrency denoted on the ledger. Sending or receiving cryptocurrency is possible using a set of private and public passwords, that transaction is queued up to be added to the ledger.
How does blockchain work?
When a transaction between peers is made that transaction is sent to all users that have installed a wallet. Then a special kind of users that are called “miners” are solving cryptocurrency tasks (using a specific software and computers) which lets them add a “block” of transactions to the ledger. Whoever solves the task first is rewarded with coins.
Sometimes miners pool computing power and share the new coins. The algorithm relies on consensus. If the majority of miners trying to solve the puzzle all submit the same transaction data, then it confirms that the transactions are correct.
What is cryptocurrency mining?
The users who own and are running software and specific hardware that is solving the mathematical puzzles to confirm transactions to the digital ledger are cryptocurrency miners. Mining is open source so that anyone can confirm the transaction.
Solving cryptographic puzzles with the help of the software to add transactions to the blockchain in the hope of getting coins as a reward is cryptocurrency mining.