Saturday, 24 October 2020

What are Cryptocurrency? Blockchain Explained, How It Work?

What is Cryptocurrency?

A cryptocurrency is a form of digital currency that can be used to verify the transfer of assets from one party to another. It controls the addition of new units. There is limited supply and it also provides secure financial transactions, the anonymity of the sender and receiver is maintained, the sanity of the transaction is maintained and all that is done using cryptography the transactions are safe and secure.
What are Cryptocurrency? Blockchain Explained, How It Work?

The most important point is they are not headed by a central authority. So, that means that cash can go extent and we might not even need the banks either. The basic benefit of the evolution of cryptocurrency has been a low transaction cost.

The underlying concept of having cryptocurrency is the removal of the intermediaries by virtue of which it reduces the transaction cost between the part because more the middlemen more the cost gets added on to every transaction.

What are the types of cryptocurrencies in the market?

There are several popular cryptocurrencies apart from Bitcoin which have a major market capitalization and trading share is like Bitcoin, Etherium, Jet cash, Dash, Ripple, Manero, Nem, and Stellar. These are few to name it but there are hundreds and thousands of cryptocurrency in the market which are evolving on a daily basis.

What is blotching?

Now bitcoin uses a technology called a Blockchain. Blockchain is a continuously growing list of records that are linked to each other. So, it's a list of blocks that are getting changed to each other and are secured using cryptography each and every block is digitally signed and hashed.

How does a Bitcoin transaction work?

The transaction happens using a Bitcoin now the same through entities who want to exchange money instead of that they will be exchanging bitcoins but before that, they would have to create a wallet address on the Bitcoin network and each will be having their own private and public key. So, whenever you want to send a Bitcoin on the blockchain network. You will be encrypting the transaction with your private key and broadcasting it worldwide for the miners to validate it.

Miners around the world on the network will verify the authenticity of the sender. Whether the sender has the right amount of balance to send that amount and the miner will also validate the receiver, the identity of the receiver, the genuinity of its wallet address, and then it will verify the sanity of the transaction. Whether the transaction can take place on the network or not if verified the transaction would be added to a block which would also contain several other transactions.

Which are to be agreed in that block and then once the block is verified it will be added to the main blockchain. Once this whole process has been done. The miners have verified, the block and verified the entire set of transactions in that block then the transaction shows the bitcoins are reduced from the wallet of the sender and added to the receivers. This is how the transaction very similar to the banking transaction without the intermediaries like banks.

What makes Bitcoin so special?

These are the few primary features of blockchain. It's a publicly distributed ledger which means everyone has access to all the records. If the user wants they can access all the records from the time the blockchain was created.

The first block in the blockchain is called the Genesis block any additions to the block are permanent and immutable. Any change major or minor is recorded into a new block and cannot be altered and this is the primary immutability feature of blockchain.

There is no centralized Authority since the ledger is distributed the ledger cannot be altered by hacking into a central authority system like general hacking incidents happen. Any change has to be approved by the majority of the people in the network and therefore there are algorithms for proof of consensus. Consensus algorithm exists in any blockchain network where the majority of the stakeholders have to approve the transaction.

Blockchain can contain transaction details for assets other than money like property vehicles farming products or any asset which you want to trace in any industry like supply chain or you want to use digital assets in retail etc.

How does encryption happens?

Whenever a sender sends initiates a transaction he signs the transaction using his private key and all the details pertaining to the transaction like the receiver's address and the other details of the transaction are encapsulated and encrypted using the sender's private key.

Now bitcoin uses the SHA-256 encryption. It is the encryption algorithm that allows you to create an encrypted output. Which is very secure and it is a very popular encryption algorithm the encrypted output is then transmitted across the world and the transaction after verification by the miners is added to a block.

The SHA-256 enables the verification of the authenticity of the sender and receiver and provides the strongest security which is highly impervious to hacks and most importantly it ensures the anonymity of the users who have initiated the transaction and also the receivers who are going to receive it.

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