What is Cryptocurrency and How Does it Work : Best Guide 2024

You know about different currencies in the world but crypto currency is a digital or a virtual currency. Neither we can see it nor touch it but in today’s world it has become one of the costly currencies now a days.

Cryptocurrency is a form of digital currency which is managed using a decentralized system. Every transaction is verified by digital signature and secured by cryptography. Many cryptocurrencies are built on blockchain technology, which is a distributed ledger enforced by a distributed network of computers.

Cryptocurrencies does not mean a stack of notes or coins rather they only exists in the internet. Its market value is decided by those seeking to buy or sell them. Majority of cryptocurrencies function without any backing of any central bank or government rather they rely on decentralized technology called blockchain.

So initially it was considered illegal in many countries but later as the popularity of Bitcoin grows, it was considered legal in many countries. But now also some countries are against it.

How does cryptocurrency work?

Actually cryptocurrency is built on blockchain technology i.e all the transaction records are kept using this. Specialized computers known as nodes validate the blockchain transactions for a specific cryptocoin and in turn receive a mining reward for their computational effort. This process is called cryptocurrency mining. And those computers that are used for mining are called miners.

Any transaction in cryptocurrency is being recorded in blockchain i.e kept in a block. Computers runs separate copies of the same program but no ones controls the network. It’s a decentralized network. These networks has two main functions one is to process the transactions and other is control the database that keeps the records of the transactions. These transactions are batched into blocks and then connected using unbroken chain. So its called blockchain.

When any transaction occurs in cryptocurrency, then they are recorded in blocks. The security and encryption of these blocks are done by miners. For these they search for a cryptographic code for the block. When any miner search for the right code for the block, then the block is being joined in the blockchain and it is being verified by other nodes in the network. This process is called consensus.

If it is confirmed that the block is secured in consensus and it is correct then the miners who secured the block gets cryptocoins. This reward is called proof of work.

Types of Cryptocurrency:

There are so many virtual currencies but some of them are most widely used. Here is a list of major used digital currencies.

Bitcoin

Bitcoin is the first known cryptocurrency created in 2009 by a person under the pseudonym Satoshi Nakamoto. Bitcoin is This can be used anytime and anywhere. A person can make transaction to another person without any third party or bank. You can transfer from your bitcoin wallet to other bitcoin wallet only. Using blockchain technology, Bitcoin allows users to make transparent peer-to-peer transactions. All users can view these transactions; however, they are secured through the algorithm within the blockchain. While everyone can see the transaction, only the owner of that Bitcoin can decrypt it with a “private key” that is given to each owner. 

Ethereum

Ethereum is the second largest cryptocurrency by market cap. It is a decentralized open source blockchain. It was launched in 2015 and is also known as ether.

Litecoin

Litecoin was launched in 2011 as an alternative to Bitcoin. Its a peer to peer cryptocurrency. It is an open source global payment network that is completely decentralized.

ZCash

ZCash is a digital currency that is based built on original Bitcoin code base. ZCash is built on the Bitcoin framework, and, in many respects, is identical to Bitcoin. ZCash was founded by Zooko Wilcox-O’Hearn in October 2016 in response to Internet users’ demands for an open financial system with added privacy features.

 ZCash maintain the same structure as Bitcoin but with privacy as added feature.

Monero

Monero was launched in April 2014. The development of this cryptocurrency is completely donation-based and community-driven. Monero has been launched with a strong focus on decentralization and scalability, and it enables complete privacy by using a special technique called “ring signatures.”

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