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A Beginners Guide; How Does Cryptocurrency Work?

The purpose of this guide is to teach novice users about blockchain technology and cryptocurrencies (digital currency) like bitcoin.

So, let’s begin cryptocurrency is a lot like using a debit card or a PayPal account, the only difference being that the numbers you see on the screen are digital currencies instead of Dollars or Pounds.

The basic concept

When it comes to using digital currency, many people feel anxious because they are new to the whole concept. But to use cryptocurrency, you do not need to understand it any more than you understand the current monetary system. But if you want to get into its concept and understanding, then you need to learn a few terms and its purpose. Terms such as blockchain technology and cryptography.

The reason being that cryptocurrencies are digital currencies, on which public transactions occur on a digital ledger called a blockchain, and the entire process is secured by cryptography. Today you will understand what these things are and how they are linked to one another.

Cryptocurrencies work a lot like the way banking systems do. The complex system allows individuals to issue currency and get a record of the transactions. People are working behind the scenes to make these transactions happen. So like banks, online systems allow the movement of currency. However, the main difference is that instead of banks keeping private records and governments issuing currency, an algorithm does this, and it’s publicly accessible for all to see.

What is digital currency/cryptocurrency?

Cryptocurrency or digital currency exists online; there is no physical form of cryptocurrency. The closest thing to a physical form of a cryptocurrency would be a paper wallet. Cryptocurrency is transferred between people without the need of a middle man like in banks. All transactions are public and available on a public ledger, also known as a blockchain. The currency is decentralized, which means any governing body does not control that. It is controlled by users of the currency and computer codes/algorithms. The blockchain is hosted on computers around the world. These currencies are traded through online exchanges.

How does it work?

Transactions are made using a software known as “cryptocurrency wallets.” The individual using the wallet creates transactions by sending digital currency from one wallet to the other. Transactions made between people are encrypted and then uploaded to the crypto network. From there, the transaction is ready to be added to the public ledger by a miner.

Each user of a digital currency is given access to this ledger. To access this ledger, all users need to do is download the file and run it through a software known as ‘a full node wallet.’ The transaction amounts are public; however, the parties that exchanged the cryptocurrency are anonymous. When transactions occur, a new key is generated. He, who has the key, owns the cryptocurrency associated with that key. Multiple transactions are added to the ledger simultaneously; the miners keep adding the blockchain to make these transactions occur.

Blockchain

A blockchain is kind of like a bank ledger. However, it is completely decentralized. Similar to a bank ledger, both keep track of transactions and account balances. When a transaction occurs, it is sent out to all the users that have access to the blockchain. Miners solve cryptographic puzzles, which allows them to add a transaction to the ledger. The person who solves the puzzles first gets a reward of newly mined coins. The entire algorithm is based on the agreement of different miners. If everybody submits the same mining date, then it confirms that the data is correct, and transactions are finalized. Once a transaction is finalized, it will not be reversed.

Each data block is connected with another data block. This allows digital currency to be secure. This is the reason why digital currency will not be tampered, copied, or hacked in any way. Offering rewards to miners also helps make this task more accurate.

What is digital currency mining?

A miner is a person who views transactions then sets them up into blocks. As transactions occur, all miners receive this information, and they then confirm their validity. These people have high tech computer systems, good processors, and a strong supply of electricity as this is a power consuming task. These individuals run software and hardware that is focused on adding transactions to the public ledger. In return for doing so, they are rewarded with newly created cryptocurrency. To do so, these miners add a transaction, on which they send themselves mining rewards before they begin mining.

How can you get a hold of cryptocurrency?

You can obtain cryptocurrencies just like any other currency. People get digital currency by selling their goods and services to people. You can trade dollars, euros, and other such currencies for cryptocurrency. Moreover, you can also exchange cryptocurrency for other cryptocurrencies. Such as exchanging bitcoin for ethereum.

Trading is also done either through peers or through brokers.

What is the safest way of storing cryptocurrency?

People store cryptocurrencies in many different ways. From using paper wallets, USBs, third party services, and applications. But history has told us that these methods aren’t safe. Having an online connection on storage devices makes it easier for hackers to get access to your digital currencies. Millions of dollars’ worth of cryptocurrency have been stolen in recent times. Paper wallets are safe from hackers, but if you lose these paper wallets, then you also lose your digital currencies.

The safest, most reliable and easiest method of storing and managing cryptocurrencies is through the use of a hardware wallet. OPOLO wallets for example are completely offline. Hence, your digital currency is kept safe from hackers and spammers alike. Moreover, even if you lose your OPOLO hardware wallet, the passkeys and passphrases can be set up to 120 characters long. Which makes it near impossible to guess. Moreover, a person only gets a handful of tries at cracking these codes. After which the wallet automatically locks itself.

To get a hold of your cryptocurrencies, you must remember your mnemonics and can gain access to your digital currencies through a new OPOLO wallet.