Cryptocurrency: How it Works





It may come as a surprise to you but we are living in a technologically advanced world today. Today’s technology has made countless of amazing advancements compared to any time in the past. These innovations have helped redefine man’s life in almost every aspect possible. Among these innovations include cryptocurrencies.

What is cryptocurrency?

Cryptocurrency is basically digital currency that is designed to provide security and privacy in e-commerce transactions. It utilizes cryptographic encryption in order to generate currency as well as verify transactions online. Cryptocurrencies are usually called “altcoins” or “coins” and they are created through a process called mining. The decentralized transactions are then recorded in a public transaction database we call a blockchain.

History of Cryptocurrency

There isn’t really a lot of information as to when cryptocurrency began but according to sources online, Bitcoin, the first decentralized cryptocurrency, was created in 2009 by a person using the pseudonym Satoshi Nakamoto.

The evolution of cryptocurrency can be credited to the Internet and the process of turning legible information into code, which is virtually un-crackable. Tracking purchases and money transfers has never been easier thanks to cryptocurrency. Cryptography has been used since WWII and it has evolved and merged with today’s technology. It is now used not only to secure communication and information but money transfers across the world as well.

How do you use cryptocurrency?

Most people shy away from exploring cryptocurrency because they are not sure how and where to start. But it’s actually very easy for ordinary people (like you and I) to use digital currency. Just follow the steps provided below and you’re all good to go:

  1. First, get a digital wallet (you will need it to store the currency!)
  2. Use the wallet to create public accounts (that enable you to receive the “coins”)
  3. Use your public accounts to move funds in and out of your digital wallet.

Easy, right?


Digital Wallets

Digital wallets are nothing more than just a software program that can store both private and public keys. Digital wallets can also interact with different blockchains so that you not only send and receive digital currency but keep track of the remaining balance as well.

How do digital wallets work?

Compared to conventional or regular wallets that we use in our day-to-day lives, digital wallets do not store actual currency. As a matter of fact, the concept of blockchain has been so skillfully integrated with cryptocurrency that the currencies do not get stored in a particular location nor do they exist in hard cash or physical form. They only exist in the records of your transactions stored in the blockchain.

So how do digital wallets really work? Say for example your friend sends you some digital currency like Bitcoin or Litecoin. What actually happens is that your friend transfers ownership of the coins to your wallet. Now, if you want to use that money, you have to unlock the fund.

To unlock the fund, you must match the password in your wallet with the public account the coins are assigned to. When the password and username for the public account match, your account will be credited and the balance in your digital wallet will grow. At the same time, the balance of your friend’s digital wallet will decrease. When it comes to transactions concerning digital currency, there is no actual exchange of physical money at all. Amazing, right?

It’s not at all that hard to understand and get the grip of what cryptocurrency is and how it works. One only has to spend some time doing research to get the basics covered.


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