June 16, 2021

DOS2SHELL

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What are cryptocurrency and how does it function? Is Bitcoin too expensive?

3 min read

This would be a tricky question to ask how many people would be using Bitcoin and is almost impossible to give a precise number. Considering that two of the largest wallet providers, Coinbase and Blockchain.com, have over 35 million users and 59 million wallets respectively, it can safely be assumed that there are many, many more users given the hundreds of other wallets available.

And while the value of cryptocurrencies like bitcoin, Ethereum and ripple has been volatile over the past few years, these brands have maintained a steady following.

But how do these forms of payment actually work?

For starters, the currency is decentralized, meaning unlike credit and debit, it’s controlled solely by users and computer algorithms which is systematically opposed by a central bank or government.

Digital coins can be obtained online for dollars, through the exchange of good and services, or by trading already-obtained cryptocurrencies for other cryptocurrencies. There are even bitcoin ATMs or kiosks where users can purchase bitcoin by using cash or debit.

Cryptocurrency transactions are sent using software called cryptocurrency wallets. The person who creates the transaction uses the wallet to transfer balances from one public address to another. Each transaction leads back to a unique set of keystrokes, and whoever owns that passcode owns the amount of cryptocurrency associated with it.

Within a cryptocurrency system, the safety, integrity and balance of ledgers is maintained by a community of mutually distrustful parties referred to as miners: who use their computers to help validate and timestamp transactions, adding them to the ledger in accordance with a particular timestamping scheme.

Blockchain

The validity of each cryptocurrency’s coins is provided by a blockchain. A blockchain is a continuously growing list of records, called blocks, which are linked and secured using cryptography.Each block typically contains a hash pointer as a link to a previous block, a timestamp and transaction data.By design, blockchains are inherently resistant to modification of the data. It is “an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way”.For use as a distributed ledger, a blockchain is typically managed by a peer-to-peer network collectively adhering to a protocol for validating new blocks. Once recorded, the data in any given block cannot be altered retroactively without the alteration of all subsequent blocks, which requires collusion of the network majority.

Blockchains are secure by design and are an example of a distributed computing system with high Byzantine fault tolerance. Decentralized consensus has therefore been achieved with a blockchain

cryptocurrency

Mining

In cryptocurrency networks, mining is a validation of transactions. For this effort, successful miners obtain new cryptocurrency as a reward. The reward decreases transaction fees by creating a complementary incentive to contribute to the processing power of the network.

Wallets

A cryptocurrency wallet stores the public and private “keys” or “addresses” which can be used to receive or spend the cryptocurrency. With the private key, it is possible to write in the public ledger, effectively spending the associated cryptocurrency. With the public key, it is possible for others to send currency to the wallet.

Anonymity

Bitcoin is pseudonymous rather than anonymous in that the cryptocurrency within a wallet is not tied to people, but rather to one or more specific keys (or “addresses”). Thereby, bitcoin owners are not identifiable, but all transactions are publicly available in the blockchain. Still, cryptocurrency exchanges are often required by law to collect the personal information of their users.

Aid agencies

A number of aid agencies have started accepting donations in cryptocurrencies, including the American Red Cross, UNICEF, and the UN World Food Program. Cryptocurrencies make tracking donations easier and have the potential to allow donors to see how their money is used (financial transparency).

Christopher Fabian, principal adviser at UNICEF Innovation said that UNICEF would uphold existing donor protocols, meaning that those making donations online would have to pass rigorous checks before they were allowed to deposit funds to UNICEF.

Wikipedia

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