How Cryptocurrencies Work
Cryptocurrencies are digital or virtual tokens that use cryptography to secure their transactions and to control the creation of new units. Cryptocurrencies are decentralized, meaning they are not subject to government or financial institution control.
Bitcoin, the first and most well-known cryptocurrency, was created in 2009 by an anonymous person or group known as Satoshi Nakamoto. Bitcoin is not backed by any government or central bank, and its value is based on supply and demand.
Cryptocurrencies are often traded on decentralized exchanges and can also be used to purchase goods and services.
The Technology Behind Cryptocurrencies
Cryptocurrencies are digital or virtual tokens that use cryptography to secure their transactions and to control the creation of new units. Cryptocurrencies are decentralized, meaning they are not subject to government or financial institution control.
Bitcoin was the first and most well-known cryptocurrency. Bitcoin is created through a process called “mining,” in which computers solve a mathematical puzzle to unlock new bitcoin. As of February 2019, there were over 1.3 million bitcoin in circulation.
Other popular cryptocurrencies include Ethereum, Litecoin, and Bitcoin Cash. Cryptocurrencies are traded on decentralized exchanges and can also be used to purchase goods and services.
How Bitcoin Works
Bitcoin is a digital or virtual currency that uses cryptography to control its creation and management, rather than relying on central authorities. Bitcoin is unique in that there are a finite number of them: 21 million.
Bitcoins are created as a reward for a process known as mining. They can be exchanged for other currencies, products, and services. As of February 2015, over 100,000 merchants and vendors accepted bitcoin as payment.
How Ethereum Works
Ethereum is a decentralized platform that runs smart contracts: applications that run exactly as programmed without any possibility of fraud or third party interference. Ethereum enables developers to build and deploy decentralized applications that run exactly as programmed without any possibility of fraud or third party interference.
To use Ethereum, you need a digital wallet and an Ethereum client. The digital wallet is where you keep your Ether. You can use a digital wallet to buy Ether and store it in a digital wallet or on a blockchain. Ethereum clients are programs that allow you to execute transactions and access smart contracts.
How Blockchain Works
A blockchain is a public ledger of all cryptocurrency transactions. It is constantly growing as “completed” blocks are added to it with a new set of recordings. Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data. Bitcoin nodes use the block chain to distinguish legitimate Bitcoin transactions from attempts to re-spend coins that have already been spent elsewhere.
To add a new block to the blockchain, miners must solve a cryptographic puzzle. When they solve the puzzle, they are awarded a block reward and new bitcoins created in the process are added to the blockchain. The block chain is decentralized, meaning that it is not under the control of any single party.
What is a Bitcoin Wallet?
A Bitcoin wallet is a software program that allows you to store Bitcoins.
What is a Bitcoin Address?
A Bitcoin address is a string of 26-34 alphanumeric characters that uniquely identifies a Bitcoin wallet.
What is a Bitcoin Transaction?
A Bitcoin transaction is a set of related data that represents the transfer of bitcoins between two users. Transactions are grouped into blocks and recorded in a public dispersed ledger called the blockchain.
What is a Bitcoin Block?
A Bitcoin block is a data structure that stores a record of all the transactions that have taken place on the Bitcoin network. Each block is limited to a certain number of transactions, and is stored on the blockchain.
What is Bitcoin Mining?
Bitcoin mining is the process of verifying and collecting new Bitcoin by running Bitcoin Core on the user's computer. Bitcoin mining is done through the use of specialized software that solves complex mathematical problems. Each problem can be verified by network nodes through the use of cryptography and recorded in a public distributed ledger called a blockchain. Bitcoin mining is rewarded through transaction fees and subsidy payments.
What is a Bitcoin Fork?
A Bitcoin Fork is a split in the Bitcoin network. This occurs when two sets of miners find a block at roughly the same time, but one group of miners decides to create a new version of the Bitcoin blockchain, which is called a "Bitcoin fork."
The main difference between the two blockchains is that the new version contains a different set of rules for how Bitcoin transactions are verified. As a result, holders of Bitcoins on the original blockchain are now also holders of Bitcoins on the new blockchain.
Forks can be dangerous because they can lead to a permanent divergence in the Bitcoin network, meaning that two sets of transaction records are never reconciled. This could prevent other users from accessing Bitcoins that they own on the original blockchain.