Part 1 of 2
Cryptocurrency is digital currency that is protected by cryptography. The most notable is Bitcoin, but there are other forms such as Litecoin, Ethereum and Monero. Cryptocurrency is digital currency that is decentralized. This means that it is not controlled by a central government or entity. Instead, it is controlled by users and a computer algorithm. Cryptocurrency is transferred between peers, and the transactions are recorded on a digital ledger called a blockchain. Cryptography ensures that every process along the way is secure.
So how does it work?
Through the use of cryptocurrency wallets, transactions can be sent between peers using public codes that then relate back to the user’s private key. This transaction is recorded on the blockchain. The transaction amounts are public but the sender information is encrypted.
Once a transaction is made through a set of private and public keys, it will be added as a block to the blockchain. As a distributed network, blockchain uses validators using mathematical verification to secure the transaction and network.
The process will begin when a user takes their private key to send a sum of cryptocurrency to another user’s public key. At that time a block will broadcast the digital signature and relevant information to all the nodes in the network.
At this point there is a mining operation that will eventually lead to the addition of this block to the chain. Cryptocurrency protocol dictates the necessity to eliminate the possibility that the same currency is used in separate transactions at the same time. Each transaction needs to be unique. For this to happen each node in the network creates and maintains a history of the transactions by working to solve a series of mathematical problems. Then they vote with their CPU power. When the majority of nodes (miners) receive the same solution, the block is added to the chain. The solving of these cryptographic problems will lead to the creation of new cryptocurrency and a reward to the miner.
Next week: Part 2 – How Criminals Use Cryptocurrency