How Crypto Works

Crypto or cryptocurrency is a form of digital money that uses cryptography to secure transactions and control the creation of new units. Cryptocurrencies operate in a decentralized manner, in contrast to conventional currencies that are controlled by government authorities or central financial institutions.

Cryptocurrencies utilize blockchain technology, a distributed ledger, which records all transactions in an open and secure manner. Transactions within a cryptocurrency network are confirmed by a distributed network of users, without the need to go through a third party such as a bank. Cryptocurrency has become an important topic in the world of finance and technology. This is evident with many people investing in them as a form of investment or means of payment.

The way cryptocurrencies work is based on blockchain technology, which is the basis of most digital currencies. Here are the general steps on how cryptocurrencies operate :

1.           Blockchain Technology

Blockchain is a distributed ledger (transaction book) that openly records all transactions that occur on a cryptocurrency network. Each transaction is confirmed by a network of connected users and added to a new block in the blockchain.

2.           Transactions

Users make transactions using cryptocurrency, such as sending or receiving funds. These transactions are sent to a network of cryptocurrency users.

3.           Transaction Validation

The transactions are then verified by a network of users using a consensus algorithm. This process differs depending on the cryptocurrency being used. For example, Bitcoin uses the Proof of Work (PoW) algorithm, while Ethereum has switched to Proof of Stake (PoS) in its latest version.

4.           Mining

In networks that use PoW, such as Bitcoin, miners are tasked with validating transactions and mining new blocks in the blockchain. The mining process involves solving cryptographic puzzles that require a lot of computing power. Successful miners are rewarded with new cryptocurrency and transaction fees charged by users.

5.           Addition to Blockchain

Once a transaction is verified, a new block is added to the blockchain, automatically making it unable to be altered or deleted. This creates a permanent and trusted record of the transaction.

6.           Private Key

Each user has a private key that is used to access and control their assets within the cryptocurrency network. This private key is important to protect the safety and security of the user's funds.

7.           Wallet

Users store their cryptocurrencies in digital wallets, which can be apps, hardware, or even paper. These wallets allow users to send, receive and store their digital currency securely.

 This process continues, creating a decentralized, secure, and transparent cryptocurrency ecosystem. However, keep in mind that each cryptocurrency has a slightly different working mechanism, depending on the design and technology used by its developers.