The diverse world of cryptocurrencies

Source: http://www.cryptocurrencyday.com/

Did you know that other than Bitcoin, there are various other types of cryptocurrencies out there? Surprising? No, the fact that Bitcoin was created and distributed in open source allows anyone to participate in the development of cryptocurrencies. People with ideas can choose to come up with their own creations or variations of existing code and run them completely independently.

This is the key advantage of cryptocurrency as it depends on participation to drive the behavior and rules of the currency.

Image: Financial Times

How does it work?

All these transaction data is stored on a peer-to-peer database intimately known as the blockchain. The blockchain is a chain of transaction history that is linked together and collectively stored by the participants of the network — most often called as nodes. Each node stores a copy of the entire database and verifies new information blocks that it receives from the other nodes in the network.

Once these blocks of data is replicated across the network, all transactions on that block becomes permanent. This preserves transactions on the blockchain for as long as nodes are run by people on the network.

What’s the difference between various cryptocurrencies?

At the heart of a cryptocurrency is the blockchain, which you can think of as a cryptocurrency’s database. There are commonly two types of blockchains:-

  • Open blockchains are databases where anyone can register, and run a node in the network. These blockchains are also known as a public blockchain. This type of blockchain is completely decentralised and there are no central parties.
  • Closed blockchains are databases where only pre-approved participants can run nodes in the network. These blockchains are also known as a private blockchain. This type of blockchain relies on a few trusted parties to secure the transactions on the network.

Stay tuned for more articles about blockchain and how you can build a portfolio around cryptocurrencies.