Basics of cryptocurrency 102
How does a cryptocurrency transaction work?
Imagine you went out for dinner with a friend. You decide to split the bill, but your friend takes care of it and asks for your part to be sent to them. Because you don’t have any cash with you, you’ll have to ask your bank to send a wire transfer to your friend’s bank, which can be costly and take considerable time to process.
Cryptocurrency is decentralized, which means that two parties can conduct transactions without relying on a third party. Instead of requesting that your bank send your money to a friend, you can just transfer funds from your digital wallet directly to theirs.
But what if your friend claims they didn’t receive the money, and it’s suddenly gone from your wallet? Is there any documentation of the transaction?
The answer is yes. Blockchain technology is central to the functionality of cryptocurrencies, as it is used to keep an online ledger of all transactions that have ever occurred, thus providing a secure ledger that is shared and agreed upon by the entire network. Transactions are grouped into blocks, and every new block created must be checked by the network. This is called cryptography, which makes it nearly impossible to counterfeit or double-spend cryptocurrency, because cryptocurrencies use a distributed ledger that is verified and enforced by a network of computers.
Some of the characteristics of a cryptocurrency transactions are:
They are irreversible, which means that once the majority of the network has approved the transaction, it can not be undone.
They are also very secure because of cryptography, they can’t be forged.
They are borderless, which means that it makes no difference which country the sender and the receiver are located. Because the transactions use software and technology, the actual location of these electronic transactions is immaterial.
They are fast, meaning transactions are processed in as little as a few minutes, regardless of holidays or the time of day or week. With banks, even if you make a deposit or initiate a transfer during business hours, the transaction can still take one to three days to verify.
If you are beginning to dive into the cryptocurrency world, this blog series is for you!
Follow us on Medium and social media to keep up with our latest blogs and news!
