How do cryptocurrencies work? A simple explanation from Blockchain to mining.

A Blockchain, as its name implies, is a kind of database containing a list of records called blocks. These blocks are ordered by a timestamp and by a link to the previous block. In other words: it is a distributed and encrypted system to protect the security of transactions made. Even so, they are not exempt from being subjected to cyberattacks, being an inherent risk to the nature of computer systems.

Blockchain is replicate in a set of nodes formed by users. These are responsible for verifying each of the transactions in order to validate them, resulting in the registration of the block corresponding to that transaction in the chain. In this way, if A wants to send cryptocurrencies to B, the process would be like this: First, a miner manages to insert the transaction in the network within a block. This block is transmitted to all nodes in the network, who confirm whether the transaction is valid. After this, the block is added to the chain, and the corresponding transaction is completed, without the intervention of intermediary agents.

The public key and Private key

There are two very important concepts for security: the private key and the public key. The private key is a kind of cryptographically generated password, which allows the owner of the digital wallet to check the status of their cryptocurrencies and protect them. On the other hand, the public key is similar to a common bank account number and can be held by anyone who wants to send cryptocurrencies to your wallet.

Let’s clarify the previous information with an example: If someone wants to send you cryptocurrencies, they need to know your public key, which will send it to your wallet. Then, to analyze the status of your account, you use the private key. Public and private keys are similar to a username and password, respectively; the first is known to everyone to send any information, while the second is only known by the owner to control their account.

Mining: Validating transactions

In order for the blocks to be registered in the blockchain, a process called Mining is carried out. Mining is based on a competition to find solutions to a series of mathematical problems that allow the blocks to be integrated into the chain and the transactions of each block are validated. The people dedicated to this task are called miners or miners, and they are precisely the group of users connected as nodes to which we previously alluded.

Any participant in the network can operate as a miner, using the processing power of their computer to verify and record transactions. When one of the miners solves the problem to register a block, it alerts the other nodes to check that it is correct and adds that block to the complete chain (the Blockchain). Every time miners validate a transaction, they are rewarded with cryptocurrencies.

Despite the fact that all cryptocurrencies are based on very similar technologies, some features may differ from one to another. For example, in the Bitcoin network, a miner manages to insert an average of one block every 10 minutes. The reward for successfully registering a block is 12.5 BTC. A new halving is planned in a few months, decreasing the reward to 6.25 BTC per block. In the case of the Ethereum network, the reward is approximately 3.2 Ether; but unlike Bitcoin, the validation process takes around 14 seconds. This speed is achieved through Ethereum’s GHOST protocol, which allows much faster confirmations.

Beyond the revolution caused by the novelty of digital money, cryptocurrencies are one of the safest forms of investment thanks to the elements that we previously mentioned. The creation of the Blockchain has also promoted the idea of ​​having a decentralized internet. Much remains to be built on this structure, which, thanks to cryptography, provides high-security. There are also many ideas that try to exploit the benefits of Blockchain, such as: cloud storage with decentralized services, validation of digital identity, data validation in public and government services, social security and health, authorship control, etc. All this makes Blockchain a technology that, par excellence, guarantees security and privacy; extremely important issues in an increasingly connected and automated world.

***

This information is provided for educational and informational purposes. It should not be considered as a guarantee or indication to buy or invest in certain assets or software. It is important to note that no system or methodology can guarantee a profit or be free from loss. And always remember: don’t risk more than you are willing to lose.

Fusyona (https://fusyona.com/) is a worldwide collaborative crypto-powered platform. We create an ecosystem for artists, entrepreneurs & users to grow their ideas and projects with the power of blockchain. We fusion edge technology with a multi-disciplinary professional team to deliver high-quality and potent crypto-tools, such as: an automated crypto-token creation service, a crypto-wallet, a Marketplace, and a Cryptocurrency Exchange. In this way, we help people and businesses overcome financial and technological barriers in a simple, efficient, and affordable way.