What is Cryptocurrency & How does it works?

Cryptocurrencies are a decentralized form of digital currency running on blockchain technology used for executing transactions.

Cryptocurrency received its name because it uses encryption to verify transactions. This means advanced coding is involved in storing and transmitting cryptocurrency data between wallets and to public ledgers.

The first cryptocurrency was Bitcoin, which was founded in 2009 and remains the best known today. Other examples include Ethereum, Litecoin, Ripple, etc.

Nodes are a network of contributors by which cryptocurrencies are managed. On the network, the nodes perform a diversity of roles, from storing to validating transactional data.

Nodes overall manage the database and validation of the new transaction entries. The best part is that there is no single point of failure which means if one node breaks down it will have no impact on the blockchain ledger.

Origin of Bitcoin

• The origin of Bitcoin is unclear, as is who founded it.
• A person, or a group of people, who went by the identity of Satoshi Nakamoto are said to have conceptualized an accounting system in the aftermath of the 2008 financial crisis.
• Nakamoto published a white paper about a peer-to-peer electronic cash system, which would allow online payments to be sent directly from one party to another without going through a financial institution.

Working Mechanism of Bitcoin

Bitcoin transactions are messages that state the movement of bitcoins from senders to receivers.

Transactions are digitally signed using cryptography and sent to the entire Bitcoin network for verification.

Transaction information is public and can be found on the digital ledger, i.e, the blockchain.

The history of each and every Bitcoin transaction leads back to the point where the bitcoins were first produced or ‘mined.’

Advantages and Disadvantages of Cryptocurrency

Advantages

1. Easier to transfer funds between parties
2. Protection from inflation.
3. Transactional Speed.
4. Cost Effective Transactions.
5. Decentralization.
6. Self-governed and managed.
7. Safe, secure and transparent
8. Can be used to generate returns.
9. Remittances are streamlined.

Disadvantages

1. Transactions are pseudonymous.
2. Pseudonymity allows for criminal uses.
3. Expensive to participate in a network and earn.
4. Off-chain security issues.
5. Prices are very volatile.

Also Read:
What is Blockchain Technology and how does it works?
What is Non-Fungible Tokens (NFTs) & its Features