Cryptocurrency
is a form of digital money that uses cryptography for security.
It is a currency connected
with the internet that uses cryptography, the process of converting readable
information into an almost uncrackable code, to track purchases and transfers.
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| Cryptocurrency |
To understand how crypt currency works,
following are main concepts to become familiar with:
Encryption
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| Encryption |
The process of converting information or data into a code by
using key, especially to prevent unauthorized access. When using crypt currency
as a source of exchange, instead of using a single key for encryption and
decryption, use different encryption keys are used for both. A user
generates a pair of keys that are linked to each other. Public key is used for
encryption and private key is used for decryption.
Decentralized
The move of decision making power, assignment of responsibility
and accountability for results. It is accompanied by allotment of appropriate
authority to individuals or units at all levels of an association.
Cryptocurrencies are a protocol just like http, IP, or the
internet – they aren’t completely owned by any individuals. It’s a network oriented
system that manages by simple mathematical rules on which everyone who participates
on the network agrees.
Distributed Systems
A model whose components are located on a network of computers.
These computers communicate and coordinate their actions by passing messages
along to one another.
Open Source Code
Cryptocurrencies are typically open-source. This means anyone can
create API’s without paying fee and anyone can use or join the
network.
Transaction
When we send Bit coin, a data structure is created by our
wallet client by using an encrypted electronic signature. It is then
broadcasted on the network via a public ledger to provide proof that the
transaction actually happened. Bitcoin nodes on the network will relay and
rebroadcast the transaction, and if the transaction is valid, nodes will
include it.
Block chain
Block chain is a database that maintains
a constantly growing set of data records. It is distributed in nature, meaning
that there is no master computer holding the entire chain. Rather, the
participating nodes have a copy of the chain. It’s also ever-growing — data
records are only added to the chain.
Node
A node is simply a computer that is participating in the global
Bitcoin network by speaking a protocol, ‘the Bitcoin’ protocol, which allows
these intersections on the network to communicate with each other.
Nodes that are participating on Bitcoin serve the most important
purpose; every one of them acts as an authoritative, verifier of every single
transaction and block.
The node takes the transaction data, and independently verifies
every aspect of that transaction. It authoritatively reconciles it with its own
copy of the ledger to determine whether the funds have been double spent. If
you send a node a transaction that is incorrect, it will not only reject the
transaction, it will stop talking to you.
Mining
Mining is the process by which transactions are verified and
added to the public ledger, known as the blockchain – it is also the means
through which new bitcoin are released. Anyone with access to the internet and
suitable hardware can participate in mining.
The mining process involves compiling recent transactions into
blocks and trying to solve a computationally difficult puzzle.
