The Basics of Cryptocurrency and the Way It Works

Cryptocurrency is a decentralized, encrypted digital currency that is transferred between peers and then confirmed in what is known as a public ledger through a process called mining. What a new user essentially has to know and understand is that cryptocurrency can be roughly equated to using a debit card or using PayPal, except that instead of a fiat currency like the Dollar, the numbers on the screen represent cryptocurrency. All you need to do to get started with using cryptocurrency is to set up your own coinbase account. Coinbase users can buy, sell, and store Bitcoin, Litecoin, Ether, or some other form of cryptocurrency through this.

In the simplest terms, cryptocurrency works like your bank credit on a debit card. In either case, a complex system works to issue currency, record transaction, and balance work behind the scenes, thus allowing users to exchange (send and receive) currency through electronic means. The main difference between the two is that instead of governments and banks issuing the currency used and keeping the ledgers, a certain algorithm does the work.

Cryptocurrency is perhaps best thought of as a form of digital currency that only exists on computers. It can be transferred directly between peers, without any middleman like a bank. Transactions are then recorded on a block chain or a digital public ledger and encrypted using a process known as cryptography, hence the term cryptocurrency. The entire system is also decentralized, which means it is controlled by a computer algorithm and its users rather than a central government. Perhaps one of the most popular examples of cryptocurrency is Bitcoin, although other digital currencies also exist like Ripple, Litecoin, Ether, etc.

Cryptocurrencies work as peers send and receive digital currency through their cryptocurrency wallets. This is possible through matching up public codes and relating back user-held private passwords, also known as cryptographic keys. All transactions that are made are recorded via a public ledger, which all users have access to, by downloading a full node wallet. Transaction amounts are also public, but the identities of the transaction originators are encrypted. Whoever owns the key to a wallet owns the amount of digital currency denoted on that ledger.

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