Before investing in any project, you research and analyze it to be able to explain why you do it, right? Same with cryptocurrency. While there are thousands of articles where people write ‘do as I say’, you still need knowledge about this ‘project’. How it works? What’s a crypto wallet? What’s mining and why it’s important?
To get enough knowledge as to cryptocurrency how it works for you, many more than one article should be read. But we’ve gathered all the main information about crypto wallets, blockchain, and mining, as well as structured it by creating this post.
Cryptocurrency Blockchain How It Works: The Basis of the Crypto World
The most unclear question for most people entering the crypto world is ‘Cryptocurrency blockchain how it works?’
A blockchain is a set of records that cannot be changed and are under the management of powerful hardware that belongs to different, let’s say, entities. There’s no ruler, no controller, no central bank. The term consists of two words: block and chain. Blocks of information are connected in a complicated cryptographically secured chain.
It’s pure democracy since it’s a decentralized system. It’s a shared ledger where data is public, making it transparent so every contributor is responsible for what they do.
So, here’s an easy algorithm to get you closer to understanding of cryptocurrency blockchain how it works:
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- Someone initiates a transaction, say, to buy Bitcoin;
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- As a result, a new block of information is created;
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- It gets validation of thousands of computers from totally random locations;
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- Once this process is done, the block becomes a part of the chain, creating a unique record with a one-of-a-kind travel story.
So, to change one transaction and steal funds, one needs to falsify thousands if not millions of travel points, which is impossible.
While nowadays blockchain is used for Bitcoin, in the future, it may become a platform for all kinds of transactions. There are no fees and the security side is almost flawless.
Cryptocurrency Wallet How It Works If Crypto Isn’t Physical
The next most asked question is ‘Cryptocurrency wallet how it works?’
Yes, cryptocurrency has no physical form at the moment, as well as crypto wallets. They are called so to match the equivalent of real funds in a real eco-leather storage with pockets. Your wallet holds information about every crypto transaction you’ve made using it, as well as how much currency you have at the moment.
No matter whether it’s Bitcoin, Ripple, Iota, Dash, Libra (in the future), or another cryptocurrency, you need a digital wallet to store it. It’s a piece of software that stores your public and private keys, allow you to check the amount of crypto you have as well as interact with blockchain to buy or sell currencies.
To understand cryptocurrency wallet how it works, learn about the keys and the address you get to operate your coins. Many people confuse addresses and public keys. Let’s figure it out:
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- A public key is your identification in the blockchain. Anyone can see it, but they don’t know it’s yours;
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- A private key is your signature that is corresponded with the public key like login and password;
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- A wallet address is a combination connected to your keys that you can provide to anyone who will send you funds.
This is the basics of the ‘cryptocurrency how it works’ topic. Don’t confuse these three terms.
So, when someone sends you coins, they are refusing their ownership of those funds and you’re signing your ownership. This transaction joins a block that joins the blockchain. Everything you own in crypto is stored there, so make sure you secure your wallet with double-authentication.
Mining Cryptocurrency How It Works: One of the Main Processes
Final question: ‘Mining cryptocurrency how it works?’ It’s a more complicated thing but it’s an integral part of the whole process. Mining performs two functions:
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- Verifying transactions, thus adding them to the blockchain;
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- Releasing new coins until the upper cap is reached.
How to start mining? All you need to mine crypto is a powerful computer and special software. It’s better to buy a new piece of equipment instead of using your own PC or phone since a lot of power is needed. The process is generally solving difficult mathematical equations.
Miners take intervals to solve a block faster than the others. You can mine solo, but it’s better to do it in a pool. The reward will be split between all participants, but there’re more chances of solving a block if you’re in a pool.
The reward for the work is 12.5 BTC at the moment. In May of this year (2020) it will be split in half, meaning the reward will be 6.25 BTC. Halving happens roughly every 4 years, as every 210,000 blocks are mined. The process was coded into the protocol from the very beginning by the creator(s) under a ‘Satoshi Nakamoto’ username.
Mining is one of the basic factors in the big topic of cryptocurrency how it works. Don’t confuse mining with trading, though. They are totally different but can both be used to make money using cryptocurrency.
Basics Are the Key
Before you think about investing in cryptocurrency, learn the basics. Find out how it works, what fundamental processes there are. You don’t need to know every technical factor, but being knowledgeable of the basics is vital. There are people who just hire specialists and let them be responsible for a wise decision. However, wouldn’t it be great to be independent?
Please, read about blockchain, mining, cryptocurrency, make sure you know cryptocurrency how it works for you before investing. With a base of facts in mind, you won’t get drawn in a classic pump and dump or any other misleading trend.
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