How Does Cryptocurrency Work: Explanations of Exchange, Wallets, and Blockchain

Despite the fact that many people know quite a lot about leading bank accounts, cryptocurrency, capital investing, trading, mining, IT in general, they still ask how does cryptocurrency work. Somehow, it’s difficult to understand how is any kind of tax involved, how is exchange happens, price changes, and more.

All of this may be a difficult bundle of information to perceive, but we’ve created an article that explains everything in simple terms. By the end of it, you’ll have a pretty good idea about the world of crypto. Step by step, let’s find out how does cryptocurrency work.

How Does a Cryptocurrency Exchange Work: A Simple Explanation

How does a cryptocurrency exchange work? It allows exchanging of different kinds of crypto, buying and selling coins for further sending or spending. You can also exchange fiat money for any crypto using a reliable service. The process works just like simple currency exchange, only the reasons for the stake change slightly vary.

Cryptocurrency: How Does the Price Work?

In general, the price of any cryptocurrency varies depending on the number and volume of transactions made within this particular coin network. People decide what coin is more expensive by using it more. And as its popularity grows, more proof that it’s reliable emerges, which draws more traffic and more transactions.

That being said, cryptos are very volatile, and in one day, the price may drop by 20%, 40%, who knows. This is where trading comes in, which is also done through exchange. People are trying to profit by buying and selling coins to catch the highest rate for the sale.

How Does a Cryptocurrency Wallet Work: Your Main Crypto Storage

How does a cryptocurrency wallet work? Well, just like you need a physical wallet for your cash and cards, you need a crypto one for your coins. But as there are no physical equivalents to the latter, the wallet does not store anything. In the blockchain, the system only knows which public and private keys a certain amount of assets is assigned to.

Wallet Address, Public and Private Keys

Your wallet address, public key, private key – all these are related. The address plays a role of a bank account number, your credit or debit card. You can give it to anyone to get funds, returning debts, etc. It’s safe and nobody can take your assets using only this number.

There is no limit to the number of addresses, so every one is unique, there’s no percentage of mistake except the human one, of course, in case you fail to give the correct address. Letters in upper and lower case, as well as numbers, are used to create the data, which gives such a number of variations. Pay close attention to the data you input and be careful since blockchain transactions can’t be reversed due to the complexity of security encryption.

Next, public and private keys. In simple terms, the latter gives you control over your assets, while the first one offers additional encryption and security. A lot of people think that wallet address and public key are the same things, but they are not correct. We already know what a wallet address is, right? The public key assigned to it is mathematically connected to it, creating an additional layer of safety so you can prove this is your crypto wallet.

The private key is like a password for your card. It shows the system that you indeed are the owner of the said account.

Technicalities Aside

These terms may be confusing, but there’s nothing to worry about. All of them are technical, and while it’s important to know about them as a part of the basic education, you don’t need to hold all the knowledge in your head for every Bitcoin to Ripple, USD to Bitcoin, or any other transaction.

Transferring funds takes a short time and is efficient if you input all the data correctly. Usually, the program or website you’re using allows you to paste the wallet address right into your clipboard, so there’s no need to remember the sequence, which is close to impossible. When registering a wallet, save all the data somewhere safe.

How Does a Cryptocurrency Work in Simple Terms: Crypto Made Easy

How does a cryptocurrency work in simple terms? Since it’s not physical money and isn’t actually stored on your account, this is where you have to learn about blockchain. It’s a form of a huge accounting ledger that has records of every user’s balance and all transactions ever made using any address.

Your wallet is connected to the blockchain, that’s how you’re getting access to your funds. Without the keys that are generated by that wallet, you wouldn’t be able to transfer your assets into the physical world. It’s very similar to a simple credit card payment. There’s no physical cash exchange, but the money is transferred from one account to another.

You can make it even easier using a crypto card. This is any bank card that allows you to pay for goods and services with at least one type of cryptocurrency. How well does a cryptocurrency card work? Not well enough yet. We’re expecting more places to accept crypto and more banks to offer such a feature for their cards. Good news, such cards are issued in plastic or can be saved and used as mobile applications, making purchases easier.

Don’t Shy Away from the Basics

Knowing such basics is essential for your gains and success in the industry. Never hesitate to read such information if you’re stuck or want to be updated on the fundamental processes. Even professionals sometimes need an infographic or two on how does a cryptocurrency work.

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