CRYPTOCURRENCY EXPLAINED – HOW CRYTPO WORKS IN PRACTICE

Over the last decade, cryptocurrencies like Bitcoin and Ethereum have exploded onto the scene, disrupting the world of finance and investments. But for those outside of tech circles, crypto remains shrouded in mystery and terminology that leaves many scratching their heads. So how exactly does cryptocurrency work?

Stripped down to its most basic level, a cryptocurrency is a digital or virtual currency secured by cryptography. Unlike dollars or euros, cryptos are decentralized – no central bank or government controls them. Instead, they operate on distributed, peer-to-peer computer networks consisting of users’ machines that power all transactions.

The groundbreaking innovation that makes cryptocurrencies possible is blockchain technology. Blockchain is a decentralized ledger that records all transactions across the peer network in encrypted, immutable blocks. That eliminates the need for middlemen like banks to facilitate transactions because the network verifies the validity and security of each exchange through complex cryptography.

When a user requests a transaction, it is broadcast across the entire peer-to-peer network made up of computers known as nodes. Network participants known as miners then verify the transaction using cryptographic proofs and computational work to ensure the user has the necessary funds before adding the transactions as encrypted blocks on the blockchain.

As compensation for supporting the network infrastructure and mining transactions, crypto users receive digital tokens associated with that cryptocurrency. Tokens have fluctuating real-world value based on supply and demand. Their ownership and value is never centralized in any one entity. Millions of users around the globe collectively determine valuations.

While Bitcoin remains the most widely-held cryptocurrency, over 10,000 unique cryptocurrencies now exist, each with distinct models. From Ethereum for executing smart contracts to Litecoin aimed at faster payments, different cryptocurrencies continue to emerge, evolve, gain and lose popularity over time as the radical technology extends its reach.

So the next time terms like blockchain, nodes, and miners come up in crypto conversations, you’ll have the basics to join in!