Crypt Currencies. How do cryptocurrencies work?

Crypt Currencies. How do cryptocurrencies work?

Crypto Currencies

As you are reading that article, the value of 1 bitcoin has reached 59944.40. Which means that if a lucky guy bought 2 bitcoins in the 15th of may 2011, he would have made a profit of 120698.20. But have you ever once stopped and asked yourself, how does bitcoin or other crypto currencies work And what makes them special from normal traditional currencies? And how does its future look like?

How do crypto currencies work?

Let's say that you're browsing through Amazon and spot a stylish T-shirt priced at $40. You decide to make the purchase online. Here's how it the transaction process occurs: The bank you've authorized for the payment swings into action, updating its records. Your account balance will drop by $40. At the same time, Amazon's bank will update the it's record, to increase amazon's balance by 40$, reflecting your successful payment. Simple right? What will happen if you decided to buy the same T-Shirt from another store using bitcoin?

So, you wanna buy something with Bitcoin? Here's how it goes down:

First off, you fire up your Bitcoin wallet app and punch in the recipient's Bitcoin address (think of it like their bank account number) and how much Bitcoin you wanna send. Then, your wallet app does its thing and creates a digital message detailing all the deets: who you're sending it to, how much, and any fees you wanna throw in. This message gets locked up tight with your private key to prove that you're the boss of those bitcoins. Now, it's time to hit send! Your transaction message gets blasted out to all the computers(refered as nodes) in the Bitcoin network. These computers, called nodes, making sure everyone knows what's up. And here is the main difference, The transaction information is decentralized, meaning that all the computers that has access to bit coins are the bankers, there is no central organization that can track the bitcoins.

Next, miners swoop in to do their thing. They check your transaction to make sure it's legit, following all the rules of the Bitcoin world. No funny business allowed! Once they give it the green light, your transaction gets added to a block, which is like a page in the Bitcoin history book. The block gets added to the blockchain, which is basically a big book or records of all Bitcoin transactions ever made.

The process did not finish yet! Your transaction needs a little more love before it's official. It needs some confirmations. These happen when more blocks get added on top of the one containing your transaction, kinda like stacking blocks on top of each other. The more confirmations, the safer and more locked in your transaction becomes.

And finally, ding ding ding! Your recipient's Bitcoin wallet lights up with the new balance, and they're officially the proud owner of the Bitcoin you sent them. Now they can use it to buy that rad T-shirt or whatever else they've been eyeing.


Future of Crypto Currencies

Well, We are living in the future! If you don't know, cryptocurrencies are being currently used as a payment method, which is great! Cryptocurrencies require less to no transaction fees. Moreover, the transaction is completely anonymous and hard to track. Which is a good and a bad thing as it will enable illegal activities, like selling illegal stuff. That's why bitcoin is mainly used in the dark web as a payment method! So what do you think? Feel free to leave a comment!

Back to blog

Leave a comment