Cryptocurrency may be a general term used these days. Still, it is a mystery for a large population of the world. Many people consider it the most confusing term. When Bitcoin first appeared in 2009, only a few people knew about it. Now, even after years, it is still a new term for so many people. The vision behind developing Cryptocurrency was straightforward. The goal was to introduce a digital currency that is secure for online transactions. Here is everything you need to know about Cryptocurrency and the associated terms like Bitcoin and blockchain:
What is Cryptocurrency?
Cryptocurrency, in general words, refers to the digital currency used for purchasing goods and services. Unlike fiat currencies, Cryptocurrency is like an asset based on a network available across a large number of computers. Online ledgers with strong cryptographies are used to make secure online transactions. This helps them to be out of control of the central authorities and the government. This decentralized technology is known as Blockchain technology. We are going to explain blockchain later in this article.
Bitcoin, the first Cryptocurrency, is famous for being the safest online transaction and for more than 50,000 in existence. Anyone can easily buy, sell, and exchange bitcoin for purchasing goods and services. Ever since its launch in 2009, the value of Bitcoins has been increasing surprisingly.
Bitcoin mining is the most famous phrase used by crypto lovers. But what is Bitcoin mining? The mining process in simple language refers to solving puzzles for creating new bitcoins. It is done using computers equipped with specialized chips to solve mathematical puzzles.
Blockchain is a decentralized process used for creating ledgers for historical transactions. As goes with the name, a blockchain is a chain of a block of data. Also, it is known as Distributed Ledger Technology (DLT) as it makes the history of digital transactions impossible to tamper with and fake.
One of the best examples we can take is Google Docs. When we create and share a document on Google Docs, neither it can be saved nor downloaded on their devices. All the changes are transparent to all the parties. The changes are evident to each participant. No one is denied access to make changes to the document, and all the changes are transparent.
Of course, there is a considerable difference between the functioning of Google Docs and Blockchains. However, it can be taken as an excellent reference to have a better understanding of the subject.
Do you know how blockchain works?
Basically, there are three essential concepts that you need to get familiar with to understand the working of blockchains. The three concepts include blocks, nodes, and mining.
Blocks: There are four pieces of information shared in the blocks are as follows:
Timestamp: It is simply the time at which the black is created.
Transaction root: Here are the details of the transactions in this block.
Previous Hash: It is the hash of the last block of the chain. Whenever a given block is processed, its hash becomes the previous hash of the next block. This is how the entire chain of blocks is created.
Nonce: It is a cryptographic term used that refers to an arbitrary value used only once in a transaction. It is a 32-bit whole number generated randomly when a block is created. It generated a block header hash later.
Now you can understand how difficult it is to mine bitcoins. As discussed above, mining is done by a miner to create new bitcoins by solving mathematical puzzles. In blockchain technology, each block contains a specific nonce and hash but also references the previous hash. Miners need specialized software to solve complex mathematical puzzles to find a nonce to generate an accepted hash.
Finding the perfect nonce-hash combination is very difficult because a nonce is 32-bit, and the hash is 256 bits. Those who find the combination are called as finding a “golden nonce,” and their chain completes as the block is added to the chain.
Anyone who wants to make any change to the earlier blocks of the chain needs to re-mine the block they want and the previous ones. That is why blockchain technology is considered as the tampered-proof method. No alterations and fake transactions can be made using blockchain technology easily.
Do you know what the most interesting and crucial part of blockchain technology is? It is the decentralization of the network. In a blockchain, the data is not limited to any specific server only. Here it is decentralized to a large group of networks. The ledger is distributed via the nodes connected to the chain.
Now you must be thinking, what is the role of nodes in the whole process? Nodes have a significant role in the blockchain technology process. In simple words, it can be any electronic device that carries a copy of the blockchain that helps in keeping the process functioning.
The most significant advantage of blockchain is the transparency and reliability it offers.
Each node carrying a copy of the blockchain must algorithmically approve access to each newly mined block. Without this, the chain cannot be verified and updated. Here, each participant is allotted a unique alphanumeric identification number to have access to all the changes to the ledger.
Should you invest in Crypto?
This question contains mixed reviews. Many financial advisers approve their clients to buy Cryptocurrency. However, they don’t recommend unless their clients show interest. If you think you can efficiently deal with the highly complicated nature of Cryptocurrency, then you are ready to make your first move now. Furthermore, we would like to make you aware of the uncertainties of the industry. You need to be very protective about your private key and the data to keep yourself safe from all kinds of frauds and scams. It is incredibly speculative and volatile. Invest only if your financial experts are allowing you to do so. Otherwise, you can invest in less risky investments than Cryptocurrency.