What is Cryptocurrency?
Cryptocurrency is decentralized digital money that’s based on blockchain technology. You may be familiar with the most popular versions, Bitcoin and Ethereum, but there are more than 19,000 different cryptocurrencies in circulation.
What is a Blockchain?
A blockchain is an open, distributed ledger that records transactions in code. In practice, it’s a little like a checkbook that’s distributed across countless computers around the world. Transactions are recorded in “blocks” that are then linked together on a “chain” of previous cryptocurrency transactions.
“Imagine a book where you write down everything you spend money on each day,” says Buchi Okoro, CEO and co-founder of African cryptocurrency exchange Quidax. “Each page is similar to a block, and the entire book, a group of pages, is a blockchain.”
With a blockchain, everyone who uses a cryptocurrency has their own copy of this book to create a unified transaction record. Each new transaction as it happens is logged, and every copy of the blockchain is updated simultaneously with the new information, keeping all records identical and accurate.
How do crypto transactions work?
Cryptocurrency is becoming insanely popular every day. You can pay with it in restaurants, coffee shops, gas stations and more. “Crypto is the future” – we can firmly say to everyone, because fast payments and transfers, an ability to choose any existing tokens, mine them and earn millions – this is just the beginning of amazing opportunities! Besides, each of you can easily purchase crypto, or receive it from someone, which is the essence of transactions. The transaction mechanism is not so simple at first glance, so we will tell you all its details.
When people transfer assets to each other, this is called a transaction. Let’s consider a simple situation: you give a designated amount of crypto to your friend. This transaction is conducted in 5 steps:
- First step
Entering of your friend address and the amount of crypto you want to send
- Verification (mining)
When the transaction is initiated, it has to be verified. This may take some time depending on the cryptocurrency. Every transaction has to be confirmed by its network. Actually its dome by powerful computers, which are called “nodes” and this process is called crypto mining.
- Adding to Blockchain
Transaction after verification will be added to the last block in the Blockchain – a shared, immutable ledger, recording transactions and tracking assets with no physical information (documents). It has an irrefutable confirmation of the existence of this information and the history of operations with it.
- Closing the deal
The block is added to the blockchain and anyone with a copy of it (every computer on the network) will get an updated version with the new block.
- Transaction is completed
At that point, you will see forwarded crypto in your wallet and be able to spend it. This completes the transaction between your friend and you.
The technology that runs the virtual currency is highly protected, because of 4 aspects:
- Blocks invariability – every block is an important part of the sequence and it cannot be changed. If there is any change, the hash sum would alter and the block would longer be valid.
- Cryptography – using unique private keys.
- Decentralization – hacking into one part of this system cannot affect other parts.
- Consensus – verifying that a transaction has taken place. Most consensus models run on protocols that include proof-of-work, proof-of-stake, etc.
Mining and, in general, existence of crypto is linked with mathematics. Miners solve complex mathematical problems, form a new block, and confirm transactions. The mathematical problem can only be solved by trial and error and the odds of solving are about 1 in 5.9 trillion! If the miner managed to solve the problem, a new block is formed – it contains the next set of transactions, and they are considered confirmed. Proof-of-work blockchains are secured and verified by virtual miners. The most famous cryptocurrency, which uses Proof-of-Work is Bitcoin.
Proof of stake is a consensus algorithm requires miners to stake coins in order to validate transactions. Those miners(validators) who have a larger stake or have been staking longer have an advantage. It’s convenient and does not require mining. Validators lock up set amounts of cryptocurrency in a smart contract on the blockchain. In exchange, they get a chance to validate new transactions and earn a reward. This provides more security to the process since there is no incentive to cheat or steal coins.
Transaction details and tracking
The speed and price of transactions depends on the selected network and blockchain. Logically, a faster transfer requires a higher fee. In any case, it is much better than regular bank transfers!
All transaction information can be easily accessed anywhere across the globe. Depending on the currency of a transaction, you will have to check the respective blockchain. For example, if you have transferred some BTC, check the status of that transaction in the Bitcoin blockchain.
Each transaction is assigned its own transaction ID (TXID). If you need to check whether a transaction has already been processed, its transaction ID will help you find all the necessary transfer details. All available transfer data include:
- Amount of cryptocurrency sent
- Sender’s and receiver’s address
- Date of transfer
Here are the most popular explorers which you can use to check transactions.
- Bitcoin – https://blockchain.com/explorer
- Ethereum – https://etherscan.io
- XRP – https://bithomp.com/explorer
- Bitcoin Cash – https://explorer.bitcoin.com/bch
- BNB chain – https://bscscan.com/