One of the recent financial phenome being discussed at the highest level of policymaking across the globe is cryptocurrency. While many have already experienced it, majority are still curious to know what is cryptocurrency and how it functions. Cryptocurrency is a digital, decentralized currency system with no regulatory authority as opposed to the normal banking system. In this system, digital assets are transacted through cryptography. Transaction in cryptocurrency is encrypted and transferred between peers, and confirmed in a public digital ledger through a validation process, known as mining. In the cryptocurrency system, the digitized ledger or database is known as blockchain.
Cryptocurrency consists of a network of peers. Every peer has a record of the complete history of all transactions and knows the balance of every account operating in the network. A transaction made between two entities is signed with a private encrypted key. Such transaction is verified and confirmed through the process of cryptography and broadcast in the network. Once it is broadcast in the network, it becomes a part of the blockchain and visible to all members of the peer group. This process is known as mining.
Mining is open to all in the network and anyone can confirm the transaction. In cryptocurrency, coins are generated or produced by miners. The miner has to solve a complex mathematical puzzle to add the transaction in the ledger. This mathematical puzzle is based on a high-security SHA 256 Hash algorithm. The process of confirmation of the transaction is done in such a manner that no one individual in isolation can add or alter in the database of the blockchain. Once a block is added to the ledger, it becomes a permanent transaction and no alteration can be made to it. For completing the process, the miner receives a fee that is added to its digital wallet. Such digital wallet in cryptocurrency stores the public and private keys that can be used to receive or spend the cryptocurrency. The mining process is known as proof-of–work in the language of cryptography and it gives value to the currency. The participants in crypto-currencies are not known by their identities, rather they are known by the encrypted wallet key.Read More