We all know from part 1 of this article, that Cryptocurrency is an online digital currency, that exists in form of coins or tokens developed or distributed on a decentralized ledger called BLOCKCHAIN (Blockchain Technology).
Let’s have a discussion about the Blockchain
Blockchain is designed to save, update and record digital interactions (transactions), It is a shared database filled with entries that must be confirmed and encrypted.
Blockchain technology enables the existence of cryptocurrency (among other things). It allows individuals to be able to confirm records or transactions without a need for a central clearing authority. Bitcoin was the first cryptocurrency in which blockchain technology was invented, and now many valuable applications can be developed on the blockchain technology to allow fund transfer, voting, settling trades, and more.
Understanding Blockchain Technology
Blockchain is a unique type of distributed ledger, developed to record and update digital interactions or transactions in a secure, efficient and transparent way.
Meanwhile, a distributed ledger is not entirely the same as a blockchain, it is just a database that exists across several locations or exposed to some participant of an organization.
Unlike blockchain, a centralized database alone can essentially have a single point of failure. But it is also decentralized to eliminate the need for a central authority or intermediary to validate, update, process or authenticate transactions or other types of data exchange.
However, when these records are stored in the ledger, just like the blockchain, all files available in this distributed ledger, are then timestamped and given a unique cryptographic signature.
All services or users in the distributed ledger can then view all records being timestamped, so as to provide a technology that produces a result of a verifiable and auditable history of all information stored on that particular dataset.
How the Blockchain Technology Works
By now, we know that blockchain is a shared digital register of saved data. Specifically for Cryptocurrency, it is simply a transaction history for every unit of cryptocurrency, that shows how the ownership changes over time. The Blockchain works simply by saving and updating transactions in BLOCKS, whereas new blocks are always added at the front of the chain. Furthermore, it has unique security features that normal computer files do not have.
These Blocks are linked together by what we call Cryptography (complex mathematics and computer science). Any attempt to manipulate data will disrupt the cryptographic links between the blocks, and can quickly be identified as error or fraudulent to other computers in that network.
Blockchain Network Consensus
Blockchain files are recorded on multiple computers across a network (rather than in a single location), it is usually readable by all individuals within that network. This has made blockchain both transparent and very difficult to manipulate or alter, with no one weak point vulnerable to hackers or even software error.
How many cryptocurrencies are there on Blockchain Technology?
Cryptocurrencies are always built for a purpose or to solve a problem, and there are lots of problems to solve in our today’s world. Some Cryptocurrencies are developed by raising money through ICOs (Initial Coin Offering).
According to CoinMarketCap.com, the total value of all Cryptocurrencies as of May 27th, 2021 was more than $1.7 trillion – down April high of $2.2 trillion. And also within that period, the total value of all bitcoins was pegged at about $735 billion – down from April high of $1.2 trillion.
Blockchain Technology – Advantages and Disadvantages of Cryptocurrency
ADVANTAGES – One of the major advantages of Cryptocurrency is that it makes it easier to transfer digital currencies or funds between more parties, without the need for a trusted third party like the credit card company, or even a bank. The transfers are also secured by the use of what we call PUBLIC and PRIVATE KEYS and different forms of incentive systems like Proof of Work or Proof of Stake.
Transactions of cryptocurrencies are completed with minimal processing fees, allowing individuals to avoid the steep fees bank charges and other financial institutions for wire transfers.
DISADVANTAGES – Cryptocurrency advocates often highly value their anonymity, citing benefits of privacy as in activists living under repressive governments, protection for whistleblowers and more. And some cryptocurrencies are more private than others.
Some privacy-oriented cryptocurrencies (coins) exist, such as ZCash, Dash, Monero etc. These are far more difficult to trace, just like Bitcoin that is a relatively poor choice for hackers in conducting illegal business online since the forensic analysis of the Bitcoin blockchain has assisted authorities to prosecute and arrest many criminals.
The semi-anonymous nature of cryptocurrency transactions makes them well-suited for a host of illegal transactions like tax evasion, money laundering, etc.
How does an Individual or Investors buy cryptocurrency?
An investor or individual can purchase any cryptocurrency through a crypto exchange like Binance, Cash App, Coinbase etc.
You must have an account on an exchange like Binance, Coinbase, etc. Then you can transfer real money to buy cryptocurrencies like Bitcoin, Ethereum, Safemoon, etc.
You will also need an Online app called WALLET, to store and retrieve your digital assets or currency after purchase.
Understanding Cryptocurrency Mining
Cryptocurrency mining is the process when a new or recent cryptocurrency transaction is checked and new blocks are added to the blockchain.
Checking Transactions in Cryptocurrency Mining
The computers used in mining select pending transactions from a pool and check to ensure the sender has enough funds to continue or complete the transaction. This process also involves checking the transaction details and requirements against the transaction history stored in the blockchain. Another check is made to confirm the sender really authorized the transfer of funds using their PRIVATE KEY.
Creating a new block on the Blockchain during Cryptocurrency mining
Mining computers always compile valid transactions into a new block and tries to generate the cryptographic link to the previous block simply by searching for a solution to really a complex algorithm. When any computer succeeds in generating the link, it updates the block to its version of the blockchain file and then broadcasts the latest update across the network.