You must be very familiar with things like “Bitcoin”, “Litecoin”, “Ethereum” and so on. Have you ever wondered what these people are investing and using as a different way of spending or trading? These are basically called cryptocurrencies. What is a cryptocurrency now? In short, we can say that cryptocurrency is a kind of encrypted, decentralized digital currency, which is transferred between peers and confirmed in the citizen ledger through a process called “mining”. Are you still confused?
Don’t worry; we will divide it into two parts below to discuss it in a more simplified way: first introduce the basics in detail, and then explain how cryptocurrencies work.
Importantly, at this stage, one should trade commodities using tangible assets in the early stages. At the time, gold was the universal currency used for trading, and there were other commodities. As the evolution progresses, we know that today these currencies are mainly printed on banknotes or coins managed by central agencies such as the government and tracked by financial institutions.
However, just ten years ago, another idea came into being and evolved again. Bitcoin’s founder, Satoshi Nakamoto, has taken another approach, which will change how people think about money. This question is enough to give you an idea of what he did or wanted to do.
In order to understand how cryptocurrencies work, you must first learn some of its basics, such as the cryptocurrency structure and its process that we will specifically describe for you below:
Adaptive scaling: These digital or cryptocurrencies are controlled by adaptive scaling. In short, the more mining a particular blockchain (which we will discuss later in this article), the more difficult it is, depending on the duration of the mining block. If they are mined for a longer period of time and under greater pressure, the difficulty will be reduced; if they are mined for less time, the difficulty will increase next time. Because these cryptocurrencies are problem-based expansions, many cryptocurrencies have a hard cap–known as a limited number of coins–that will never be exceeded.
Cryptography (encryption): These digital currencies are known to use a cryptography system to control coins and their transactions.
Decentralization: The central government usually controls currency, so a third party like a finance department can manage currency issuance. The situation is different when using cryptocurrencies. It is created and traded open source, under code control, and relies on “peer-to-peer” networks. No central entity can control currency.