When Bitcoin, the first form of cryptocurrency, was first introduced in 2008, it seemed like a foreign concept. Okay, so, money that doesn’t exist would exist and replace plastic and paper money in transactions? How is that possible? If you’ve ever wondered what digital currency is and how it works, then you’ve come to the right place. Here, we discuss those concepts in brief.
What is Cryptocurrency?
Before understanding how bitcoins and altcoins work, you have to understand what they are. Simply put, cryptocurrency is a form of currency that uses blockchain technology and decentralized systems to enable users to transact autonomously over the internet. All user accounts are encrypted, and so are the transactions that they take part in.
How Digital Currency works
Cryptocurrency transactions always involve two parties- let’s call them peers- transacting remotely. One requirement of each transaction is that the sender must own bitcoin or other altcoins, either from mining, buying them from an exchange or getting them as payment for a good or service. The monies such a person owns are stored in a digital wallet with a unique electronic signature. When the sender selects the option to send digital monies to a second party, the transaction is uploaded onto a public ledger known as a transaction blockchain.
While on the chain, the signature of the sender is verified as the source of legit currency by coders called miners. Once verified, miners add the transaction to the ledger and receive a commission for that. The payment is usually a tiny piece of the transaction fee and a few newly made bitcoins or altcoins. Mining is difficult because it needs special equipment and a lot of time. Once added to the transaction blockchain, a transaction can be seen by all miners and is permanent- it cannot be changed or erased.