Categories
Blog-en

What cryptocurrencies are and how do they work?

INDEX

  1. What are cryptocurrencies?
  2. History of cryptocurrencies
  3. What is the Blockchain?
  4. How do cryptocurrencies work?
  5. Crypto mining and miners
  6. What happens when I use a cryptocurrency?

You would have to live disconnected from the world not to have heard, or read, at least once about cryptocurrencies. Either because the information would have given you a positive or negative impression, you will know at least that they are currencies that were born in the digital world, that they are not a paper currency like the money that you are used to handling and that, in addition, their price can be very high.

1. What are cryptocurrencies?

A cryptocurrency is a computer algorithm created with the function of representing a unit to carry out exchanges. If you wanted to visualize it, it would be something like a set of letters and numbers, a sequence of data, very similar to seeing a programming code on the screen.

Cryptocurrencies are digital currencies. They do not have a physical form, but they do have commercial value, thanks to the fact that they are used and accepted as a means of payment in transactions.

2. History of cryptocurrencies

que son las criptomonedas

The existence of cryptocurrencies has its theoretical background in cryptography, a technical branch of knowledge, which stems from the ancient need to create hidden messages through codes. Which was strengthened immensely with the development of informatics.

In the eighties, and thanks to the arrival of the internet, which opened a new scenario of technological interaction and a virtual space for communication, crypto enthusiasts began to raise the possibility that people could make transactions through the network. For this, the existence of a digital currency was necessary, which could be moved in the same medium, which would later give the added value of operating globally.

Additionally, they considered that it should be encrypted so that it was secure and that it was not subject to the control of banking entities, that is, it should be decentralized. This also implied that no government was going to rule over it, it was something like raising “free money” that, thanks to technology, could operate for the benefit of the people.

But it is only in 2009 that the first cryptocurrency was born, Bitcoin, because the creation and development of the software that allows the existence of these currencies, the Blockchain, required a very broad theoretical compilation.

Another curious fact is that just in 2010, a year later, Bitcoin was used for the first time to make a payment related to the physical world; the purchase of two Papa John’s pizzas in the United States. That is, until that date its existence and use were limited to small groups that used the cryptocurrency for private trials, so it still had no commercial value.

3. What is the Blockchain?

que son las criptomonedas y el blockchain

The chain of blocks or “Blockchain” is the fundamental element for the existence of cryptocurrencies. As their name indicates, they are a sequence of blocks, where each one contains the information of the operations carried out, but additionally, it also indicates which is the previous block and links to the next one. That is, it works as a kind of accounting book, within which each block represents a sheet with information, linked to the previous one and indicating which one should follow.

The great advantage is that the information stored there is that it cannot be modified because as there are thousands of nodes (computer terminals) that receive a copy of the Blockchain, as soon as any data is modified an alert will be generated because this network works By consensus, this means that most copies should have the same information, so when a change is detected the network reports it as an error. Additionally, to commit fraud, it would be ridiculously complicated, if not impossible, to convince most of the nodes (51%) to also change their copy. This gigantic peer-to-peer network spans the length and breadth of the planet.

4. How do cryptocurrencies work?

For the operation of cryptocurrencies we must again mention the Blockchain, remember that its way of operating is public and with this, it is guaranteed that the transactions are traceable and transparent. Then every time a transaction is made with a cryptocurrency, for example, a payment, the information of the transaction is sent on the network (the data of the crypto address of the issuer, receiver, and amount of coins to be sent) is confirmed and through A process called mining, which is carried out by cryptocurrency miners, adds the information within a new block of the chain. This happens in a matter of seconds.

5. Crypto mining and miners

que son las criptomonedas y su mineria

Miners are people who have powerful computer equipment with which they check that the information contained in the blocks of crypto is true. Said use of resources generates a reward in cryptocurrencies, but more importantly, this public audit action makes it impossible to modify the information contained in the Blockchain. As the data is transmitted over the network and constantly verified, an alteration would be easily identifiable. Additionally, thanks to the miners, new cryptocurrencies are generated, so the more transactions are made with a currency, the more profitable it is to mine.

It is important to mention that miners know how crypto works and believe in the system, which is why it would also be difficult to “bribe” them to change the information. In short, mining keeps the system safe.

6. What happens when I use a cryptocurrency?

For the end-user, sending, receiving, buying, selling, or exchanging cryptocurrencies is a process similar to paying with a local currency through a virtual account. However, the difference is that it requires specific applications that have greater security measures, in addition, there are also specialized platforms in exchanges such as Exchanges and P2P trading platforms.

In any case, the mining process to confirm the transaction happens in a short time and without the cryptocurrency user having to make any additional effort or operation.

Leave a Reply

Your email address will not be published. Required fields are marked *