Cryptocurrency is now used by a wide audience, ranging from investors to online gamers to celebrities. Due to their decentralized nature, virtual currencies are constantly gaining momentum, and new cryptocurrencies are appearing every day.
This abundance of cryptocurrencies proves the success of Blockchain, the name of the technology that underpins most cryptos. But how does blockchain technology work?
The principle of cryptocurrency
Use virtual currency! The idea might have seemed hilarious, even unreasonable to many of us before January 12, 2009. But on that date, an individual calling himself Satoshi Nakamoto created Bitcoin: the first dematerialized currency. The inventor’s objective is to bring a currency completely independent of states and central banks to market.
Cryptocurrency presents itself as an alternative to traditional currencies. It only works via the Internet and allows you to exchange money online. One of the characteristics of virtual currency is that it is decentralized. Therefore, there are no institutions that control it, unlike conventional currencies.
The functioning of cryptocurrency depends on Blockchain technology. Indeed, the more information you have about this technology, the better you will be able to follow cryptocurrency trends: go to BlockInfos for all the useful information on Blockchain and virtual currencies.
A Blockchain is literally a chain of blocks. Everyone can use it freely. Blockchain and cryptocurrency are interdependent. It is the Blockchain that makes it possible to validate transactions carried out in virtual currencies.
On the other hand, it cannot function without using tokens. To validate the transactions, members of the peer-to-peer network compete. These are the miners.
Blockchain technology and cryptocurrencies: how it works
The mode of implementation varies from one application to another.
Blockchain blocks each contain multiple transactions. They register in the Blockchain through the nodes of the network. The main elements of a block are:
- an index;
- a hash to identify it;
- the hash of the previous block;
- a timestamp (timestamp);
- a series of transactions
To connect to a Blockchain and add a new block to it, you must use a wallet, which is the software or client application that allows you to form a node in the blockchain. With your wallet, you can synchronize the Blockchain on your connected device. The user holds a private key and a public key for its operations.
The public key serves as an address for transactions and is accessible to everyone. As for the private key, it is confidential and guarantees the security of exchanges.
When you use a wallet to send tokens to someone, the transaction is sent to the Blockchain. Then, it goes on hold for validation. The miners then activate to carry out checks on the history of exchanges. Using algorithmic techniques, they ensure that the user does indeed have the money they intend to transfer. The consensus is around the miner who has provided the most computing power to determine the hash of the new block.
Each time a certain number of blocks are mined, the reward decreases for all users. Bitcoin, for example, halves every 210,000 blocks.
Proof of work and proof of stake
Proof of work earns tokens, but to successfully deliver it, you need to give a lot of computing power. Also, you need to have some software, servers, and other tools. The task that achieves this result also consumes a lot of resources on your devices. To circumvent these difficulties, miners come together in mining pools. Combining their computing power, they are more likely to give proofs of work than if they evolved on their own.
Proof of stake, on the other hand, is a new concept in Blockchain technology. It allows the cryptocurrency user to have earnings without necessarily being a minor. If you accumulate a significant amount of tokens in your wallet, then you will be able to verify transactions. The more tokens you store, the bigger your winnings will be.
The Blockchain regulates competition by requiring any user who has validated a block to wait for a certain period of time before trying again. Nevertheless, proof of stake is not yet a reality for all the most influential cryptocurrencies.
Cryptocurrencies are now emerging as a full-fledged sector of the economy. The progression of this model is phenomenal, especially since the cryptocurrency market is now very competitive. This is one of the consequences of decentralization and the development of Blockchain technology.