Stephan Miller

Cryptocurrency




What is Cryptocurrency?

Cryptocurrency is a digital or virtual currency that uses cryptography for security. This currency only exists in an electronic form and operates on a decentralized network, which means it has no central authority like a bank or government controlling it.

Cryptocurrency is also a digital payment system. With a traditional payment system, either cash is used or transactions are verified by a bank. Cryptocurrency transactions are verified by a global peer-to-peer system that gives anyone the ability to send and receive payments without a middleman.

Cryptocurrency uses encryption to verify transactions, which is how it got its name. Complex code is used to store and transmit cryptocurrency transaction information between public ledgers and wallets. All transactions are recorded on a public blockchain.

The first cryptocurrency, Bitcoin, was created in 2009.

How Does Cryptocurrency Work?

Cryptocurrencies most often use blockchain technology. A blockchain is a digital ledger that records all transactions made across a network of computers.

If you own cryptocurrency, you don’t own anything real. You own a private key that represents your “wallet.” While different cryptocurrencies might handle it slightly different, this private key allows you to store and transfer crypocurrency using the blockchain. Your “wallet” also has a public key, which allows anyone to view your transactions on the blockchain or to send you cryptocurrency.

When a transaction is made, it is verified by peers in the blockchain network. Here is breakdown of the steps:

  1. When you send cryptocurrency, you create a transaction.
  2. This transaction is digitally signed using your private key which proves you have the right to do so.
  3. This transaction is broadcasted to the entire network of computers (nodes) connected to the blockchain.
  4. The nodes verify that the transaction is valid by checking the signature, amount in the sender’s account, etc.
  5. Different cryptocurrencies use different consensus methods to agree that the transaction is valid. Common ones include:
    1. Proof of Work: Miners compete to solve complex math problems. The first to solve adds the transaction to the blockchain. This is the oldest method, one that Bitcoin uses, and requires a lot of resources.
    2. Proof of Stake: Insead of mining, users stake their cryptocurrency to become validators. Validators are selected at random to create new blocks and verify transactions.
  6. Once the transaction is verified, it is added to a block of transactions and this block is added to the blockchain.

Blog posts in the cryptocurrency category

AI Cryptocurrency Trading Bots

While large language models have sort of taken the stage in the last couple of years, the AI models that make automated cryptocurrency trading possible have ...