Cryptocurrency and the working of cryptocurrency. Explained

Deciphering how Cryptocurrency works!


Cryptocurrencies are one of the major innovations of the decade as they have completely transformed the functioning of the financial economy around the world. Initiated in the year 2009, the cryptocurrencies, since then has been in the LimeLight of the news, as consistent and major breakthrough innovations were witnessed within the cryptocurrency domain itself. The way that the technologies are utilized by the Cryptocurrencies, is what brings in the cryptocurrencies, its potential. In this article, we’ll try to understand how cryptocurrency works.


What are cryptocurrencies and how Cryptocurrency works?

The cryptocurrency is nothing but the digital version of the other fiat currency in the traditional financial market of the world. The first ever cryptocurrency was Bitcoin and was well known for its decentralization and security. However, the pillars of cryptocurrencies are nothing but decentralization and the Consensus mechanisms. Cryptocurrencies were prominently initiated by Satoshi Nakamoto, in order to eradicate the double spending problems that the digital currencies persisted before the invention of Bitcoin in the form of a cryptocurrency.


How Cryptocurrency works? Distributed Ledger Technology

Cryptocurrency basically works on the Distributed Ledger Technology along with the various Consensus mechanisms, the distributed ledger technology is nothing but a way of storing the information but not in the traditional format, but information is stored in the form of records and a bunch of records from a single block. These blocks of information are constantly developed and new blocks are added at regular intervals. Security is incorporated through distributed ledger in the Blockchain ecosystem where the whole Blockchain is transparent to each and every participant of the network. Therefore, providing security to the whole network as data tampering can be easily recognized with this process.


How Cryptocurrency works? Consensus mechanisms

Along with the Distributed Ledger Technology, various Consensus mechanisms are employed and invented by the researchers throughout the world. In any particular organization where a huge group of people is working towards a single goal, it is absolutely no doubt that there would be differences in the opinion when it comes to making decisions regarding the development of the community. The consensus mechanism results in the incorporation of some of the best decisions taken. The world’s first cryptocurrency coin, Bitcoin incorporated the Proof of Work consensus mechanism in order to validate the transactions present on the Bitcoin Blockchain.


How Cryptocurrency works? Cryptographic principles

The cryptocurrencies as the name suggests incorporates the Cryptographic principles and is one of the main ingredients for the providing security to the whole blockchain network.  Precisely the whole information present on a particular block is exposed to a Cryptographic hash function with the name SHA 256 and results in the generation of a new hash which is then utilized by the second block to generate its own hashcode. In this particular way, the block-chain is formed where due to time-stamping methodology, the transactions are completely safe from access from other sources.


How Cryptocurrency works? And advantage

The cryptocurrencies were predominantly developed in order to cope up the inefficiencies and delays which persisted in the traditional Fiat Economy. The cryptocurrencies create a globalized economy as there is no boundary for a particular cryptocurrency coin. Due to this precise reason, all the intermediate 3rd parties are eradicated from the picture of the transaction. Therefore, as there is no intermediate authority to undertake and validate the transaction, the transaction fees are significantly reduced, in turn increasing the widespread adoption of the cryptocurrencies throughout the world. As the whole process, as well as the cryptocurrencies, are online in nature, many physical paper works can be avoided which are wasted to incorporate the security or any other compliance related to them.



In a nutshell, the cryptocurrencies were initiated to transform the way the world viewed the Fiat currencies. The price volatility in the cryptocurrencies is effectively made use of by the people through the process of trading. However, the financial regulators did not spare the crypto domain too, for they have imposed their own set of financial obligations. Before undertaking any investments in the crypto domain, one is highly advised to consult a financial expert in the field. However, the cryptocurrency wallets are also made available for the cryptocurrency users throughout the world in order to store the crypto funds in a safe manner.