What is Cryptocurrency? How does Blockchain work?

what is cryptocurrency

A cryptocurrency is a form of digital asset or currency based on a network that is distributed across a large number of computers. The decentralized nature of cryptocurrency makes it out of control of a single entity. It does not control by any government or central authority.

The word “cryptocurrency” is derived from the encryption techniques which are used to secure the network.

Types of cryptocurrencies

There are many different types of cryptocurrencies right now. Some of the popular currencies are Bitcoin (BTC), Solana (SOL), Etherium (ETH), and many more.

What is Blockchain?

what is blockchain

Cryptocurrencies work on Blockchain technology but what is this technology? In simple words, we can say that it is a list of transactions stored in a block. A block works as a ledger that contains all the information about transactions. 

For example “X PAYS Y $50, Z PAYS M $1500, M PAYS T $40500”. These kinds of transaction details are stored inside a block.

A block can contain 1500 to 3000 transactions or even more.

How does blockchain work?

As the word “Blockchain” describes itself as a “chain of blocks” and every block is connected to the last minted block.

In simple words, a block contains a limited number of transactional details, and when it becomes full we add them to the network. In other words, we can say that we mine them and since Bitcoin is a proof-of-work model so we have to prove that we mined the block. This brings us to something called Hash. Previous block hash added to the new one and on the base of that hash new hash created for the new block and so on. That’s why it’s called blockchain or a chain of blocks.

What is hashing function?

A hashing function is a system where you can put something into it and it will output a unique hash. There’s a ton of mathematical functions happening inside the hashing system. But in a simple word, you give it something and it gives back you something.

bitcoin sha-256 hashing

Bitcoin uses SHA-256 hashing functions. SHA stands for Secure Hashing Algorithm and 256 refers to Zeros & Ones that it has whatever the output. Either you put your name only or put a whole paragraph it always outputs 256 0’s & 1’s. So our computers are smart enough they convert these 0’s & 1’s to letters and numbers.

So Bitcoin is doing whenever you mine it is we are trying to add random numbers to whatever the block is so we get the special ending in the hash. To achieve this special ending in the hash computers around all over the world and mining farms are mining away to find the right number. When they do we say that block is solved and verified. Whoever solves the block by finding its magical hash that has how many numbers of 0’s we are looking for.


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