How Does a Cryptocurrency Work?

What is Cryptocurrency?

Cryptocurrency or digital currency is an online asset that is designed to replace fiat currencies. It has no physical existence and can only be exchanged over the internet. Cryptos act as a decentralized medium of exchange and are built using cryptography.

Any transaction made using a cryptocurrency is recorded in a decentralized ledger called a blockchain. Cryptography techniques secure this record of financial transactions and verify transfers, making it impossible to alter or steal cryptocurrencies.

What is Mining?

Like the first cryptocurrency, Bitcoin, many cryptocurrencies come into existence using the process of mining. It is a method of updating and validating user transactions into the blockchain.

Cryptocurrency miners assess whether or not a piece of information fed to the public ledger is genuine. Miners solve complex mathematical puzzles using their computers, and the first person to crack the code receives a crypto reward amount in exchange for their service.

Difference between Cryptocurrencies and Fiat Currencies

The decentralized nature of cryptocurrencies has the power to solve a lot of issues that traditional non-physical-asset-backed currencies still posses.

  • Reducing Corruption: The key feature of blockchain, decentralization takes away the power and authority that governments today enjoy. This system distributes the decision-making power amongst all the members of the network.
  • Cutting Out Banks: Even today, many people don’t have access to banks; cryptocurrencies, on the other hand, can be accessed by anyone with a smartphone or PC.
  • Eliminating Printed Currency: The authority of printing fiat currency remains with the governments. A lot of times, to pay off their loans, governments decide to print currency that is not backed by any real asset, which brings down the value of the currency and harms the economy.

What Do Cryptocurrency Exchanges Do?

There are over 4000 cryptocurrencies in the market today and crypto exchanges such as Marketscap.com help regular people with limited technical knowledge exchange cryptocurrencies and earn profits. Marketscap.com charges no commissions whatsoever, making crypto transactions even more profitable. So, if you are planning on investing in cryptocurrencies, be sure to use an exchange platform that is authentic and offers high liquidity.