First of all, what is cryptocurrency?
Cryptocurrency is digital money or money in the most virtual avatar. The cryptocurrency was designed so that it could be secure and anonymous.
Cryptocurrencies are transacted by a process called cryptography. Cryptography is a process that uses technology to convert information into a machine language code that is un-crackable by other people. This code helps in the secure transfer of money online.
Cryptography is thus when limited entries are made in a database that no one except the miners can change without fulfilling certain conditions. One of the main conditions is that in order to be able to decipher the code and to know that the transfer is affected; they must belong to a blockchain.
A miner in a blockchain uses elements of math and computer science theorems to understand the encrypted information so passed along the blockchain.
It is interesting to note perhaps that this form of secret encoding and transferring of data was first employed during World War II to transfer secure information and data. Today, incidentally it is still used to pass encrypted and classified data and information at a higher level and also to transfer money online.
There is no intermediary bank involved in the transfer:
The transfer of cryptocurrencies happens independently of any intermediary or a middle agent like the Bank or financial institutions. This reduces the processing fee of the credit card that happens when banks affect transfers between the two parties.
Blockchain or a shared ledger:
Cryptocurrencies are transferred through block chains or shared ledgers. This is a process where every transfer that happens across the blockchain is noted and entered in the shared ledger several times as many miners as it encounters. Once the ledger is updated the copy of the filled ledger is made available to every single person in the blockchain.
The transaction in the said public ledger is made by miners who have powerful computers that are able to tally calculations of each and every transaction.
The miners have two duties to do:
- As miners, they have to update each and every transaction that is effected in the public ledger and share it;
- As a rule, they also have to authenticate the transfer so that the receiving party can claim rights on it.
For their services, the miner is either paid in cryptocurrencies online or in physically printed cryptocurrency. The fee is paid by the vendor and the merchant of each transaction.
The transaction is very swift:
A cryptocurrency transaction is very swift. A transfer can happen in less than five minutes in exactly the way it is explained above. Cryptocurrencies have become so attractive and popular that everyone worth their salt wants to try their hands at trading in them. Incidentally, Bitcoin was the first cryptocurrency to be released and today only 9 years later there are at least 900 cryptocurrencies that are used in circulation and the numbers are only increasing.
Do cryptocurrencies have fixed value?
The cryptocurrency fluctuates on the basis of the law of demand and supply. There is no fixed value to it. The value is generally agreed to between the buyers and the sellers.