It can be overwhelming to understand the workings of digital currencies, given the amount of news coverage that surrounds them. We’ve created an easy-to-understand guide that explains the key terms used to describe cryptocurrencies. Here’s everything you need to know about cryptocurrency and their workings, from blockchains to crypto mining and P2P.
Although it sounds complex, a blockchain is essentially a type database. The blockchain is basically a digital ledger that records transactions. It is distributed throughout the entire network of computers that make up the blockchain. The system records information in such a way that it is difficult to hack or cheat.
Every block in the chain holds a number transactions. Each transaction added to the ledger of each participant is recorded every time it occurs. Blockchain is different from other databases that store information as it doesn’t belong any one, but it does belong to all who are part of the ledger.
Based on the use case, data can be distributed, decentralized or centralized in blockchains. Bitcoin is an example of a distributed blockchain. However, each computer or group that holds its blockchain is located in a different geographical location. They are operated by distinct individuals or groups. This is an example decentralised blockchain. Due to its decentralised nature all Bitcoin transactions can transparently be viewed by anyone who has access to the blockchain.
Crypto Mining –
Elon Musk must have spoken out about cryptocurrency’s carbon footprint due to mining and backing them off.
What exactly is crypto mining?
Crypto mining is simply the process of acquiring cryptocurrency by solving cryptographic equations using computers. This involves adding transaction records and validating data blocks to a blockchain. Once the encryption has been validated by others, the miner is awarded Bitcoin. This process is called “Proof of Work” (PoW). To mine virtual currencies, large mining centers must be established that can handle all validation and processing. Depending on the location of an operation, electricity costs can be very high. China is home to more than 70% of Bitcoin mining. The country’s dirt-cheap electricity makes it extremely profitable. This is why crypto prices plummeted after China banned crypto mining.
P2P platforms or networks can be described as a digital marketplace where buyers and sellers can transact without the involvement of third parties and without any intermediaries. Buyers and sellers can post requests to purchase a specific cryptocurrency on a P2P platform. After the order is confirmed, the buyer sends payment in fiat currency (INR for Indians). The seller then confirms receipt and the P2P network releases it to the buyer. The P2P network acts as a sort of holding account to facilitate transactions between buyers or sellers.