Cryptocurrency is money created through a process called “cryptography”. In order to understand how does Cryptocurrency work, you first have to understand how cryptography works. Classical cryptography, which dates back to the days of the Ancient Egyptians, was a form of encryption that was used to secure communications. Modern cryptography however, is much more secure and efficient than classical cryptography. Classical cryptography was vulnerable to attacks from computers, therefore, it required that certain keys be kept secret.
Digital: Cryptocurrency operates on digital forms only. There are never physical coins or notes being transferred. Instead, there are only digital currencies that can be converted into traditional currency of the host country. There are never reserves ofcrypto at the Bank of England or Fort Knox. They’re distributed throughout a global network of (usually) thousands of global computers.
Distributed ledger: A distributed ledger allows users of Cryptocurrency to maintain accountability and privacy. This system is what underlies all other aspects of how does Cryptocurrency work. The ledger is divided up into several computers that all act like electronic ledgers of sorts. When you make a transaction with any Cryptocurrency, the funds are immediately transferred to this distributed ledger.
chain: A “chain” in the Cryptocurrency description refers to the network that underlies all the transactions that are done throughout the entire network. There are several chains, one of which is the master chain. This is used as a reference by users, miners and other administrators who regulate the transaction data. The masterchain serves as a guide for all other chains and regulates their activities.
cryptography: Cryptography is the art of creating messages using an encryption system that cannot be broken by an enemy or an outside agency. While cryptology is often included in the description of how does Cryptocurrency work, many people do not understand how it actually works. In the Cryptocurrency context, cryptography is used to create a secure connection among two or more parties. This is done by the use of a secret key, which is only known by the owner of that key, along with a secret phrase or code. Any message that is sent can only be read by the owner of the key and the phrase or code mentioned in the message.
The entire process is done by the Blockchain, which consists of an open source application that runs on the basis of peer-to-peer technology. Anyone can download and use the Blockchain to help them to transact on the digital currency market. Transactions on the marketplace happen via the following process: first, buyers and sellers to upload information about themselves and their assets on the digital currency’s secure public ledger, then their transactions are broadcasted to the entire network, where it is possible for other individuals who are either members of the network or traders on the platform to verify the veracity of the data and the legality of the authorizations behind those assets before they allow transactions to go through.