What are cryptocurrencies and how do they work? A
complete guide on the role of digital currencies, increasingly widespread and
appreciated all over the world.
What are cryptocurrencies and how do they work?
Two legitimate questions, especially in light of
the recent performances of Bitcoin (UBTC
Wallet), Ethereum and Litecoin, just to name a few. At the height of the
virtual boom, understanding what cryptocurrencies are and how they work is
something of fundamental importance above all because, apart from criticism,
they could really represent the future.
A cryptocurrency is in effect virtual money,
which we can not touch, but which bases its functioning on the principles of
cryptography . We are talking about digital open source tools that exceed the
concept of traditional money owned by governments and allow operations to be
performed in security and anonymity.
The information underlying the transactions in
cryptocurrencies is stored and transmitted, but only the recipients of the same
can read them. To understand what they are but above all how cryptocurrencies
work, we need to imagine them as instruments rich in data to be decoded. The
aforementioned cryptography is used to verify the transactions and control the
entry of the currency into the system through the mining activity. The process
makes the system itself more robust, but above all safer.
As already mentioned, cryptocurrencies (UBTC Wallet) are virtual means of
payment that correspond to all digital money effects , designed to carry out
any type of transaction. Traditional centralized systems involve intermediaries
that very often influence the value of the currency. In fact, financial
institutions have the power to determine inflation by producing real money.
Virtual currencies have been designed to avoid this and, as such, are highly
decentralized and free from the control of the governments themselves and the
financial institutions themselves - that's why many still struggle to accept them.
Cryptocurrencies are therefore virtual,
decentralized and encrypted coins, which are transferred between peers, ie
through peer-to-peer technology (p2p) - a technology in which nodes are not
hierarchized, but equivalent.
How do they work?
Now that we have a little 'clearer what are the
cryptocurrencies, it will be quite useful to understand how they work and on
what principles are based. Currencies, or at least most of them, have by
definition a digital origin and derive from an operation called mining , a term
that comes from gold mining, that is, the activity of gold mining.
In this process, computers tend to solve complex
mathematical problems that in turn generate digital coins. Users can also
choose to buy cryptocurrencies from brokers and then insert or spend them
through digital portfolios .
Cryptocurrencies, or at least most of them, are
designed to introduce new units of money into the system, but with quantitative
limits imposed to avoid inflation and to increase their value. In the case of
Bitcoin, for example, mining will be interrupted when 21 million units will be
reached.
The mining activity is free, which means that
anyone can produce cryptocurrencies, always according to the previously
mentioned limits. In other words, and through certain algorithms, payment must
be made and duplication of money avoided.We refer to the problem of double
spending, double spending , for which the currency pays for the service but
remains in the wallet, doubling.
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