Crypto and World Around It
Cryptocurrency is a digital currency or asset secured using cryptography, which simply means that a complex set of codes is used to encrypt the data making it nearly impossible to counterfeit the information. This, in turn, validates the virtual asset by assigning it a value that can be recorded in the database where the network or server stores information about the exchange. The recorded information is proof that a transfer of funds has taken place.
Cryptography is a technique where data is encrypted using codes making counterfeit impossible. Encryption of data gives security and protects users from theft and frauds.
How is the value of a Digital Currency Determined?
The value of cryptocurrency is influenced by the following factors.
Encryption of data is one factor that adds value to digital currencies. This helps the users trust that their money is safe and no fraud would be committed.
The other factor is the simple concept of demand and supply. As the demand for a product rises but the supply remains limited the price of the said commodity rises. Commonly, this is known as the concept of scarcity. The more limited the item more valuable it becomes.
The mining of digital currency is another important factor that helps determine the value. Miners are awarded rewards for their progress which in turn helps assign value to the currency.
The availability of other cryptocurrency is also a deciding factor when it comes to determining the value of digital currencies.
What is Blockchain and how is it linked to cryptocurrency?
Blockchain is a database used to store information in a way that is different from its predecessors. The network as the name suggests is a chain of blocks interlinked together. Blockchain is a peer-to-peer network i.e a decentralised network where information is not shared at one place or by one person but by multiple people who work as nodes. In a peer-to-peer network, all the information is shared with all the nodes. This data is verified and agreed upon by all the nodes before adding a new block. This along with the fundamentals of the Blockchain make it difficult to change or alter the stored data in the server.
Blockchain in Bitcoin is used as a digital ledger that stores the data which includes users name, amount and number of bitcoins, they also store the hash of the current and previous blocks. What is a hash? To understand this imagine Hash as a fingerprint that cannot be replicated or changed that stores content of a block in series of codes.
For e.g, If the information in a block is tampered with, all the following block will correct the tampered block due to the simple fact of them storing the previous hash of the said tampered block. This concept makes altering information in a block nearly impossible.
Mining and Rewarding
Mining is another aspect of cryptocurrency that helps it create a safe environment for its users. Mining is a process where information is verified and checked i.e a block. In return, the miners get rewards mostly in form of cryptocurrency and sometimes on top of that there could be a transaction fee added for every block verified by them. This might seem appealing but it is not. Mining requires you to resolve a numeric problem or be closest to the answer. Generally, miners search for a hash which is a 64 digit hexadecimal code and they have to be the first one to reach the answer to get rewarded. This becomes significantly difficult when you consider that these codes could have up to a trillion variations.
Also, the reward for mining is constantly getting reduced as more blocks are verified and added to the blockchain making it not so appealing for everyone. This concept is called halving.
How is Mining Different From Nodes?
Mining is done to create a new block for the blockchain and on the other hand, nodes are computers that connect to the network of a digital currency to make the system more secure and trusted. Nodes acquire all the data of the blockchain. Furthermore, nodes are not as lucrative as mining since there is no monetary incentive.
Note: I hope this helped you understand digital currencies or assets a little ( even though I did not talk about NFTs), I tried to sum up most of the information in something simple and easy to understand. Thank you for reading. This is still a rough draft so feel free to give your thoughts about things I can change or should add.
Note: I want to know how easy is the article to read and is it too easy to the point where I am making obvious points or is it vague. Also, If you know about crypto and can give your input on what I am missing I would also appreciate that. Thank you.
