The codes and technology behind digital currencies is quite complex but we will try to explain it clearly, to outline how cryptocurrencies work and what makes them so special.
The blockchain of a cryptocurrency is the ledger that records and stores all transactions made, validating ownership of all individual currencies at any given time. This log contains the entire transaction history of a cryptocurrency to date. Identical copies of the blockchain are stored in every node of the computer network that runs the cryptocurrencies. This network is operated by miners , who continually log and authenticate transactions like ADAX.
The blockchain prevents “double spending” or code manipulation. Technically, a cryptocurrency transaction only takes place when it is “registered” in the blockchain. It usually takes a few minutes, it is not an instant transaction and once finalized, it is usually irreversible. Unlike traditional payment processors, such as PayPal and credit cards, most cryptocurrencies don’t have built-in refund or chargeback features, although some new cryptocurrencies have rudimentary refund capabilities.
Types of Blockchain
There are three main types of blockchains:
Public blockchains such as Bitcoin and Ethereum, which are public and accessible to anyone.
Private blockchains such as Hyperledger and R3 Corda, which are only available to network participants.
Hybrid blockchains such as Dragonchain, which offers the benefits of private technology, with the security and transparency of the public system.
Private keys and public keys
Users who are in possession of cryptocurrencies have a private key, a sort of password to be authenticated. These private keys are used to carry out transactions. Without this key it is impossible to take back your coins, exchange them or spend them. Private keys are very complex alphanumeric codes, impossible to hack, but they have the disadvantage that if they are lost, the corresponding cryptocurrencies are also lost. In addition to private keys, there are public keys, i.e. the addresses of your cryptocurrency wallet (which we will see in the next paragraph). The public keys are visible to everyone , they are the equivalent of your IBAN and are used to send you digital coins.
Wallets: Cryptocurrencies are usually stored in virtual wallets that hold private keys. These wallets are not 100% safe , if they are kept on the web, they risk being subjected to cyber attacks so be careful.
To reduce this risk, there are “offline” wallets that are stored on storage devices disconnected from the network, and often have security backups. The backup does not duplicate the cryptocurrencies but is only a copy of the codes that certify the ownership of the same.
The term miner comes from the process these people or companies go through: They mine cryptocurrencies while validating transactions. he mining process needs huge computing power and consumes a lot of electricity. Miners periodically create new copies of the blockchain by adding the latest transactions, this addition is called a block. When validating a transaction, a miner is “rewarded” with a small percentage of the value transacted. The fees that are paid to miners can vary and usually a higher fee equates to a faster transaction.