What is Cryptocurrency and How Does it Work?
Cryptocurrency is a digital or virtual currency secured by cryptography, functioning without traditional banking systems.
Here's a concise look at how it works:
Cryptocurrency exists digitally, using blockchain technologyâa decentralized ledger of all transactions spread across multiple computers, ensuring transparency and security.
New cryptocurrency units are created through mining, where powerful computers solve complex problems to validate transactions and earn coins, or through staking, where participants validate transactions based on the number of coins they hold.
Transactions involve digital wallets. Users initiate transactions specifying an amount and recipient's public key, which are then broadcast to the network. Other network users verify these transactions, adding them to the blockchain in blocks, making them immutable.
The security comes from cryptographic encryption and decentralization. Only wallet owners can authorize transactions with their private keys, and since no single entity controls the blockchain, it's resistant to fraud.
Cryptocurrencies can be volatile, traded on exchanges, and used for purchases at places accepting them, though this isn't widespread yet. Their value fluctuates with market demand, regulatory news, and technological developments.
Essentially, cryptocurrency represents a shift towards more decentralized financial systems, offering potential for innovation while posing challenges like volatility and regulatory scrutiny.
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