These days if we cannot fail to mention cryptocurrencies when we talk about the economy or the latest technology revolution of this century. A cryptocurrency or digital currency is a virtual currency based on the cryptography system, usable only by knowing a specific computer code defined by a public key and a private key, as in common cryptography. It is a computerized bit representation of a monetary asset.
Cryptocurrency is defined as a virtual currency, in the sense that it does not exist in physical form, but is exchanged exclusively electronically, whose transactions are carried out directly between two persons, individuals or group in peer-to-peer mode, or directly between two devices, without the need of intermediaries such as bank or broker to purchase goods and services, as if it were legal tender in all respects.
Types of Cryptocurrencies
Cryptocurrencies are divided into “closed”, “one-way” and “two-way” virtual currency. The difference between the three cases lies in the possibility or not of being able to exchange cryptocurrency with legal tender currency.
Furthermore, one of the characteristics of cryptocurrencies is the extreme volatility of their value, which often makes them very suitable for stock market speculations, rather than for use as a unit of account or means of payment, since it would not be easy to establish the price. without tying it to the value of a legal tender currency.
it is completely decentralized, offering a form of transparency and anonymity thanks to a distributed ledger based on a block of transactions. Each time a cryptocurrency is generated or used in an operation, it is validated and crystallized in a new block of the chain. This mechanism is based on a distributed logic, whereby in each block, within which no personal information normally flows, there is a hash of the previous block so the manipulation of a specific block invalidates the entire chain.
How to Store the Cryptocurrency
Cryptocurrencies are stored in digital wallets (e-wallets, real virtual wallets), which can be both software, or hardware, or devices not permanently connected to the network, such as USB sticks, which are connected to the web via a computer, only when it is necessary to make a transaction.
The wallet is like a personal home banking service and allows you to store cryptocurrencies, transfer them to other users, receive payments, make payments, monitor the history of all transactions and of course make online purchases, on sites that accept payments in virtual currencies. All in one software.
To function, a wallet must be connected to an address known as a public key which is essentially the equivalent of a bank account number. Normally when a wallet is installed on the computer, this address is automatically generated and is represented by an alphanumeric string which is an average of 33 characters long, certainly not easy to memorize. To receive bitcoins, simply communicate this address to the interlocutor, and we will receive what was agreed upon within a few minutes. To learn more about cryptocurrency you can visit the Yuan Pay Group.
When the address is generated, a sort of password known as a private key is also generated which allows us to install this “account” on other wallets as well. Normally, this password consists of 16 words, and it is good practice to keep it with great care, perhaps by printing it and putting it in the safe, because in case of loss you risk saying goodbye to your virtual wealth. Since there is not a recovery service for password recovery and addresses, in the blockchain, there are no names and surnames, but only numbers and letters. The irreversible loss of the virtual currency contained in the wallet due to the loss of the access keys derives from the decentralization characteristics of the ledgers.
How Cryptocurrencies Work
Cryptocurrencies have peculiar characteristics that distinguish them. The constituent elements are a set of rules called “protocol”. This protocol establishes the modalities by which participants can carry out transactions. A sort of “ledger” which, according to a block structure, allows you to build a shared and immutable architecture on which the various transactions exist.
When we send cryptocurrency, we essentially send a candidate transaction to the blockchain, waiting to be validated by a distributed consensus system called mining that exploits a consensus algorithm. To be “committed”, the transactions must comply with the encryption rules established by the protocol and which will be verified by the network, otherwise, the transaction will be lost.
This operation is made safe by the blockchain paradigm technology, i.e. based on a ledger that records all virtual currency transactions in chronological/sequential order, according to a mechanism very similar to the digital signature.
The chronological recording avoids anomalous phenomena such as the so-called “double spending” the concatenation of the blocks of transactions prevents the transactions carried out from being modified afterward, also because to make a similar modification, it would be necessary to modify all the following transactions registered in the blockchain, which is in fact impossible also due to the high computing power requirements.
Finally, security is given by the fact that the blockchain is a distributed decentralized system, composed of nodes that record all transactions, and in fact, this distribution makes any attempt to modify the data impossible since the modification should be made on each node of the blockchain. That makes cryptocurrency safe and secure.