What cryptocurrencies are and how they work

What cryptocurrencies are and how they work

By Crypto Earning | Crypto Earning | 30 May 2020


The most impetuous news in the financial sector in recent years has been the arrival of the so-called cryptocurrencies. The most famous is Bitcoin. Currencies that are also defined as digital and that have risen to the fore for the amazing performances but which still find it hard to take off as real means of payment. After all, a coin was born primarily as a means of payment and Bitcoin, together with other digital currencies, wants to act as an alternative to traditional means of payment with a revolutionary mechanism in itself. For the first time, a coin is taken away from the issue and control of a central bank, but is inspired by a technology, the blockchain, which has the characteristic of being managed on an equal footing between users participating in this process.

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Blockchain technology

They are called cryptocurrencies because their security is guaranteed by an unassailable protection system, through a series of complex calculations. The inviolability of the protocol underlying these uniforms is one of the reasons that guaranteed their success, about 10 years after their debut. In fact, in January 2009 the first block of the Bitcoin blockchain was mined. A formula that hides a series of concepts that we will try to explain. Bitcoin and other cryptocurrencies are in fact a concrete example of blockchain technology, or block chain, which is used in many other fields. Bitcoin is basically a numerical series linked in an immutable way in the form of bit blocks within a chain (blockchain). Who owns Bitcoin keeps this numerical series on an internet address that is used to make or receive payments.

The mining process

Mining is the process by which all this complex mechanism is accomplished. The miners, or miners, are those who guarantee this IT process for the creation of coins, through the use of increasingly powerful PCs, and in return they receive new mined Bitcoins. The miners creating new Bitcoins hook, through complicated calculations, new blocks to the chain that contains the register with the unchangeable transcription of all the transitions that have occurred up to that moment. So a sort of continuous chain that however has a limit. Compared to traditional currencies, Bitcoin has a maximum number of coinable pieces: 21 million while today we have reached about 17 million. This means that the process becomes increasingly complex and requires ever more massive investments to coin them. The algorithm is calibrated to ensure that a block is "mined" every ten minutes.

The other cryptocurrencies

Today there are over 1,000 digital uniforms on the market. In moments of euphoria, the total capitalization reached about 800 billion dollars. Then from December 2017 the descent of the main currencies began and in September 2018, after 9 months of deflation of excesses, the total capitalization plummeted to 220 billion. About half of it concerns Bitcoin which still remains the most important currency.

 

The other two main currencies are Ethereum and Ripple, at a safe distance, with a capitalization of 26 and 8 billion dollars. The mechanism of these two crypto is linked to the blockchain philosophy but they work differently than Bitcoin. Technically Ethereum is a system connected to the Ether currency. it allows you to create smart contracts that are considered digital money in all respects. Basically it's a network for running Ether-based contracts. Ripple, on the other hand, represents both a digital currency and a payment network. In essence it is an open source internet protocol based on a currency called Ripple.

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Crypto Earning
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