HOW CRYPTOCURRENCY ACTUALLY WORKS

Bitcoin, blockchain, Dodge coin, Etherium, and NFT's... everyone is talking about cryptocurrencies right now, but good lord! What does all of it mean? Reading this article will take you from being a crypto noob to a crypto genius.

You're gonna learn about what it is and why it keeps becoming more and more important.

When society was in its early stages, there was no such thing as money; well, call it Stage 1.

Stage 1:

The only way to buy something from someone was to go up to them and be like, " oh! I like your horse, and ill trade you my cat for it," but the issue with the system like that is that even though you might be pleased to give up your horse you might not want a cat in return. So that trade will never happen, but that's where currency came in.

Stage 2:

Coins because they were made of precious materials like gold and silver. Everyone just accepted that they were worth something. You've heard of the British pound, well the reason they are called a pound is that one pound literally means one pound of silver, and so all of a sudden in the trade, it doesn't matter if you want my cat as long as I have coins we can trade for your horse. Even if you have no rise at all for the silver because it's a precious material, you have that reassurance that you can take that coin and give it to something else that you do want. But then this evolved into stage 3.

Stage 3:

Banks were established, and the government had control. We realized that as long as there is trust in the system, we could move away from carrying blocks of precious metal towards something even more convenient. Paper money does the same thing, but now the money doesn't have value because it's made of silver. It just had value because the government says it has value like the 10-pound note in the UK, the note itself is just of plastic, but if you look close, you can see that all it actually is that the bank of England promising that they will pay the bearer of this note 10 pounds, barely this is just a receipt a kind of proof that you own a certain amount of money.

But as technologies improved even further, we found ever more convenient ways of storing and trading our stuff.

Stage 4:

More people than ever are buying things online using credit cards, and really, when you are at that stage, you don't see your money anymore. It's not about coins or notes or cats its just entries on a spreadsheet, like when you buy a 10 dollar music album from amazon all that's happening is that your bank adds an entry in your spreadsheet that you have 10 dollars less. Then amazon's bank adds an entry saying that they have 10 dollars more.

You need to know about this because you will understand the context of where the cryptocurrency sits. It seemed by many people as the most convenient era of exchange ever.

Stage 5

The way to think about cryptocurrency is that it's 100% virtual. I know that the logo of Bitcoin kind of looks like a physical coin, but it really is not but. With crypto, there is no gold; there is no silver; there is no paper. It is just the transfer of digital assets, but the core concept is the same. Think of them as sunning spreadsheet of whose paid to whom but instead of multiple banks keeping their own separate records with crypto there is just one enormous spreadsheet of every trnsaction made using that currency, which called a Ledger.

There are some distinct adv which the currency system

1. It's decentralized,, which means that while every transaction of a given cryptocurrency is all recorded on the same ledger, there are many copies of that ledger,, and anyone who is a part of the network has one. YOu might have heard of cryptocurrency mining or Bitcoin mining. Well, all that is, is someone who has set up a computer to crunch through transactions on their copy of this ledger or spreadsheet; there are already about a million bitcoin miners around the world, and bitcoin is just one type of cryptocurrency.

The reason they are doing it... well, if you dedicate your computer's power to mining, then you will earn some bitcoin as compensation. The result is that if you go to the store and buy 5 bitcoins or something, then instead of checking with one bank's records, the shop checks with every single computer on this network if you have enough and assuming you do, each computer will give the go-ahead and then every single one will update their records independently. So because you end up having these many copies of the same ledger, it becomes straightforward to tell if anyone is trying anything fishy,, like if you try to hack into someone's computer that's on the network and give yourself more money by adjusting figures on their copy of the

Ledger's not gonna get through; the system will realize that 99.9% of the copies of the ledger are saying one thing, and one of them is saying something else,, so it must have been tampered with. There's an apparent organization to the system, and people believe in it because they see the future as Open Traceable Transactions, much more so than having some bits of the record over here and other bits over there.

There are plenty of areas in the world that have internet access which is all you need for crypto but don't have access to traditional banks which require a lot of paperwork and documentation.

2. The main perk of crypto is that you don't need banks anymore because store everythingthe people on this ledger store everythingthe people on this ledger store everything. You can make international payments almost instantly instead oftaking half a day with no spending limit. Youdon't need to worry about exchange rates, and you don't need to worry about interest rates,, and even transaction fees are close to zero for some cryptocurrencies.

This is where the real fun begins; cryptocurrencies are called cryptocurrencies because they're secured by cryptography; one example of this is which a lot of the major cryptocurrencies like bitcoin use is blockchain.

Now people often get confused by this blockchain is NOT bitcoin. Blockchain is not a currency itself; it's just a secure type of ledger. So you know that big spreadsheet that everyone has that's recording transactions? Blockchain is just a way of organizing it funnily enough into blocks. So every time you pay for something with bitcoin,, that transaction is recorded as a block. Each block contains transaction data like who was paid and how much. A hash is a unique identifier, and the hash is the last transaction recorded and pivot on which the system rests. If something in a

The block is changed, then that block's hash will change because each block also contains the data to the previous block. If the block's hash changes then the next block will no longer have a matching hash with it so every subsequent block after that one becomes invalid.

So if you combine this with what we talked about earlier, this whole idea of million different users all having their own copy of the blockchain ledger, then if someone wanted to fraudulently create a transaction that says paid that someone money, that someone has to not just tamper with a block and every single block after it but that someone would also have to do that on half a million computers around the world so that the majority of the computers in the system are also consistent with the one tampered with.

Whereas hacking into someone's dollar account and sending money to themselves does happen, and it's sometimes as sim[ple as just literally guessing someone's six-digit pin, but there's a massive jump between that and trying to hack into 500,000 uncorrelated computers at once.

You've probably heard of people putting money into cryptocurrencies, and all that means they are exchanging normal currencies like dollars for cryptos like bitcoin. They are hoping that those

Cryptocurrencies become the next big thing and therefore suddenly shoot up in value, at which point they can then either spend them or exchange them back for more dollars than they brought them for.

There's actually a term for cryptocurrencies that skyrocket like this,,: "Going to the moon" or "Mooning." But the one decision that someone would have to make at this point is...

WHICH CRYPTOCURRENCY?

Because we've talked about bitcoin,,, but bitcoin is just one of over 4000 different cryptos already,,, each of which has different properties. For example, Etherium,, is the second most invested in can process transactions evn faster than bitcoin; there's one called Cardano,, which is considered to be technologically superior; there's one called bitcoin,, which has a newer algorithm,,, and you might have heard of dodge coin it is similar to bitcoin,, but it was created as a joke people started sharing it and putting a bit of money in it because they thought it was funny,,, but that propelled its value,,, and there are many more like this.

We have people who had actually become millionaires just because they brought a cryptocurrency when it was cheap. It's an interesting world out there. If you did find this useful,,,, then consider sharing it with a friend or family member and follow me for more of such educational and interesting articles:)