1. First, we must understand what cryptocurrency is?
Cryptocurrency is a digital asset product formed as a transaction medium in an encrypted secure peer-to-peer economic system. Use cryptography to verify and secure transactions and control the creation of other units. Unlike the centralized banking system we know, most cryptocurrencies are decentralized and distributed through a network of computer systems (also called nodes) running around the world. Anyone with an Internet connection or a weak radio signal can easily conduct transactions with people around the world at the click of a button. Cryptocurrency transfer fees are lower compared to cross-border bank transfers, and transactions are irreversible, unlike chargeback transactions allowed by credit card companies. The issuance and management structure of cryptocurrency units is determined based on programming machine algorithms and cryptographic evidence. These are considered a custom set of rules, also known as a protocol. Used to define how things work in the cryptocurrency world. The decentralized mechanism means that cryptocurrencies cannot be controlled by a single individual, nor can transactions between users be conducted without relying on a third-party intermediary. However, there are also some private companies and fund management companies developing decentralized cryptocurrency technologies with varying degrees of attributes. Depending on the network structure and node distribution, some cryptocurrencies are relatively more centralized than others.
The core of cryptocurrency is built on a technology called blockchain. It is composed of multiple cryptographically secure blockchains. Each block contains details of all recent transactions and a list of records before the block's transactions. Blockchain is responsible for keeping all confirmed transactions and permanent records as a decentralized data ledger. The ledger is distributed across all nodes in the network and is resistant to modification. The first decentralized cryptocurrency - Bitcoin was created in 2009 by anonymous developer Satoshi Nakamoto. Its main purpose is to establish an independent and decentralized digital payment system that utilizes computer authentication and encryption security.
Like most cryptocurrencies, the supply of Bitcoin is limited, which means that the system will no longer automatically generate Bitcoins after the maximum supply and demand are reached. Typically, maximum supply information is reported when a new cryptocurrency is released. Outside of Bitcoin, there are now over a thousand different cryptocurrencies - also known as altcoins or tokens. Their properties and uses are also different.
2. Working principle:
Cryptocurrency relies on what we call blockchain or distributed ledger technology. Each wallet address has a unique password called a private key. This private key uses cryptography or a special code or password to generate a unique signature for every transaction issued by the wallet. This is similar to how each person has a unique fingerprint or signature that can be used to prove their identity. The good news is that the Bitcoin wallet generates this private key itself and encrypts your transactions. The even better news is that no one can copy your digital signature. All of this may seem difficult to understand today, so much so that you want to avoid cryptocurrencies.