How does a Cryptocurrency work?

What is Cryptocurrency?

what is cryptocurrency?

We have entered a world where there is no more physical money and almost everyone is dealing with online money and online transactions.

Cryptocurrency is actually a decentralized digital currency that is used for online transactions and secures the identity and transactions of the users from a third party.

As it is decentralized, it works peer to peer and you don’t have to pay a specific third party for exchange of money.

Banks have provided us with the utility to deal with our transactions online. In turn, banks charge us for each transaction.

Cryptocurrencies have just combined all the transactions of the world into one single ledger where the exchange of money occurs in the form of digital assets exchange.

Cryptocurrency works on Cryptography which is the encryption and decryption of your transaction data to hide it from a third party. This encryption and decryption work on the technology of Blockchain.

This makes your transaction unsafe and maintains your privacy because the third party does not know what type of transaction has taken place.

What is Blockchain and how it controls transactions?

What is Blockchain?

Blockchain is the technology on which cryptocurrency works.

It is actually a ledger of blocks that contain the record of each transaction taking place in the world of cryptocurrency.

The ledger is based on the blocks which are added on the success of the transactions. In this way, a very long series of blocks is created in the blockchain in which each block is related to the previous one.

Each block consists of the ID of the sender, ID of the receiver, and the payment message which is encrypted with the help of an algorithm, i.e. SHA-256 hashing algorithm developed by the USA government.

So, if the transaction algorithm of one block is changed then the algorithm of the one before it will also change which will change the one before it and so on.

As a result, if any manipulation takes place then it will automatically be detected and will stop the formation of a new block and ultimately the fake transaction will not take place.

Why is Cryptocurrency better than Regular Currency?

How cryptocurrency is better than regular currency?

Cryptography has just solved the problem of privacy and decentralized currencies in the form of cryptocurrencies.

It has released us from the paperwork of the banks and it is more secured than ever.

In banks, the only monitoring authority is the Bank while in cryptocurrency millions of computers in the form of miners are monitoring transactions contemporaneously.

So, it becomes almost impossible for anyone to manipulate millions of computers altogether and as a result, no fake currency could be created in the blockchain.

It has also enabled people to transfer as money as they need because with Banks you have a limit of transaction while no transfer limit with cryptocurrency.

Another benefit of cryptocurrency is that it releases you from paying high banking fee as a transaction through cryptocurrency have least or no transaction fee.

Moreover, it is also the fastest method of money transfer as transactions takes place in a fraction of minutes worldwide.

How Cryptocurrency Connects the Users?

how does a cryptocurrency works?

As, I have already told that it is a peer to peer network. It is free from third party seeing your data like banks.

In the banking network, only bank is monitoring while millions of miners are monitoring in blockchain.

This makes it a safer way of transferring your money to other people. It does not have a central authority for monitoring all the stuff that is why it works on the blockchain.

But the question is, if everything is regulated by blockchain then who is regulating the blockchain?

Here, comes the miners of cryptocurrencies who work to solve the problems of encryption and decryption with different softwares for the blockchain, and in turn, they get paid in the form of cryptocurrencies.

All the miners keep the track of the same thing and as a result, millions of computers mining the cryptocurrencies make sure that all the transactions are accurate and no fraud is taking place.

Some Important Cryptocurrencies

Bitcoin (BTC)

how does Bitcoin work?

It was the first and most popular cryptocurrency currency developed in the system by Satoshi Nakamoto in 2009 and was termed as ecash at that time.

At that time the value of bitcoin was just 8 cents when it was first used to buy two pizzas for 10,000 Bitcoins. In 2011, it reached the value of 1$ and since then its value started to increase exponentially.

Ethereum (ETH)

How does Ethereum work?

Second to Bitcoin, the most popular cryptocurrency is Ethereum which was developed in 2015 and now, it is also considered as the largest network of cryptocurrency of digital payments.

It is much faster, updated and convenient cryptocurrency than Bitcoin.

Tether (USDT)

how does tether works?

This cryptocurrency is based on tokens issued by Tether Limited, and it is controlled by the Bitfinex.

This cryptocurrency is backed by a physical currency i.e. USD and each token is regulated at the value of 1$ which is ensured by Bitfinex.

Litecoin (LTC)

how does litecoin work?

It is also an early developed cryptocurrency in 2011 which is very much similar to Bitcoin. In fact, it is said to be the silver to Bitcoin’s gold.

It is faster than Bitcoin and have lower transaction fees.


We move towards modernity as society does and our society is changing with the advancement of technology.

If we want to keep pace with the society we will have to make ourselves comfortable with technology.

Many people favor cryptocurrency and many deny it. Both sides are correct because it is a volatile thing and no one knows its future.

How cryptocurrency works, its future seems bright but it is not sure yet.


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