The central concept of any cryptocurrency is that everyone is responsible for keeping track of the money, and everyone can see the balances of everyone else’s account. The official ledger is public domain, and changes to the ledger are visible to everyone.
Each user has a key, which is how they control whether currency flows in or out of their account. This keeps others from reaching into your account and grabbing some funds, and vice versa. Both parties have to agree to the transfer and use their key to allow it to happen.
Everyone can see that happen. Anyone can analyze the account totals; and for further transparency, disinterested parties get paid some of the cryptocurrency to conduct audits.
This is called “mining” as the amount paid to the auditor is actually newly minted currency. That concept is a bit complex, but for now just know that in addition to everyone being able to see the transactions, there are also independent parties that specifically audit the transactions to assure there are no errors.
Types of Cryptocurrency
There are many different versions of cryptocurrency, the most well-known and widely used being Bitcoin. However, there are also other prominent cryptocurrencies such as Ethereum, Ripple, Bitcoin Cash, Litecoin and Cardano.
All the cryptocurrency models function the same way. The limit of that particular currency’s scope is how many people are using it. For example, if you had some Litecoin, you could only spend that with a person or vendor that accepted Litecoin.
Very simply, blockchain is the “Crypto” part of cryptocurrency. It is the technology that allows everyone in the network to agree that a transaction has happened and record the event.
When someone wants to transfer funds, they use their key to initiate a transfer. This fact is recorded as a “block”. That block is transmitted to all the nodes in the network. Each node then validates the existence of the block. Then, that block is added to the historical “chain” of all the transactions in that network.
Each block can only be written once; then it is attached to the chain and can never be altered. This creates the permanent recording and sequence of the transaction event.
Blockchain isn’t necessarily related to currency, it can be used to track the exchange of any sort of data. However, people are most often extremely interested in tracking their money so blockchain has become a bit synonymous with currency and finance.
Potentially blockchain could be used for digital voting, real estate or physical property transfers, copyright protection, tax compliance, medical record keeping or any host of other applications.
For right now, its prevalence in cryptocurrency is making people more aware of the possibilities and uses of the technology, which is why it is important to keep up with the concept.
I hope this lays out the basics of cryptocurrency and blockchain in a non-technical manner and allows the “normal” person (like you and me) to better understand the concepts.
Please leave any questions in the comment section and I will try and address them as best I can. I plan to expand out some of these concepts further in basic language in the near future.
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