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Cryptocurrency ,Bitcoin ,Blockchain and Mining:
What is cryptocurrency in general?
The term cryptocurrency is the combination of two words crypto and currency.
The word currency means a system of money in general use in different countries. The word crypto comes from cryptography which means using the method of encryption and decryption to secure communication in the presence of third parties to prevent ill intent.
Now cryptocurrency in general refers to a system of money being exchanged with the help of strong encryption and decryption methods.
It works on the principle of blockchain, that is the series of immutable data that is being managed by clusters of computers not owned by a single entity. Each data in the blockchain is bound to others by cryptographic principles.The block chain data is spread all around the world in the form of ledger. It is being updated by specially authorized miners.
What is Blockchain?
Suppose two people A and B need to complete a transaction. They generally use their credit card for the transaction or do it by online banking. The reason behind this is quick and secured transaction. To provide a secure transaction the bank charges transaction fees.
What if there is a way to provide a secure transaction with no transaction fees?
Blockchain gives you such an option. If A gives a transaction request it is being verified by millions of computers around the world by some complex algorithm and then this transaction is added to the blockchain ledger list which is interconnected to previous transactions that make it impossible to falsify a record.
The person A and B can be anyone all around the world. A can be a music artist or a railway company and B can be a music lover or a passenger. They can pay for what they want without any transaction fees.
To know more about Blockchain click here.
How transactions occur through cryptocurrency?
Assume person A needs to transfer money to B in the form of Bitcoin. Bitcoin is one of the most popular cryptocurrency. To perform transactions one needs a wallet on the bitcoin network.Bitcoin wallet assigned with two keys public key and private key.
In order to have a transaction validated and secure they need to have these keys involved. The private key acts as your digital signature. When a transaction occurs your message is sent to the bitcoin network. The public key acts as a verifying mechanism which essentially confirms your message by a private key.
After the transaction request the verifying part is done by miners.
What is mining?
Mining is a process of validating the message containing both public and private keys.
The process is performed by miners who use complex computational algorithms to verify validity of the message. This is done by a cryptographic hash function – SHA 256 which consists of million no. of algorithms to get the right answer.
After confirming the message it is added to the ledger.
Why do miners do mining?
Around the globe, the majority of people do a task for a reward.
Once a miner verify 1MB(megabyte) worth of transaction known as block that miner is eligible to be rewarded. The miner is rewarded only if he comes first with the right answer to a numerical problem. This process is called proof of work.
The proof of work is considered as the tough part. This does not mean you need to do advanced mathematical problems. But you need to be the first miner to get the right answer.
Miners try to do guesswork, that is they try to guess the 64 digit hexadecimal number(“hash”) that can be less, equal or greater than the target hash. To do the guesswork miners need to have high computational power. A successful mining requires a high hash rate which is measured in terms of megahashes per second (MH/s), gigahashes per second (GH/s), and terahashes per second (TH/s).
1 BTC = $9,565.12
Due to reward there is a wide hype for performing a single mining job all around the globe .
Benefits of Bitcoin transactions over banks.
- A technical issue at banks can delay the transaction but there is no delay in bitcoin transactions because miners that validate the message quickest get the reward.
- Not all banks have a high secure network and users’ accounts can be hacked.. In blockchain the transaction is verified by millions of algorithms before adding into the ledger.
- There is a certain transaction limit which is not the case with the blockchain.
- There is no governing body so there are no extra expenses.
- In banks international transactions are prohibited but not in the case of cryptocurrency which is universal.
How to earn money through Bitcoin.
There are two ways to earn profit through cryptocurrency via direct or indirect ways.
Direct way includes to purchase cryptocurrency and trade it with others based on the increment in exchange value. The increment in value depends upon the demand as there is only limited cryptocurrency that is to be circulated. Indirect way includes through crypto mining.
There are two types of crypto mining: personal mining and cloud mining.
Personal mining is a mining process on your own hardware and software which is not so profitable and is more expensive.
Cloud Mining does not require any hardware or software. It is the investment in the firm that does the crypto mining process that will charge only the electricity and cooling expenses. The profit through mining is shared between the firm and you based on your investment. This is a very good way of making profit through cryptocurrency.
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