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Available about how cryptocurrencies work
Material posted : Administrator Publication date: 14-11-2017

First we paid for a Cup of coffee. Then bought plane tickets. A little later, paid training. Now on the principle of crowdfunding collected a huge amount of incredible inventions and projects. All of the above have in common is that payments were made not the usual money, and using cryptocurrency, whose technology is believed to change the world. But how cryptocurrencies work and differ from other payment methods and electronic money? This article will provide answers to these and some other issues.

How it works: anatomy of a cryptocurrency

Cryptocurrency is a type of alternative currency. In contrast to the multiple electronic money and financial instruments of cryptocurrencies are decentralized, meaning that they are not controlled by the government of any state or organization. Also cryptocurrencies are peer-to-peer tools (P2P) allows individual users to buy and sell goods to each other directly, without the mediation of third parties, such as, for example, large banks. Some crypto currencies are anonymous, but this is not a common phenomenon. If we consider the main cryptocurrency we find that they all share a set of basic technologies and concepts that allow you to take the responsibility (i.e. to organize payment services — approx. ed.) and track transactions between banks and users.


When you make Bank transfer (or any transaction — approx. ed.), your issuing Bank actually does not immediately take money from your account and not remit them to the payee's account. The Bank simply stores the payment information in its database as much as it needs and convenient. Instantly change only the balance in your Bank account and maybe the balance of the recipient. Money now moves on the principle of change records in the database, and not physically.

In order for a cryptocurrency operated independently of any centralized mediator, all participants in the process must have a method of recording and storing financial transactions, to eliminate the problem of double cancellation, which allows twice to pay the same cryptographic token, i.e. "buy" goods at twice the existing amount. The problem should be solved without using a Central server and database, as is done in banks.

Most existing cryptocurrencies use open a cryptographically secured distributed a register of transactions called the "blockchain" — the "block chain". The blockchain is a chain of blocks with transaction records that are linked and protected using cryptography. Each block contains its own unique cryptographic identifier that indicates (associates) it with the previous block chain.

Once added to the blockchain, blocks cannot be changed without data loss on the subsequent circuit, which immediately allows other users to know that there was third party intervention to bypass the rules. This gives you the ability to just deny use of a modified version of the chain (because without the recognition of the modified block on the part of most stakeholders, it is useless) and continue to work with the original branch.

Cryptocurrency e-wallets can be tied to the blockchain to ensure that their balance is true, but new transactions are checked using the data in the block chain to ensure that each of them is real and was produced by the cryptocurrency, which really belongs to the payer (or his wallet).


In order to reach consensus about which blocks of transactions really should be added to the block chain and to banal to create these blocks of data, some users are involved in so-called process mining (with eng. mining — mining (mineral ore) mining. You need to understand that in order to use cryptocurrency, it is not necessarily "mine" — approx. ed).

These so-called miners using the computing power of your equipment perform more and more complex mathematical calculations to "prove the execution of the work." Proof-of-work (proof of work) is one of the forms of economic regulation of the blockchain. It was invented in order to prevent various attacks based on computational power, such as a false record, failure in the transaction, spam and so on.

Since effective mining now is an extremely expensive event (if it is a "major" cryptocurrencies, e.g. bitcoin), some individuals may begin to add your own blocks to bypass the rules without the approval of the whole network. Others simply do not recognize them as real. Global change is possible only at a concentration of 51% computing power, which will lead to the creation of a new "branch" units, the so — called fork. In fact, it's happened more than once, since the technology for nearly a decade. The fork-branch is not compatible with the original, but can develop in parallel.


Unlike the usual money, cryptocurrencies are not stored on the usual us Bank accounts. Instead, users of cryptocurrency use special software and/or hardware wallets. Each wallet contains a unique cryptographic key that allows the owner to access their savings, which are stored in the public blockchain.

The purses can be as "hot", that is placed somewhere on the Internet within an online service (for example, coinbase or Xapo), and cold — storage cryptocurrency is without network access. "Cold" wallet is actually a file on your computer, the loss of which will result in irretrievable loss of access to your wallet and bitcoin inside of it. The file can reside in any storage: hard disk, removable media, and some startups even offer to buy a physical wallet, keychain, access to which is additionally protected by a user pin code.

How to use cryptocurrencies

The first decentralized cryptocurrency was bitcoin, which is now the most shirokopolosnykh and best known cryptographic token in the world. Bitcoin was created in early 2009. It was then that the author — someone under the pseudonym Satoshi Nakamoto — launched the network and the first bitcoin wallets. Some count the time of the creation of bitcoin since the publication of Satoshi bitcoin Manifesto in October 2008, in which the anonymous author described the basic principle of regulation of the decentralized network. Exactly who created bitcoin are still unknown. The author never revealed the real data and snowtrails from work on the project in 2010, leaving in its purse of one million bitcoins. To find it still failed payments with wallet not made.

Bitcoin has continued to live his life and now is accepted as an alternative method of payment by thousands of organizations and businesses around the world. To this list can be ranked, and resources as Microsoft, WordPress, Reddit, Subway, Namecheap, Expedia, Newegg, Steam, Wikipedia, Zynga, Whole Foods, Bloomberg, Suntimes, Shopify. And this is only the beginning of an extremely long list.

Bitcoin is freely exchanged for other cryptocurrencies or Fiat (usually issued by state-owned banks — approx. ed.) currencies. Also, it is traded on specialized cryptocurrency exchanges such as Bitfinex, Poloniex, Kraken, Coinbase , or Bitstamp. All of these sites help users to store their crypto currency, and some of them even offer mobile wallets for wearable devices (smartphones, tablets) that can be associated with the account.

But bitcoin is not the only cryptocurrency. Now there are more than 1000 different cryptographic tokens, which are like a bitcoin, based on the technology of the blockchain. Total cryptocurrency market is estimated at $ 150 billion. Half of this capitalization occurs in the first cryptocurrency — bitcoin.

Why use a cryptocurrency?

Because of their availability, the stability and low transaction fees and, potentially, high speed (coupled with anonymity, if necessary), the cryptocurrency almost every day appear all new and new areas of application. While we have yet to learn what is actually capable of this technology.

With the appearance on the market of thousands of small businesses, large corporations and whole States, only a matter of time before crypto-currencies will become the new standard of financial transactions.

But even despite the fact that the benefits of using cryptocurrency is obvious, there are still serious barriers to mass adoption. First and foremost, is the low awareness and misunderstanding of the technology by the General public, the lack of standards for cryptocurrency transactions and smart contracts, unclear legal status of cryptocurrencies, technical problems, etc.

In some countries, all these legal difficulties have been partly solved but the technical complexity of integrating a blockchain solutions and the lack of business oriented products are still the main obstacles to the implementation of cryptocurrencies in the economic activity of the business. Private blockchain, which is being built by a team Jincor, will enable businesses of all sizes to easily engage in cryptonomicon without any legal, technical or operational difficulties, while cheap, regardless of the plan you work in B2C or B2B markets.



Tags: finances , bitcoin

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