How Cryptocurrency Works...?

Cryptocurrency operates on a decentralized network known as a blockchain. This technology underpins the functioning of various cryptocurrencies, including Bitcoin, Ethereum, and many others.

Blockchain Technology

At its core, a blockchain is a distributed ledger that records all transactions across a network of computers (nodes). Here's how it works:

• Data Structure: Transactions are grouped into blocks, each containing a list of transactions, a timestamp, and a cryptographic hash of the previous block.
• Immutability: Once added, data cannot be altered or deleted, ensuring integrity.
• Decentralization: Blockchain is decentralized, maintained by nodes, and resistant to censorship.

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Transaction Process

When a user initiates a transaction (e.g., sending cryptocurrency to another user), the following steps occur:

• Broadcasting: The transaction is broadcast to the network and picked up by miners.
• Validation: Miners validate the transaction to ensure the sender has sufficient balance and the transaction follows the rules.

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Mining

Mining is the process through which transactions are verified and added to the blockchain. Here's how it works:

• Transaction Grouping: Validated transactions are grouped into a block.
• Solving Mathematical Problems: Miners compete to solve puzzles (Proof of Work), and the first to solve it adds the block.
• Reward: The miner who solves the puzzle gets rewarded with cryptocurrency.

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Consensus Mechanisms

To ensure all nodes agree on the blockchain state, consensus mechanisms are employed. Some common ones include:

• Proof of Work (PoW): Miners solve complex puzzles consuming computational power and energy.
• Proof of Stake (PoS): Validators are chosen based on their staked coins, making it more energy-efficient.

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Security Features

Cryptocurrencies use several security features:

• Cryptographic Hashing: Blocks are linked with cryptographic hashes, making it almost impossible to alter data.
• Public and Private Keys: Users have a pair of keys to ensure secure transactions—public (shared) and private (kept secret).

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Wallets

Cryptocurrency wallets store, send, and receive cryptocurrencies. They can be:

• Hot Wallets: Connected to the internet, convenient but more vulnerable to attacks.
• Cold Wallets: Offline wallets (e.g., hardware wallets) providing better security.

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