Throughout the past decade, blockchain technology has gone from a new financial experiment with a cult following, to a potential revolutionizer of data management. As blockchain has gained more and more traction, many people still struggle to understand: what exactly is blockchain? And why would anyone want to use it? In this series, we answer those very questions and provide the foundation needed to understand blockchain and cryptocurrency.
Cryptocurrency is digital money, enabled by blockchain, and not tied to any physical assets. In the last section of this guide, we discussed the different types of currencies. But what are the key attributes of cryptocurrencies?
Due to the blockchain foundation, cryptocurrencies are very secure and fast. Unlike a bank there is no central governing body. Cryptocurrency is global and personal information is kept private. Since cryptocurrency is not tied to any physical asset, the value tends to fluctuate.
Just like stocks, you buy and sell cryptocurrency on an exchange. In order to access your cryptocurrency, you will need two keys. The public key, like an account number, is shared with the public. The private key is like a password. It is extremely important to keep your private key secure so that no one else can access your cryptocurrency funds. Just like a key to a safe, if you lose your private key, you lose access to your cryptocurrency. Wallets are used to store both public and private keys. There are many different types of wallets. Some are internet programs (hot wallets), while others are hardware devices kept offline for more security (cold wallets).
At a high level, when someone requests a cryptocurrency transaction, the transaction is broadcast to the peer-to-peer network (P2P network). The network then verifies the transaction by following consensus protocols. A new data block containing the transaction data is then added to the blockchain and the transaction is approved.
Continue to the next section of this guide, Blockchain 102 – Mining, to learn the details about how transactions are executed on a blockchain.
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