How does cryptocurrency work?

How does cryptocurrency work?

While cryptocurrencies serve as a means of transferring or storing money, they all rely on "blockchain," a form of public ledger technology that records data and keeps track of all transactions made over the network.

A blockchain is a virtual chain of blocks, each holding a batch of transactions and other data. Each block in the chain becomes immutable after it has been added to the chain, which means that the data contained inside it cannot be modified or erased.

The nodes in the network serve a range of functions, from storing a complete archive of all prior transactions to validating fresh transaction data. 

Blockchain technology provides the following benefits over traditional finance since it is maintained by a dispersed group of people, each of whom keeps a copy of their ledger:

There is no single point of failure in the blockchain ledger: if one node fails, the blockchain ledger remains unaffected.

There isn't a single, easily tainted source of truth.

The database is managed by the nodes collectively, and new additions are verified as legitimate transactions.

Consider having a group of computers function as a bank, updating user balance sheets regularly. The balance sheets of distributed ledgers, on the other hand, are not kept on a single server. Instead, many copies of the balance sheets are scattered among multiple computers, with each node, or computer connected to the network, functioning as its server. As a result, even if one of the computers fails, the consequences will be less severe than if a single server-based database fails, as is common in banking systems.

Cryptocurrencies can avoid the security flaws that plague traditional currency thanks to this infrastructure architecture. Attacking or manipulating the blockchain network is difficult because attackers must get control of more than 50% of the devices connected to the network. Depending on the size of the network, a coordinated assault might be prohibitively expensive. When you compare the amount of money required to target well-known cryptocurrencies like Bitcoin to the amount of money the attacker would gain at the end of the day, it's evident that such an operation isn't financially viable.

It is also worth noting that the scattered character of these digital assets contributes to their censorship resistance. Unlike banks, which are regulated by nations, cryptocurrencies have their databases dispersed throughout the globe. As a result, even if a government shuts down one of these computers or all of the computers under its authority, the network will continue to function since there are possibly thousands of additional nodes in other countries that are beyond the power of a single country.