Bitcoin is again gaining in popularity. It is now worth over 30000 US dollars. So, how does it work?
The Origin of Cryptocurrency
Before 2009 there were attempts to create digital currencies, and they all failed. Satoshi Nakamoto had seen these failed attempts and thought he could do it better. Mr. Nakamoto created the first fully decentralized digital cash system, what he called Bitcoin. Bitcoin was the first digital coin that proved that the technology was possible and also the first one that became popular amongst tech enthusiasts.
In April 2011, one Bitcoin was worth one US Dollar (USD).
The thing that makes cryptocurrency different from fiat currencies like the Dollar and Euro and other earlier attempts is that it is based on the blockchain.
What is blockchain?
A blockchain is the foundational technology behind every digital cryptocurrency. In essence, a blockchain are multiple blocks (a block is a ledger of transactions in a timeframe) that are chained together.
To store Bitcoin or any other digital coin you need a wallet. This digital wallet is called a ledger. What is a copy of the entire blockchain of that particular coin and a wallet number. To get your balance the program simply looks at all the transactions in the blockchain where your wallet number was involved.
What makes cryptocurrency safer and independent from anyone (especially governments) is that it is decentralized. That means everyone has a copy of all the transactions, and no one can alter a transaction.
If you want to send money to some else, you need their wallet number. If you got it, you broadcast to everyone, with a copy of the blockchain, that you want to add a transaction to a new block.
The transaction gets verified (including do you enough coins) by miners. Miners are people that use the power of the graphic cards in their computers to solve complex math equations that are part of the verification process. If the new block (where your transaction is part of) is added to the blockchain and enough people have this updated blockchain then the transaction is complete.
Miners get paid for their contribution in the coin they support. The more miners, the faster the transactions are handled.
This is the essence of how cryptocurrencies like Bitcoin work.