10 years ago nobody knew what cryptocurrency was, today it is one of the hottest topics in the financial world. Before the dawn of cryptocurrency, paper money was favoured, cash was king and online transactions were difficult and expensive. However today the world is different with the advancements of technology, pushed forward by cryptocurrency.
Cryptocurrency is built on a system called blockchain. This innovative system allows for greater transparency and security with transactions being stored on a public ledger. While this system may be innovative, how does it actually work?
How does Blockchain Work?
Blockchain can be thought of as a door with many keys. Without having all the keys, one cannot open the door. Blockchain breaks up transactions into blocks, these blocks are stored in multiple locations and are brought together when the transaction is placed. If the blocks cannot be retrieved and verified, the transaction cannot take place.
The blocks are stored and processed by miners. These computers are dedicated to process of allowing cryptocurrency to transact. In return the miners received Cryptocurrency for their work.
All transaction run through a public ledger where they are displayed and verified. This public ledger allows any user to check transaction making it impossible to hide a transaction. This has helped combat fraud and money laundering.
Is Blockchain Secure?
Blockchain is one of the most secure financial systems ever built according to multiple studies. The testament to this can also be seen as many countries have adopted a blockchain system. Notable countries are Estonia and the People Republic of China.
Because of the public ledger and verification process it is virtually impossible to steal crypto from a blockchain system, while there have been some breaches, they are small and less than traditional systems and often revolving around wallet breaches as opposed to a blockchain breach.
The most unsecure part of the whole crypto blockchain experience is the exchanges and wallets.
What are Exchanges and Wallets?
Wallets are essentially digital bank accounts to store your cryptocurrency. They store the necessary keys and passwords to retrieve and verify the blocks. Finding a secure wallet is a vital part of buying and selling cryptocurrency, as if you wallet is not secure, you crypto can be stolen.
An exchange is similar to a wallet except it allows for the transfer and trading of crypto assets. Exchanges act as dealers and store your currency and work with it as you trade the currency. If you have an exchange that is not secure, they too can be hacked and you crypto can be stolen. That is why it is a good idea to find the best exchange.
The growth of cryptocurrency has digitalised and changed the way we view, transact and use money. Today, making worldwide transactions is fast, easy and safe with cryptocurrency. Blockchain is at the heart of many cryptocurrencies and is one of the most complex and secure systems ever built. It leads to less fraud and more transparency in the financial world.
Whether you were an early adopter or are only considering crypto now, we can all agree that Blockchain and Cryptocurrency have changed our world for the better.