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Cryptographic Transactions – How Does Cryptocurrency Work?

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Cryptocurrencies are digital currencies that are based on cryptography, hence the name. Cryptography is used to secure transactions and control the creation of new coins.

Most cryptocurrencies, such as Bitcoin, Litecoin, and Zcash can be mined using computing power in a distributed network. The blockchain is a public ledger that records all transactions that take place through it.

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The blockchain is maintained by a peer-to-peer network made up of computers around the world. These nodes verify each transaction without needing to trust each other or central authorities like banks or governments to validate them (though some do). In addition to tracking transfers of value between users on its chain, the blockchain can also track additional data like contracts or other information needed for smart contracts.

How Do Cryptocurrency Transactions Work?

You may have heard the term ‘blockchain’ thrown around a lot about cryptocurrencies. A blockchain is a public ledger that contains all the transactions ever made using cryptocurrency. They help facilitate the tokens getting traded on the cryptocurrency markets. The price determination happens via market variables.

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We’ll get into more detail later, but for now, all you need to know is that each transaction has three parts:

  • The sender’s wallet address (which can be thought of as an email address)
  • The recipient’s wallet address (their email address)
  • The amount of currency being sent from one person to another

How Crypto Owners Protect Their Private Keys?

Cryptocurrency owners have several ways to keep their private keys safe.

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Hardware wallets are devices that connect to your computer via a USB port and allow you to securely store your private keys offline. They cost anywhere between $50 and $100, but they’re well worth the investment if you’re going to be storing large amounts of cryptocurrency.

Paper wallets are one-time use paper files containing a QR code representing your public key and private key on it. You can share this information with someone else to make a transaction from your wallet, but once it’s used, the paper becomes useless for anything other than recycling material.

If hardware wallets aren’t an option for whatever reason (e.g., no internet access or lack of funds), don’t worry. There are plenty of other options out there! One common method involves storing encrypted copies of private keys onto USB sticks using encryption software like TrueCrypt or VeraCrypt.

Another involves using password managers such as KeePassXC where every account has its password. It must be entered before being granted access to its database (this is known as two-factor authentication).

Finally, there’s also keeping everything on an encrypted disk image file stored locally on your computer. If done right then nobody should ever know about its existence unless they take apart both pieces individually. 

What Is Blockchain Technology?

What is Blockchain technology? As you may have heard, a blockchain is a digital ledger that records transactions. But it’s more than that: it’s also the underlying technology that makes cryptocurrencies like bitcoin work.

Blockchain technology provides a secure, decentralized (meaning it doesn’t belong to any single person or group) way of verifying and recording transactions in cryptocurrency networks all over the world. The ledger itself is distributed, meaning there are multiple copies of it stored on different computers around the world

It makes hacking harder because any attack would have to be coordinated across these multiple locations at once. And since everything about your transaction is recorded in this open public ledger, there’s no need for third parties like banks or credit card companies to verify whether you have money or who bought something from whom. Just look up your records online!

A few other cool things about blockchains:

  • They’re public (anyone can see what each address contains)
  • They’re encrypted so no one can tamper with them without leaving behind evidence of their tampering (like changing account balances)
  • They’re available everywhere thanks to peer-to-peer networks like BitTorrent.

It means users don’t need some centralized hub where all their data lives anymore. It all lives on thousands upon thousands of computers around the world instead.

How Can You Buy and Sell Cryptocurrencies?

You buy or sell cryptocurrency on a cryptocurrency exchange. These exchanges are companies that allow buyers and sellers to trade cryptocurrencies, such as Bitcoin, Ethereum, and Litecoin. Cryptocurrency exchanges typically charge fees for their services.

You store your currency in a wallet. A wallet is an electronic device or program that stores the public and private keys needed to spend bitcoins (or other digital currencies). If you want to own digital cash like Bitcoin or Ethereum securely, it’s essential that you keep your money in a safe place—and not just anywhere!

Many people choose to use online wallets for convenience. However, these are less secure than offline options like paper wallets or hardware wallets.

Occur Through a Private Network of Computers

When you buy or sell cryptocurrency, or make any kind of transaction, your computer will communicate with other computers on the network. This is done using a private network of computers that run software to connect them all. There are many different types of blockchain networks and the one used for bitcoin is called the Bitcoin blockchain.

Other cryptocurrencies have their blockchains as well – Ethereum has its version called Ethereum Virtual Machine (EVM), Litecoin uses a different version known as Litecoin Core (LTC).

Each transaction that occurs on this network gets stored in a digital ledger that contains all past transactions.

It allows new ones to be added in chronological order so they can be verified by everyone else on the network as being valid. The digital ledger is called a blockchain because it looks like chains when viewed together! Each block stores information about previous transactions and generates new blocks which include updated balances based on current transactions.

To prevent fraud and double-spending, each transaction must be approved through consensus among nodes within this system before being added securely into its database. So no one can tamper with it later downstream from where it was originally written down onto paperback when we were using physical ledgers instead of digital ones.


You now know the basics of how cryptocurrency works, and you have a good idea of how to start investing! The main takeaway from this article should be that you now know more about cryptocurrencies and understand their current place in the world.

There are many resources out there if you want to learn more about specific aspects of cryptocurrency (or other types of investments). However, they’re not all created equal. Make sure any resource you use is credible and trustworthy before following its advice or recommendations. If possible, do your research too, it’ll help ensure that what you read is accurate!

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James Musoba
James Musoba
Studying Africa's startup and technology scene. I always look forward to discovering new exciting inventions and vibrant entrepreneurs.

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