Cryptocurrency, what is it, how does it work?

Cryptocurrency or the best known of them bitcoin.
It is gaining a lot of visibility especially in that year of 2017 where bitcoin reached the incredible 11k USD.
This crypto-coins market began in 2009 with the emergence of its first coins Bitcoin or BTC.
From here to here has been gaining the spotlight of the main investors and stock exchanges and we will speak all this further down.

How the cryptocurrency system works.


Bitcoin emerged in 2009 after the financial meltdown of 2008 with the major stock market crisis.
Being the first crypto created by Satoshi Nakamoto using SHA-256 as an encryption Hash function.
The currency is open source, ie anyone can look at the code and contribute.

Then in October 2011 Litecoin was released.
Being the first successful currency to use scrypt with hash function instead of SHA-256.
Since then several currencies have appeared on the market, some of which have been created by governments and banks.
Cryptocurrency work like the forex market, but do not have a centralizer or financial institution.
By being decentralized and outside the transitional banking system this makes the currency has no interest and government risk.
From 2014 a second generation of cryptocurrency appeared, such as the Monero, Ethereum and Nxt.
These coins have advanced features like hidden addresses and smart contracts.tes.


The legality of digital coins vary from country to country.
While some explicitly authorize their use as an exchange, others have restrained and even banished.
As is the case in China, China’s central bank banned the handling of bitcoins by financial institutions.
Russia on the other hand coins are legal, but it is illegal to shop for products with any currency other than the Russian Ruble

Technical information


In the case of bitcoin they are represented by the symbols BTC, XBT.
Small amounts of bitcoin are represented as milibitcoin (mBTC), microbitcoin (μBTC) and satoshi (named after the creator of bitcoin).


The blockchain technology is a distributed database type, whose function is a public accounting book.
In it, bitcoin transactions are recorded and distributed among the P2P network participants.
Simplifying each transaction of a user X sending to the user Y is transmitted through the network through software and, validated by the miners, they in turn add the transaction biticoin in the next block of the block chain, every 10 minutes.

The block contains the information of the receiver Y that now has + bitcoin and the payer X having – biticoins.
Each network generating node looks for transactions not yet present in the blockchain in a candidate block, which has the cryptographic hash identifier of a previous valid block known by this node.
So it tries to produce a cryptographic hash in another block with unique characteristics.

The service that requires enormous computing power and predictable amount of repeated attempts and errors.
When a node encounters such a cryptographic solution, it informs the result to the other nodes of the network, validating the transaction.
And it rewards 25 new currencies as a form of payment for the “borrowing” of computing power.
Thus Blockchain contains the history of all transactions, the data being immutable and secure.


The transactions are made from one wallet to another and processed by the miners, but there are coins that the process is all different, but as we are focusing more on bitcoin we will use it as an example in this post.
The address of the wallet is formed by codes of 64 characters, usually the transaction runs between different portfolios, but nothing prevents one person from making a transaction for another portfolio that has.
The transaction in the network occurs through the internet, and it is not possible to cancel or revert after it has been sent over the network.
To have the bitcoins associated with your address, the recipient does not need to be online at the time of the transaction and does not need to confirm it


The wallet stores information so that the transaction can occur.
The best description for portfolio functionality would be to “store the cryptographic keys so that the user can use their bitcoin funds”.
There are several types of wallet we will describe a few:

  • Physical or hardware wallet: Uses some kind of physical storage, an electronic device, of private keys, such as a pendrive.
  • Wallet Software: A computer application, a smartphone that is used to make transactions and store keys.
  • Portfolio Service: An online service, made available on a website, that stores the keys to the user (cloud storage).
  • Offline wallet: Any type of wallet that never connects to the internet.

Remembering that software portfolios can contain all transactions of the blockchain, which may require a great use of the internet.
Also important to save the private key as it is with it that you have access to your bitcoin at the time of making the transfer.

Economic point of view of cryptocurrency

Many conservative economists advise against purchasing bitcoin for the long term.
They claim that by being highly volatile, overnight you could lose all your funds that invested in the currency.
Some even claim that it is a bubble and that soon it can burst.

But there are others who see bitcoin as a way out of the risk that most currencies have.
For the currency usually has an administrator, Central Bank, a government and this can devalue or value a currency.

Bitcoin comes to solve this problem.
Government risk, security and little bureaucracy to transfer funds.
Not to mention that you can transfer to anyone on the globe in matters of few hours.

Saw what the currency of financial freedom. that’s why bitcoin has been valued so much in recent years.

It is not a fact that many Venezuelans are buying bitcoins to face the crisis they are going through.

My opinion

I think in the long run the digital currency and bitcoin technology will improve our way of trading.
So for long term I keep buying.
Going forward I will bring my investments in bitcoin and coins and the ways I use to get the bitcoins
Even as a way of protecting my assets against the risk of the local currency.

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