In this era of digitalisation, cryptocurrency has emerged as a significant player. The term “crypto” used to be intimidating when it was first introduced but nowadays people are not afraid of it anymore. In fact, they are actively using it for their own benefit.
Cryptocurrency: Think of cryptocurrency as digital money, like the money you use in your bank account or wallet, but it only exists online. It’s like having a special kind of money that you can’t touch because it’s stored on your computer or smartphone. The most famous cryptocurrency is Bitcoin, but there are thousands of others, like Ethereum, Ripple, and many more.
Cryptocurrency Exchange: It is a digital marketplace where people go to buy, sell, and trade cryptocurrencies, just like a stock market where you buy and sell company shares. These exchanges are websites or apps where you can create an account and then use your regular money (like dollars or euros) to buy cryptocurrencies.
How a Cryptocurrency work?
- Requesting a transaction: When you want to send cryptocurrency to someone, you first need to create a transaction. This transaction will include the following information:
- The sender’s address
- The recipient’s address
- The amount of cryptocurrency being sent
- A fee for the miners who will validate the transaction
- Broadcasting the transaction: Once you have created a transaction, you need to broadcast it to the P2P network of nodes. This will let everyone know that you are sending cryptocurrency to someone.
- Validating the transaction: The nodes will then validate the transaction to make sure that it is valid. They will check to make sure that you have enough cryptocurrency to send and that the recipient’s address is valid.
- Adding the transaction to a block: Once the transaction has been validated, it is added to a block. A block is a group of transactions that are processed together.
- Adding the block to the blockchain: The block is then added to the blockchain. The blockchain is a public ledger of all transactions. It is stored on all of the nodes in the P2P network.
- Completing the transaction: Once the block has been added to the blockchain, the transaction is complete and the person receives the cryptocurrency they requested.
Here are some examples of Cryptocurrency Exchange transactions:
- Buying: You want to buy 1 Bitcoin. You go to a cryptocurrency exchange, such as Coinbase or Binance, and deposit Rs 50,000 into your account. You then place an order to buy 1 Bitcoin at the current market price. The exchange will match your order with a seller and the trade will be executed. The Bitcoin will then be deposited into your wallet on the exchange.
- Selling: You want to sell your 1 Bitcoin. You go to the cryptocurrency exchange where you bought it and place an order to sell 1 Bitcoin at the current market price. The exchange will match your order with a buyer and the trade will be executed. The Rs 50,000 will then be deposited into your account on the exchange.
- Trading: You want to trade your 1 Bitcoin for Ethereum. You go to the exchange where you hold your Bitcoin and place an order to sell 1 Bitcoin for Ethereum at the current market price. The exchange will match your order with a buyer and the trade will be executed. The Ethereum will then be deposited into your wallet on the exchange.
Cryptocurrency trading is a risky activity. These are a volatile asset class, and their prices can fluctuate wildly. This means that there is a risk of losing money when trading cryptocurrencies.