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A Beginner's Guide to Cryptocurrency

blurred woman holding a bitcoin

People are investing a lot of their money and putting a lot of their time into researching cryptocurrency and researching platforms that they feel strongly about and they want to invest in. But few people really understand what cryptocurrency is. People have a tendency to think that Bitcoin and the blockchain are interchangeable and the terms get used incorrectly. There's hundreds of articles and sources out there where you can go to get information to try to learn about what Blockchain technologies are, but this article will give you an overview of what cryptocurrencies are.

Cryptocurrency 101

Cryptocurrencies operate exclusively in a digital format, and that could be hard for people to understand. The images that you see in mind when you search for the coin are a place holder of an image for people to put a picture to the name. But there is no physical cryptocurrency. You don't literally ever hold the coins in your hand, nor do you have them in your bank account. You do, however, have the power to send somebody Bitcoin or create a transaction, which is giving up ownership of coins to somebody else. 


So, where exactly is this chain located? Well, due to the nature of the crypto currencies and the idea that the ledger is publicly available to everyone, that being the major key piece, the chain is not located on a single computer. So, the Blockchain is actually managed and authenticated by thousands of nodes all over the network, which equates to thousands of computers all over the world.

 All of these computers have a copy of the block chain, which is another word for having a copy of all the transactions that happened within the Bitcoin network or ecosystem. When someone new decides to run a note on the Bitcoin network, they must first download all of the transaction history up to that point. Think of this as going over your bank statements, only that you would be going back years. By distributing copies of the network and access to the network all over these different nodes, the network could never just go down. It's supported and secured by all of these different parties that are involved. Some transactions can be handled by a cryptocurrency tax software

What Is a Block

All of those transactions are recorded and then put into what is called a block. Let's compare banking transactions to cryptocurrency network transactions. So, a banking transaction would be something like the entire block chain, whereas a single individual block will be a transaction that occurs over  ATM. So in other words, the relationship of a block to a Blockchain is one part to a whole. 

These blocks are then strung together into a fluid chain that prevent any inconsistencies. Because anybody could create a block, you needed to come up with a way that you knew which blocks were to be trusted by checking the Blockchain and confirming transactions. The entire process is essentially self regulated. Transactions requires independent confirmations on the block chain that are random to prove that the block is valid, meaning that all the computers on the network have to be in agreement for this block to be created. 

So, what’s stopping somebody from going back and editing existing blocks? Each block is securely encrypted, basically meaning that the block is turned into gibberish. At that point, it's very difficult to break into it and figure out what the information is. Once it's on the block chain, it is there forever. 


Mining is validating a transaction on the Blockchain. Anybody with a working knowledge of computer hardware could set up mining equipment and contribute to this ever growing network of a cryptocurrency.  Validating the transaction is done through difficult and complex algorithms or essentially very hard math problems. Once the accuracy or correctness has been validated, then the block is added to the block chain.

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