With the almost daily news coverage of cryptocurrencies, things can get overwhelming if you don’t exactly understand how the world of digital currencies works. Which is why we’ve put together an easy-to-understand guide explaining the main terminologies that make cryptocurrencies work. From blockchains to crypto mining to P2P, here’s what you need to know about cryptocurrencies and how they work.
It sounds complicated but at its core, a blockchain is nothing but a type of database. A blockchain is essentially a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems that are a part of the blockchain. The system records information in a way that makes it difficult or impossible to hack or cheat the system.
Each block in the chain contains a number of transactions, and every time a new transaction occurs on the blockchain, a record of that transaction is added to every participant’s ledger. Blockchain differs from other databases that record information because it doesn’t belong to anyone, it belongs to everyone who is part of the ledger.
The data entered into blockchains can be decentralized, distributed, or centralized--depending on its use case. Bitcoin, for example, consists of thousands of computers, but each computer or group of computers that hold its blockchain is in a different geographic location and they are all operated by separate individuals or groups of people. This is an example of a decentralised blockchain. Because of its decentralised nature, all Bitcoin transactions can be transparently viewed by anyone with access to the blockchain.
Crypto Mining –
You must have heard Elon Musk backing off cryptocurrencies by talking about their carbon footprint caused due to mining.
But what exactly is crypto mining?
In simple terms, crypto mining means acquiring cryptocurrencies by solving cryptographic equations through the use of computers. This process involves validating data blocks and adding transaction records to a blockchain. The miner who successfully solves the puzzle is rewarded with Bitcoin once the encryption is validated by other miners, and this process is known as “Proof of Work’ (PoW).To mine virtual currencies, massive mining centers need to be set up that are capable of handling all the validation and processing. The electricity costs, depending on where an operation is located, can be enormous. Over 70% of Bitcoin mining happens in China, where dirt-cheap electricity makes mining computers extremely profitable. It is also why crypto prices slumped recently after China effectively banned crypto mining.
P2P Networks –
Think of P2P networks or platforms as a digital marketplace that connects interested buyers and sellers to transact with each other without the intervention of a third party and without a centralized entity or middleman. On a P2P platform, buyers and sellers can place their requests to buy a certain cryptocurrency. Once the order finds a match, the buyer transfers payment in the form of fiat currency (INR if you’re from India for example), and the seller confirms receipt whereupon the P2P network releases the order to the buyer. P2P networks, thus, work as a holding account of sorts to facilitate transactions between buyers and sellers without requiring any documentation from either party.
Buying Your Crypto On WazirX -
If you’ve been toying with the idea of owning your first cryptocurrency and have no idea how to do it, here are two ways you can start with.
1 - In the first step, we suggest you download the WazirX app or simply go to the WazirX website.
Open your account and quickly complete the KYC process. This will then open the gateway for you to add funds in INR via bank transfer or P2P.
Once the funds have been added, you can explore the Exchange tab and select from a variety of cryptocurrencies on offer on WazirX’s platform.
Simply enter the amount of cryptos you wish to buy and hit Buy.
Congratulations, you can now watch your latest investment in the Funds category.
2 – You can also use the Quickbuy feature on WazirX’s app to buy and sell cryptocurrency.
Open an account and complete the KYC process to add funds via bank payment or P2P. Check the Quickbuy tab in the app and select your preferred cryptocurrency.
Enter your amount and preview your order before confirming.
Once done, you can view your cryptocurrency assets in the Funds tab.
While cryptocurrencies might sound a bit daunting at first, there is no getting around the fact that they are here for good. You might as well learn more about them right now and stay ahead of the game. And of course, invest in them as you see fit with the methods outlined above.Moneycontrol journalists were not involved in the creation of the article.