You may have heard that once again Bitcoin reached $50,000 and the same way Ethereum, Cardano, Matic, Polkadot rising enough.
Due to this, Investors are becoming millionaires without working 9 to 5 like you. So most of you want to earn like that.
Believe me or not, if you haven’t read this article completely or started without complete knowledge, you will surely lose all your money.
There are several surveys that prove my statement.
- More than 1 in 3 cryptocurrency investors knows nothing about Bitcoin.
- Since October 2020, reports have skyrocketed, with nearly 7,000 people reporting losses of more than $80 million on these scams
Now, most of you will ask me then why people spend their hard-earned money without any knowledge.
The answer is simple we don’t want to research and are greedy enough in terms of money.
Well, for me investing in cryptocurrency is simple but a bit risky.
Let me clearly explain to you and clear all your doubts related to Cryptocurrencies.
What is Cryptocurrency?
You may hear about Bitcoin, Ethereum, Cardano, Dogecoin, they are all cryptocurrencies. It is a type of digital currency that can be used for payment and other types of transactions.
But, why is the need? There are several methods like UPI, NEFT, RTGS but there are several problems.
The main objective of cryptocurrency is the solve the traditional problems and putting the power to the customer.
Then, What is Blockchain?
Well most of us want to invest in Bitcoin, Ethereum, Cardano, etc. But now we know that it is a cryptocurrency.
So we want to invest in cryptocurrency but do you know how it works.
It works because of blockchain. In short, Blockchain is the technology that helps to transact, invest and earn through cryptocurrency.
Let’s go much deeper.
Blockchain is one of the simplest technology that I have ever seen. Well, the name suggests the real meaning of it.
Remember the word Blockchain, It is simply a chain of blocks connected together.
Don’t able to understand, let’s illustrate with a simple image.
The above image helps us to understand the meaning of blockchain clearly. Just remember the chain of blocks. Here the block contains data and store inside the block and then they are chained together.
Now, How Blockchain Works?
So we have learned a little bit about cryptocurrency and later about blockchain.
But so far we haven’t discussed how it works.
Well, there are several terms and I don’t want to bore you with all the technical terms so I will keep it.
In short, it consists of several things that as a beginner becomes complicated, but I will try to explain them as easily as possible.
A blockchain is a distributed ledger that is open to everyone. You can think of a ledger as a database that can be accessed by anyone.
Whenever the data is passed into the blockchain with the help of miners and other such processes then it is very difficult to change it.
So I have explained earlier that a Blockchain is simply a chain of blocks. Each block consists of several things but the most important ones are data, hash, and hash of previous blocks.
Data may vary depends upon the type of blockchain. Let’s talk about the Bitcoin blockchain, here the data consists of details of the sender, receiver, amount of coins, etc.
The hash is a unique number and there is also a hash of the previous block since it has to link with the previous block.
If something is changed inside the block, the hash will be changed.
Let me give an example. Suppose some value inside the second block changed due to this the hash of the third block will also vary.
It is also not a great idea to change a specific block since there is a mechanism name proof of works. Proof of work simply slows down the creation of new blocks.
Also to make it more secure blockchain works with another concept known as a distributed network. Due to this, anyone can get a full copy of the blockchain.
To validate block there is another concept known as consensus. Consensus is a concept where the computers on a blockchain network validate the block and decide whether to accept it or reject it.
This is how a blockchain works.
Thanks for reading.
Also, read about 5 harsh truths about cryptocurrency before investing in it.