Decoding Bitcoin and other cryptocurrencies: What you need to know

I recently wrote about Paxful, a cryptocurrency platform, and how you can trade crypto for fiat or services. Now, I want to elaborate and explain the process from a deeper, yet understandable level.

If you have the money, you can buy cryptocurrency (which is quite expensive) or you can earn it by running a cryptocurrency mine.

This is a network of computers that serve as the backbone of the cryptocurrency economy as they are responsible for validating transactions.

How it works

When I send you an email, photo or file, I am sending you a copy and not the original file, email or photo. It works a bit different when we start transacting over the internet by sending money.

If I send you R1 000, then I cannot send you a copy of the R1 000 while keeping the original R1 000. So, to eliminate such confusion, we have two options:

• Using an intermediary such as the bank, PayPal, and other financial services or cryptocurrency. The financial institutions validate transactions through their digital ledger systems. This process is effective but slow, expensive and centralised.
• Sending it through the blockchain, which is used by cryptocurrency institutions. The blockchain is a ledger system that validates transactions through mining.

Every 10 minutes, a block gets created that has all the transactions from the previous block. The miners compete to validate the transactions, and the first miner to validate the block is rewarded in cryptocurrency.

Can cryptocurrency be hacked?

Apart from phishing attacks and negligence from the owners with their crypto wallets and login information, cryptocurrency is relatively safe, this due to blockchain technology.

Let me explain how difficult it would be for any hacker organisation to exploit the blockchain. In a block we have three main components:

• Transactions
• The Hash
• The Hash of the previous block

In the transactions component, transactions that accursed when the block was created are recorded here.

The hash is like the digital fingerprint, which represents the transactions inside the block and is unique to the block; if any transactions were to be changed, then the hash would also need to change.

And lastly the hash of the previous block, the name is quite explanatory.

If hackers were to temper with any transaction, the hash would change and bow the hash of the previous block on the chain would be incorrect. To fix this, the hackers would have to temper with every block in the chain, and this would become very apparent.

So, next time someone says crypto is unsafe, tell them about the backbone of crypto, the blockchain, and how safe it really is.