Demystifying Cryptocurrency

In order to use cryptocurrency, you don’t need to understand it, any more than you need to understand the intricacies of banking in order to swipe your debit card. But if you’re new to cryptocurrency, you may have a few basic questions about what it is and how it works.

There are a couple of underlying concepts that equip the conversation around cryptocurrency. The first is blockchain, which is a public, distributed digital ledger that is time-stamped and cannot be altered. The second is cryptography which is a way of securing digital transactions. These terms are essential when discussing cryptocurrency.

What is Cryptocurrency?

The best way to think about cryptocurrency is as a digital currency that only exists on computers. Peers transfer this digital currency without the middleman or bank. These transactions are recorded on a blockchain, or a digital public ledger, and that transaction data is protected using cryptography.

Cryptocurrency is also distributed, so no single computer hosts the transactions. It is traded online using cryptocurrency exchanges, which are somewhat similar to stock exchanges. You’ve likely heard of Bitcoin (traded as BTC), but it is one of many varieties of cryptocurrency.

How Does It Work?

When making a transaction, you access software called a cryptocurrency wallet. The wallet is used to transfer balances between accounts, but you must have a private key in order to complete the transfer.

When a transaction is made between peers, the transfer is encrypted and then broadcast to the digital network so that it can be added to the public ledger or blockchain. When the transaction is recorded on the public ledger, it is through a process called mining. Every user of any particular cryptocurrency has the ability to access the ledger, which they can do by downloading and running software called a full node wallet.

Each transaction amount is publicly available, but the parties involved in the transaction are encrypted. These transactions are tied to a unique set of keys, with the owner of those keys also owning the cryptocurrency connected to the keys.

When transactions are added to the ledger, it is in a block of many transactions at once and explains why the underlying technology is referred to as a “block” chain. It is a chain of blocks of transactions.

This explanation covers how the majority of cryptocurrency transactions occur, but there are altcoins that use different mechanics, such as fully private transactions or a process that doesn’t involve blockchain.

What’s the Point?

If cryptocurrency is unfamiliar to you, you may be wondering why you should invest in this type of venture, rather than a traditional startup or existing corporation.

In a traditional business venture, the company is required to raise capital before initiating operations. They hope that there is enough revenue generated to reward their investors. With cryptocurrency, an organization requires little capital to begin operations. Selling tokens to create capital, they are able to operate on a blockchain and build a community rather than layers of investor bureaucracy. And in that community, every token is equally weighted, so there are no classes of owners and everyone participates.  

If You’re Interested in exploring the potential of cryptocurrency, there’s a great place to test the waters. Military.Finance is a cryptocurrency made by veterans to support veterans by funding charities focused on serving and equipping veterans. There’s no better way to get started with cryptocurrency than with Military.Finance.