The Technology Behind Cryptocurrencies Like Bitcoin

You’ve no doubt heard the buzz about Bitcoin. In fact, it has been difficult to avoid. And you’re probably wondering: how does it work? Or you might know more than your fair share about bitcoin, but would like to know how the rest of the cryptocurrency world operates. Either way, this guide is for you.

Because our focus is on all things digital, we’re going to dig a little deeper and do our best to explain what really goes on inside the top cryptocurrencies. So, let’s begin.

Bitcoin

The great grandparent of most of the cryptocurrencies in operation today, Bitcoin started life way back in 2008 (the stone age as far as cryptocurrencies are concerned) and is based on a paper authored by its creator Satoshi Nakamoto. Among other milestones, it is the first decentralised digital currency – meaning that it doesn’t require a bank or any other type of administrator.

Its peer-to-peer transactions take place directly between users and are verified by network nodes, which are computers connected to the bitcoin network. These transactions are then recorded in a public ledger known as the blockchain – a term familiar to anyone with a passing interest in Bitcoin. The coins themselves are created during the record-keeping process known as mining, which uses vast computer processing power to ensure that the blockchain is consistent and complete.

This revolutionary currency is used for the purchasing of goods and services, but where it is really making waves is among investors. For traders who want to invest directly there are the digital currency exchanges. More recently, Bitcoin futures markets have opened up. It is also possible to trade Bitcoin derivatives using a full-service brokerage firm.

Bitcoin Cash

Dating back only to 2017, Bitcoin Cash came out of a hard fork (a rule change not considered valid by older software) from Bitcoin which increased the block size limit from one megabyte to eight megabytes. What this change means is that Bitcoin Cash is a separate currency and not to be confused with Bitcoin. Upon launch it actually inherited the transaction history of Bitcoin, but from that point on all transactions have been separate. Bitcoin Cash has been widely adopted by digital currency exchanges and is frequently traded.

Ripple

Perhaps the second biggest name in cryptocurrencies, Ripple is a real-time global settlement network embraced by individuals and many larger banking institutions. The way it works is through a consensus ledger which doesn’t need mining.

Users make payments using encrypted signed transactions in either fiat currencies (such as the Euro) or Ripple’s internal currency called XRP. At first trust was required when it came to including fiat currencies, but Ripple is now integrated with various banking services and verification protocols. When a non-XRP payment is accepted, the system adjusts all along the network to record it – and this is what is known as ‘rippling’, the process which gives the currency its name.

Dash

This cryptocurrency started life in 2014 as ‘Darkcoin’, a more secretive version of Bitcoin. Even after being renamed it still offers users anonymity by working on a decentralized Masternode system which makes transactions almost untraceable. As with Bitcoin, miners are required to create new blocks, but on a level above them sit the Masternodes, which handle the transactions. This two-tier format is one of the reasons for the cryptocurrency’s success, but there are many other features which set it apart, including its Decentralised Governance by Blockchain (DGBB) system which allows operators to reach a consensus on issues such as proposed network changes.

Dogecoin

This may seem like a frivolous entry in the list, but Dogecoin has really taken off. It was launched in 2013 as something of a joke, with its symbol featuring the image of a dog popularly used in internet memes. However, it has since gained traction with the public as it is frequently used as an internet tipping system. It is also popular across social media, with a variety of Dogecoin-based initiatives (such as funding the Jamaican Bobsled Team and working to put a Dogecoin on the Moon) really capturing the popular imagination. When it comes to the tech behind it, one of the most important things to know is that unlike with Bitcoin and others, the supply of Dogecoin will remain uncapped.

This is just a short look at how some of the world’s biggest cryptocurrencies operate, but if you want to look deeper into the tech involved, it’s worth reading more. You could also simply follow the news, because cryptocurrencies are constantly grabbing headlines.