Recently, we all have been hearing about the sudden rise in the prices of Bitcoin. Now what is bitcoin? It is a type of cryptocurrency, not the only cryptocurrency! A lot of us have had this misconception that cryptocurrency means Bitcoin and that is completely fine as per the hype of Bitcoin in the market (Yeah you can buy a Tesla car with just one Bitcoin). But, the reality is that Bitcoin is one of the 5,392 cryptocurrencies.

Now the question is that what is a cryptocurrency?

A cryptocurrency is a type of currency which is digital or entirely software.

Most cryptocurrencies are 'decentralized', meaning that they are not controlled by any government or even any other authority or individual.

How is it different?

While usual digital payments are processed by a card company or a bank, all cryptocurrency transactions are processed by a large network of computers that run a special software. During a transaction, these computers record a special address of both, the sender and receiver, (like a bitcoin address, if you use bitcoin) and then enters this information in a sort of a record-book, known as the block-chain. The block-chain is then updated and sent to every computer on the network.

Every transaction is secured using public key cryptography (a very high end and secure way of encryption) and is also checked multiple times, making it almost impossible to counterfeit the currency.

Why don't I have a cryptocurrency?

Well, you just need to mine a little bit!

Processing devices like the one you are using to read this blog can be used to connect to the network of the specific cryptocurrency. You will just need to buy a software and go through a simple procedure (different for different cryptocurrencies) and start mining. After this you will become a miner.

The verification process for the transactions is performed by miners. The mining software runs by grouping the transactions into “blocks”, which are only accepted by the network if they are “hashed” correctly and that's what the miner’s device does, it hashes the blocks.

Hashing

Hashing requires processing data from a “block” of transactions through a mathematical function that gives an output of a fixed length (usually 64 characters). This process requires very heavy computing power.

The hashed-out blocks are then added to the block-chain and the network automatically adds bitcoin to the miner’s account or e-wallet. This way the miner’s device generates money for the miner.

Easy money right? NO. It takes 2.7 quadrillion hashes to generate exactly 1 bitcoin.

For currencies like bitcoin, mining requires a lot of heavy, costly and electricity-hungry machines that increase the entry costs.

Purpose of Hashing

So basically, if I want to turn the words “Hello world” into a hash it will be:

64EC88CA00B268E5BA1A35678A1B5316D212F4F366B2477232534A8AECA37F3C

For instance, if you somehow gain access to this hash, it will be impossible for you to reverse this hash and find out the text that I converted it from. What I mean to say is that if there was no mention of me turning “Hello world” into a hash, the words inside the brackets would be meaningless.

These hashes are linked to other groups of transactions using “LINK hashes” which are common in 2 adjacent groups in a block chain record. Now suppose I make a small change to any transaction detail. In that case, the whole hash will change, hence the chain will simply break and my transaction request will be cancelled. Therefore, hashing provides security to the network.

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