Bitcoin is one of the most used cryptocurrencies. Still, since its invention, cryptocurrency has created much buzz over the media and the internet by being ridiculed and attacked. Still, it was adopted and accepted as a part of our lives. However, since the invention of bitcoin as a digital currency, over 700 cryptocurrency alternatives have developed, using the same principle of cryptocurrency algorithms and principles. So the main question would be, what are some of the existing cryptocurrency principles and algorithms which make digital currency like bitcoin functional? The article answers the question by providing an overview of the underlying algorithms and technologies.
The use of a decentralized information sharing
The first aspect of cryptocurrency that makes it unique from other forms of payments or transactions is the lack of a central authority, and cryptocurrency allows those mentioned earlier to use peer-to-peer networks (P2P). Sharing information using P2P networks can be compared to sharing information among friends and families in which information shared with one network member can be transferred to other network members. Still, in digital networks, the transmitted data is not altered in any way, which allows for making transactions effectively and efficiently. The use of cryptocurrency provides for implementing existing open-source P2P protocols that support new cryptocurrencies.
The hashing algorithm
Cryptocurrency uses cryptographic hashing algorithms to create digital identities. The technical definition of hashing is the process where digital data can be mapped from a data of arbitrary size to information that is fixed in size. Some of the aspects of hashing which make a hashing algorithm good include;
- The ability to produce a fixed output length
- The ability to produce significant changes in data even with the simplest of modifications
- The ability to produce similar outputs with the use of similar inputs
- The inability to reverse the results to get the input
- The ability to compute fast
The hashing algorithm used in any cryptographic incident should be reliable enough to produce duplicate hashing values for different inputs about frequency.
The digital signature
The digital signature compares to signing a paper because it appends personal data to the signed document. The digital signature works together with the hashing algorithm, which allows changes in the signature to significantly change the outputs created such that the original document and its hash value are different from the HASH value for an appended document. A digitally signed copy combines the original document with the HASH value produced after the record has been appended with personal data. This aspect introduces the element of virtual identity. The digital signature presents the part of private and public keys, which means that a transaction is only limited to the person doing the marketing, and no person can perform a transaction on behalf of another.
Trading and sending bitcoin
The invention of bitcoin and other forms of cryptocurrency introduced a new era in the development and technological innovations which allow for sending cryptocurrencies and trading them for profit. If you have not started yet, the bitcoin era new is a great place to start selling and performing transactions with bitcoin. After the implementation of the P2P communication, the existing platforms for exchange and trading have mechanisms for identification which introduces the aspect of using public and private keys. The systems can begin by asking the number of bitcoins one has and confirms if the information provided is true. Applications then proceed and ask what is intended in the opened transaction and can include different events like sending bitcoins or other forms of cryptocurrency, trading, which can consist of buying, managing, and selling bitcoins, among other activities like making payments which opens the room for using the private keys to sign the transaction record digitally. The transaction is completed only when the network agrees that a user has a defined number of coins in their network to allow for the making of the transaction.