How Cryptocurrency Works

Cryptocurrency is digital money that uses cryptography for security. Unlike traditional money, it operates without banks or governments.

Digital Signatures

Every crypto transaction is signed with your private key - a secret code that proves you authorized the transfer. It's like a digital fingerprint that can't be forged.

Public & Private Keys

Private Key: Your secret password. NEVER share this. It controls your funds.

Public Key/Address: Like an email address - safe to share. Others use it to send you crypto.

The Transaction Process

1. You create a transaction (e.g., send 0.1 ETH to Alice)

2. Your wallet signs it with your private key

3. The transaction broadcasts to the network

4. Validators/miners verify the signature is valid

5. The transaction is included in a block

6. Alice receives the funds

Mining vs Staking

Proof of Work (Mining): Computers solve complex puzzles to validate transactions. Uses lots of energy. (Bitcoin)

Proof of Stake: Validators lock up coins as collateral to validate transactions. More energy efficient. (Ethereum)

Transaction Fees

Every transaction requires a small fee paid to validators. This incentivizes network security and prevents spam.

Confirmations

After your transaction is in a block, it gets 'confirmations' as more blocks are added. More confirmations = more security. Most consider 6+ confirmations final.