Cryptocurrency is highly backed by blockchain technology based on platforms that are completely decentralized. Cryptocurrency democratizes the power of money and has digitally disrupted the global financial systems. It has also offered a strong mode of cryptography that enables digital currencies to be untraceable. Cryptocurrency empowered the introduction of digital currencies such as bitcoin and altcoins. People are able to transact directly without any third party involved to complete payment online by introducing cryptographic proof of trust. The economic status has risen to a market cap of over $2 trillion and has been backed up by powerful applications. Since bitcoin was introduced, there are different aspects that were handled which include:
The proof of work enacts the administered timestamp servers of a peer-to-peer digital currency. It also helps to solve problems of enacting decision making that cannot be easily changed and without redoing the systems’ work. For the proof of work to be successful, the timestamp is hashed in a block and controlled by honest nodes in which a past node and attacker will need to surpass all past nodes before accessing the current node. The proof of work makes it harder for cryptocurrencies to be hacked, whereas the hardware is compensated for in varying the benefits of the running nodes targeting the average number of blocks per one hour. The proof of work is demonstrated below:
For the proof of work to be initiated, a lot of computation power is required to solve the mathematical equation known as a hash. The computation is influenced by the network hash function which helps to find the input from having the output, the factorization of the integer, and the mathematical protocol which defines the nodes calculated as a hash. Algorithms and cryptographic hash functions use the input block and create a small output. The task is completed when algorithm tasks require hardware, electricity, and time. Cryptocurrency uses the mining hash function of Secure Hashing Algorithm (SHA), SHA256 and double-SHA256 for increased security. SHA256-256 bit is powered by CPUs and is enacted by cryptocurrencies as an easy function (it uses a simple boolean operation and 32bit and is implemented by logic in ASIC chips). The hash and algorithms in the block are explained in the diagram below:
It is mainly defined as the chain of digital signatures in which a user transfers a digital coin by signing a hash precursory transaction and the end public key is added to the next coin. With the hash for every coin listed, the owner can identify when a transaction has not been signed in each node. The transactions are verified without involving a third-party and are publicly listed as a part of the digital currency footprint. A private key is required to create a digital signature but is not used for verification. The verification is made by the public key generated. A digital signature is a cryptographic sign of the private key owner to the public key verification. The diagram below shows how the private and public keys are used for verification:
Some cryptocurrencies such as Ethereum, Solana, Polkadot, and Cardano use smart contracts which navigate and initiate legal acts on digital events. These cryptocurrencies rely on publicly registered transactions of honest nodes to either reveal or conceal the information. Cryptocurrencies under smart contract perform well, providing a promising chance to these digital currencies as the technology advances to revolutionize the economy, health, and other amenities in day-to-day life.
The smart contract defines the authentication process before a reward is offered as the end product in which the contract codes are captured in a contract address on a blockchain to request a transaction carrying the parameter data. The below diagram shows how smart contracts verify the awards to be issued:
Systems in cryptocurrencies allow data exchanges that facilitate the transactional history to be safely monitored over a network of different nodes. The cryptocurrencies store their transactions in publicly listed blocks in which a temporal network of nodes, addresses, and program functions are monitored for effective proof of work. The network attains the minimum of the transaction structure for the shared nodes. A gossip protocol-initiated algorithm for the network enables the blockchain and it is able to give out a transaction of the entire network.
When one node receives a new transaction, the gossip protocol spreads the transaction information to other network nodes for verification from node 1, node 2, node 3, node 4, node 5, node 6, node 7, and node 8. Every node preserves all the transactions that have not been registered on a blockchain yet. When the nodes are registered to the transactions, they are not shared with other network nodes, as shown in the diagram below:
The transactions in node 1 are made known to all other nodes before the transactions are listed in a block that is highly encrypted.
For the transactions to be digitally highlighted as disruptors in the financial sector, privacy has been factored in the digital nodes. The access of information is limited to the specific networking nodes and the trusted third parties, thus breaking the flow of information tagged with specific public keys of data encryption and enabling the full functioning structure of cryptocurrency as shown in the diagram below:
After the transaction awards are shared with the respective users from the participating CPU power-sharing and verified transactions in the nodes, the coins are sent to private cryptocurrency keys of the digital transactions. The highly encrypted wallets allow users to send, receive and exchange cryptocurrencies across different asset providers. These wallet providers ensure that the owners of these cryptocurrencies are the entities responsible to access the funds by generation of unique security measures verified by public and private keys. Factors that contribute to a fully functioning cryptocurrency wallet include:
Ensure the private keys linked to the blockchain ledger are stored.
The user interface ensures the user can send, receive and trade the coins.
Ensure security measures are adhered to, including private keys that are generated for the wallet owner.
The structure of a cryptocurrency wallet is expressed in the diagram below:
Wallets available to store cryptocurrencies include Nexo, Coinbase, Trustwallet, Coinpayments, LocalBitcoins, BitGo cryptocurrency wallet, etc.
Cryptocurrency network and security: http://learningspot.altervista.org/bitcoin-network/
Bitcoin network: https://en.wikipedia.org/wiki/Bitcoin_network
Digital signature: https://river.com/learn/how-bitcoin-uses-cryptography
Smart contract: https://www.edureka.co/blog/smart-contracts/
Digital signatures: https://www.cisa.gov/uscert/ncas/tips/ST04-018
Proof of work: https://levelup.gitconnected.com/bitcoin-proof-of-work-the-only-article-you-will-ever-have-to-read-4a1fcd76a294
Structure of a cryptocurrency wallet: https://www.oreilly.com/library/view/mastering-bitcoin/9781491902639/ch04.html