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What are cryptocurrencies?
Simplified definition:
They are encrypted currencies that operate on the internet without physical existence like paper currencies, and are not controlled by any central authority such as banks or governments.
Famous examples:
Bitcoin (BTC): The first and most famous cryptocurrency.
Ethereum (ETH): A smart currency that supports smart contracts.
Ripple (XRP), Solana (SOL), BNB, Cardano (ADA), and others.
How does blockchain technology work?
Blockchain is a public and distributed digital ledger (accounting book) that records all transactions made on the cryptocurrency network.
The working mechanism in brief:
New transaction:
A person wants to send cryptocurrency to another.
Collecting transactions into a "block":
A set of transactions is gathered into a "block".
Verification and encryption:
A network of computers (called nodes) verifies the validity of the transaction using mathematical algorithms and complex encryption.
Adding the block to the chain:
After verification, the block is added to the previous blocks – hence the name Blockchain = chain of blocks.
Transparency and security:
Everyone in the network sees this block, and it cannot be modified later, preventing fraud and increasing trust.
Advantages of cryptocurrencies:
Decentralization: Not controlled by a bank or government.
Privacy: Transactions do not reveal true identity.
Transparency: All transactions are recorded and can be verified.
Speed: Sending money around the world happens within minutes.