Technology of Cryptocurrencies

Blockchain Technology

The basis of cryptocurrencies is based on blockchain technology. Blockchain represents a database shared and updated by many computer networks. It is a digital ledger where transactions are recorded in a transparent, secure and decentralized manner. Each transaction is recorded in groups of data called blocks. Each new transaction is added as blocks depending on the previous one, and these blocks are arranged like a chain. Each block references the previous block (or blocks). Thanks to this dispersed structure, transactions are secured and it is almost impossible to change them retroactively.

Digital Wallets

They are software or hardware-based tools developed to use, store and manage cryptocurrencies. Digital wallets, which do not have a physical form like traditional wallets, store digital versions of cryptocurrencies and provide the ability to transact. Since cryptocurrencies are in digital form and are not physical assets, these wallets ensure the security of cryptocurrencies. Digital wallets used to store cryptocurrencies fall into two main categories: hot wallets and cold wallets. Hot wallets work on internet-connected devices and provide users with ease of access. However, the security risk is higher. Because they are online, they are more vulnerable to attacks. Online wallets are offered as web-based services or applications. Mobile wallets are applications that run on smartphones. Mobile wallets are widely preferred due to their portability and ease of use. Desktop wallets are software applications for personal computers. These types of wallets provide users with greater control and security. Cold wallets are stored on devices that are not connected to the internet. This allows the private key to be kept offline and is effective in providing security. Cold wallets can be in the form of hardware wallets or paper wallets. Hardware wallets store private keys on a physical device. These wallets provide the highest security and offer offline storage. Paper wallets are physical documents where the private keys of cryptocurrencies are written on a piece of paper or represented by QR codes. These types of wallets are used to store cryptocurrencies offline for the long term.

Crypto Keys

Crypto keys are the basic building blocks of cryptocurrencies. These keys, which enable the safe storage, transfer and transaction of cryptocurrencies, constitute the basic security and privacy elements of cryptocurrencies. There are two types of crypto keys: public key and private key. A public key is a key that is visible to everyone. This key allows cryptocurrencies to be sent to your wallet. The public key is a mathematical derivative of the private key and is derived from the private key. The public key has two important functions: First, it allows users to transfer cryptocurrency to other users to process payment transactions. The latter plays a role in the transaction verification process of the cryptocurrency network. Transactions are signed using the sender's public key, and recipients verify this signature to confirm that the transaction is valid. The private key is critical information that allows the cryptocurrency owner to control their wallet. A private key consists of a series of randomly generated combinations of numbers and letters. The private key should not be shared with anyone and should be stored securely. If the private key is not secure, it means the cryptocurrencies may be at risk. The private key has two basic functions. First, this key is used to transfer, spend or transact crypto assets in the wallet. Only the owner of the private key has control of the wallet. Second, every cryptocurrency transaction is digitally signed using the private key. This digital signature indicates that the transaction was carried out by the private key owner, confirming that the transaction is real and trustworthy.

Trading

Cryptocurrencies are used to conduct digital transactions between users. A user sends cryptocurrency to another user via their public key. The transaction is confirmed with the private key using a digital signature. This signature ensures the reliability of the transaction and can only be created by the person who has the private key. The transaction is transmitted between nodes in the network.

Mining and Transaction Approval

Crypto mining is a process that uses cryptographic algorithms to create cryptocurrencies and confirm the transaction. Transactions must be confirmed before being added to the blockchain. People who perform this process are called miners. Miners are people who collect transactions on the network and have to solve mathematical problems to add these transactions to blocks. The first miner is considered the miner who solves the problem and confirms the transaction. When it finds the solution to the problem, it creates a new block, then other miners confirm this transaction and the block is added to the network (blockchain). These transactions represent money transfers between users. This, on the other hand, indicates that transactions are confirmed and secured. Miners receive a reward when they confirm new blocks. This reward includes fees for transactions added to the block, as well as the production of new cryptocurrencies. So Bitcoin miners receive both block rewards and transaction fees. Crypto mining aims to confirm a certain number of blocks in a certain time period. However, as the number of miners and the power of mining equipment increases, the difficulty of mining also increases. At the same time, according to the design of cryptocurrencies, block rewards are halved at certain intervals. For example, this decrease occurs in Bitcoin every four years. Crypto mining functions to secure blockchain networks. The reliability of the network is managed by consensus algorithms. Crypto mining faces criticism in terms of energy consumption. Large mining farms, in particular, consume large amounts of energy. Today, some crypto production processes use special hardware and software to reduce the environmental impacts caused by mining.

Crypto Platforms (Exchanges)

They are platforms where crypto currencies are traded and digital assets are bought and sold. These platforms are an important part of the crypto ecosystem, allowing users to buy, sell, exchange and store various cryptocurrencies. They are also called crypto exchanges. Crypto exchanges can be of different types. Online exchanges are web-based exchanges and provide access to users over the internet. They offer the opportunity to carry out transactions without the need for a central authority. Users can make transactions through their own wallets. Mobile exchanges are exchanges that offer applications for smartphones. Users can make transactions via their mobile devices. These exchanges allow users to keep their cryptocurrencies under their own control. Crypto exchanges have many different trading pairs (BTC/USD, ETH/BTC, ADA/EUR). Trading pairs refer to the exchange of one cryptocurrency for another cryptocurrency or another currency. The security of crypto exchanges is of great importance. Many exchanges store users' assets in offline cold wallets and strictly enforce security protocols. Additionally, some exchanges are licensed and regulated by regulatory bodies. Crypto exchanges generate revenue through transaction fees (commissions) that users pay to make transactions. Fees may vary depending on trading volume, transaction type, and the exchange's policies. These platforms contribute to the growth of the crypto ecosystem by providing investors, traders, and users access to digital assets. In addition, these exchanges are one of the important factors that determine the prices of cryptocurrencies.

Distributed Systems

It is a system that requires many computers or nodes to agree to access data or a transaction. Distributed systems are used to ensure consistency and reliability across all nodes. This is important to enable many users to access data or transactions over that network at the same time. Each computer or device in a distributed system is called a node. There are mathematical rules and protocols that ensure communication between nodes. This is called a consensus algorithm. The cryptocurrency network consists of many distributed nodes. These nodes work to resolve disputes between participants, confirm transactions and new blocks, and maintain the integrity of the network. In order for cryptocurrencies to be valid on the network, consensus must be achieved among all nodes. Certain algorithms are used for this. These algorithms ensure the security of the network.