You might have heard a lot about cryptocurrencies, especially Bitcoin. But do you really know the fundamental thoughts and technologies behind them? In this article, I hope to enlighten you with some basic terminology as well with an explanation of the underlying technologies that make cryptocurrencies work.

The main technology that makes cryptocurrencies function is what’s known as the block chain. It is a transaction database where nodes from the peer-to-peer network collectively broadcast, verify, and enforce transactions with other users. You could also see it as a publically distributed ledger, where there isn’t one system or organization controlling it. The block chain keeps all the verified transactions in chronological order and is visible to all users of the specific currency.

One could literally visualize it as a block chain, and every block is interconnected through hash algorithms. It is therefore computationally irrational to try to replicate the already verified blocks, thus the block chain is irreversible. This is one of the many security features of the system as a whole, as a hacker cannot try to replicate the already verified transaction faster than the organized collective of nodes. The honest generators of the block chain will always continue to verify the chain with the greatest length.

The block chain is a great design for a decentralized currency, since it does not require one system or database to make it function, but it is also being experimented on for other services. Big corporations such as Microsoft and Toyota are investigating what the block chain technology is capable of from food security to driverless cars.

Another important term to mention, along with the block chain, is what is known as mining. It is the process of verifying and adding transaction records to the block chain. The mining process for the block chain is designed to be resource-intensive and mathematically difficulty for any computer. Each individual block must contain what is known as a proof-of-work to be considered authentic by the system. It involves finding a numerical number with certain characteristics. It is not difficult for a computer to find this specific number, however, it is extremely time-consuming. Miners today design their own mining rig to assist the system to verify newly broadcasted transactions.

It is the mining process that introduces new tokens into the cryptocurrency network. Miners are paid any transaction fees as well as newly mined tokens. The purpose of this is to introduce new tokens in a decentralized manner, as well as to motivate individuals to spend computer processing power (requires a lot of electricity) to verify, collect and keep the block chain complete.

It is expected as mining becomes more competitive and less profitable it will discourage miners from continuing. And for bitcoins sake, by the year 2140, all bitcoins are expected to be minded. The mining mechanism of a cryptocurrency also works as a security feature, since it requires a lot of computer power to overwrite the “good” miners of the network. You could compare it to a lottery, a very low chance someone will be able to add a fake transaction to the network, but there is a minute chance.

This was only a brief introduction. If I sparked some interest in you, I encourage you to continue exploring the fundamental mechanics of cryptocurrencies.