How Does Digital Money Work

Digital currency is a form of electronic currency based on blockchain technology, which allows secure transactions to take place without the need for central authority. Below are the basic steps of how digital currency operates:

Creating Digital Currency

The process of creating digital currency is called “mining.” During this process, computers solve complex mathematical problems related to the blockchain. When a solution is found, a new block is added to the blockchain, containing new transaction records. As a reward, “miners” receive a certain amount of digital currency. This process requires significant computing power and energy.

Transacting Digital Currency

When you want to send digital currency, you need to input the recipient’s address into your digital wallet. This address is a string of characters that can be publicly available on the network, much like an email address. Then, your transaction is added to a pool of pending transactions.

Verifying Transactions

A group of “miners” competes to solve the mathematical problems related to these pending transactions. The first to solve the problem can package these transactions into a new block and add it to the end of the blockchain. To ensure the correctness of transactions, each block contains a reference to the previous block, forming a continuous, immutable chain.

Confirming Transactions

Once a block is added to the blockchain, all transactions are considered valid and can be broadcasted to the entire network. This typically takes about 10 minutes. After this, the recipient can safely spend the digital currency they received.

Security

The security of digital currency primarily comes from its distributed nature. Because there isn’t a single central point controlling all transactions, even if someone successfully attacks a node, it won’t affect the overall system’s security. Additionally, each block contains an encrypted hash value based on the previous block’s hash value and the current block’s content. If someone tries to modify any information on the blockchain, this hash value will change, indicating that the blockchain has been tampered with.

Blockchain

In summary, the operation of digital currency is decentralized, meaning they are not controlled by any government or institution. This decentralization makes digital currencies highly accepted globally and ideal tools for investment and payment.