How do cryptocurrencies work?

Cryptocurrencies are digital assets that use cryptography to secure and regulate the transfer of digital funds between entities. Cryptocurrencies don’t have a physical form, but instead, they exist as entries in a virtual ledger that are stored on a blockchain, a public distributed ledger.

When someone sends a cryptocurrency, the sender’s wallet digitally signs the transaction using their private key, which is like a password that proves they are the owner of the currency. The transaction is then broadcasted to the network.

Validators (also known as miners or nodes) process the transaction by verifying the authenticity of the transaction, and the details of the transaction are stored in the blockchain. The newly confirmed block is then added to the chain, making it immutable and unalterable.

Once the transaction is confirmed, the sender’s wallet will be credited for the amount sent, and the recipient’s wallet will be debited for the same amount. This process occurs almost instantly and is usually free or very low cost.