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Nowadays, it’s common for people to use either cash, or what’s known as a debit card – which allows people to spend money they already have in their bank account – to make purchases.
When someone buys an item in a shop using a bank card, a chain of processes take place.
The person shares their bank details with the shop and the shop then shares those details with the bank which checks its records to see whether the customer has enough money in their account to pay for the item. Once this is confirmed, the bank tells the shop the transaction is all good to go and updates its records.
Cryptocurrencies, however, work in a very different way.
The exchange of these digital currencies are known as ‘peer-to-peer’ transactions, which simply means there are no banks, or other third parties involved.
Instead, every transaction ever made is recorded on a huge database known as a blockchain – think about it like a massive spreadsheet.
Each transaction made is represented by a block which is added to the larger chain, hence the name blockchain, and all the transactions remain in the blockchain forever.
A blockchain isn’t based in a central location, but is distributed among a large network of computers which is kept secure at all times through complex systems. This makes it virtually impossible for anyone to tamper with a blockchain and ensures all transactions and users are protected.
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