The Mechanism of Digital currencies

Before we start using any tool or technique we need to understand its mechanism. Digital currencies are fairly new and there are many questions in the minds of people about how it is useful and how it actually works etc. Though most people do not understand the mechanism of a refrigerator or a car and do not even try to understand the complicated process that a computer goes through while transmitting data, but they do not want to use the digital currencies without understanding everything as there is a huge monetary value attached to these coins.

The mechanism

This technology works using all the computers in the network, the world over. All the people together manage the transactions happening anywhere in the world. In other words, we can say that the currency is controlled by the network of people and not by any one person or country. It is completely decentralized and the network is used between two parties and yet in the open domain.

We can try to explain it further

  1. A person needs to transact and requests for the same.
  2. The need is transmitted across computer networks, each connected computer in the network is known as a node.
  3. Through algorithms, the requesting computer is validated for use.
  4. The transaction takes place and the information is recorded in every node. It will have the stamp of execution of the order, time and the monetary value in terms of the currency of the network. The currency can be Bitcoin, Ethereum or any other coin that is used by the particular network.
  5. The entire transaction is recorded as another piece of information and this increases the size of the blockchain and is again recorded in every node.
  6. The entire blockchain record is permanent and cannot be changed or erased.
  7. The transaction is completed.

The security aspects

The information about each transaction is not only recorded in the nodes of the participants, but it is recorded in the nodes across the world and each node has the same information. These pieces of data keep increasing in size and need super powerful computers for keeping so much data. The servers and nodes all follow security protocols to ensure that no one can breach and see the private details or transactions.


Once you know the working mechanism of any technique then all the doubts can be cleared easily. Once you understand then only you can trust the program and the way it works. The Bitcoin has been working successfully now for almost ten years without any major disruption due to the advanced algorithm. We can see the mechanisms improving in the coming years and making these cryptocurrencies more popular and easily accessible.