1. Blockchain technology is a distributed ledger system that is immutable and records transactional data in a secure and verifiable way. It provides the foundation for cryptocurrency transactions.
2. Cryptocurrency users create digital wallets using a private key which is used to access their address on the blockchain. This address can be used to send and receive funds.
3. When a user sends cryptocurrency, a transaction is broadcast to the network, which is then verified and stored on the blockchain. All transactions are immutable, meaning they cannot be reversed once recorded.
4. To avoid double spending—sending the same coins to multiple addresses—a consensus mechanism is used to achieve distributed agreement among participants on the validity of all transactions.
5. Cryptocurrencies are created through a process called mining, where powerful computers solve cryptographic puzzles in order to generate new coins.
6. As more coins are mined, the difficulty of the puzzles increases, creating a self-regulating system that requires immense computing power, electricity, and hardware resources.
7. Once new coins are created, they are validated and added to the blockchain ledger and available for use.