You've probably heard of cryptocurrencies before, but how much do you really know about them? Take a look at this!

1. How do cryptocurrencies
work?
The heart of any cryptocurrency is a public ledger that establishes
ownership by anonymously recording who owns what amount of
the currency. A network of computers validates every transaction
by performing computations that prove they have done the work,
and receive new coins in return.
Two essential features of cryptocurencies are mining (the creation
of cryptocoins) and the block chain (a public ledger of
transactions).
Mining
The cash currencies we are familiar with – the U.S. dollar, the
Euro, the British pound – are created by central banks.
Governments can print predetermined amounts of their currency
and release them into circulation. By contrast, cryptocurrencies
are mined by users who typical rely on a mining program to solve
sophisticated algorithms in order to release blocks of coins that
can go into circulation.
Mining is a democratic event: no individual can simply press a
button and generate unlimited coins. Instead, everybody buys the
same mining software and competes equally when digging for
new coins.
The more coins mined, the more difficult it gets to release new
blocks and get new coins. That is how the algorithm has been
devised — to ensure that not all coins can be mined instantly and
to allow the currency to stabilize over time. For many
cryptocurrencies, there is only a limited amount of time when

2. coins can be mined. Once that time expires, no more coins can
be created.
Coin generation typically starts out fast and gets progressively
slower until the final coins are issued. Coins appreciate in value if
there are more requests by buyers than there are offers by
sellers. This would suggest that as the network expands and
more users compete for a similar number of coins, the price of
each coin rises.
The Block Chain
This is a widely distributed digital ledger that contains the entire
transaction history of the overall money supply of the
cryptocurrency. The ledger is maintained by a decentralized
network of computers.
As the name implies, the ledger is a chain of blocks. Each block
contains a set of transactions with information including the
sending addresses, the receiving addresses and the number of
the cryptocoins exchanged between them.
When combined with cryptographic techniques, the block chain
allows two important aspects of a transaction to be fulfilled: proof
of ownership and proof that the funds have not been doublespent.
Proof of ownership is established by a digital signature – a sort of
account number – and a private signing key – which acts as a
password.
To ensure funds are not being double-spent, transactions are only
deemed to be complete when they appear in the blockchain
master ledger. Transactions are added there in blocks and are
verified by various “nodes” of the system. The node that verified
the block first is rewarded with newly created cryptocurrency –
which is how new coins are added to the money supply.

3. Once a transaction is recorded, it cannot be reversed (to prevent
the double-spending problem) Everyone has the same blockchain
and therefore access to the recorded transactions; this is unlike
owning a currency note which will not reveal the past transactions
made using the currency.
Many cryptocurrencies today can be exchanged, at variable
exchange rates, for major world currencies, such as the U.S.
dollar or Japanese yen, in special online markets. In December,
one bitcoin was worth roughly $750, up from about $450 a year
earlier.