Cryptography

crypto in cryptography and cryptocur-

rency.

krypto logos, secret writing.

How Cryptocurrencies
sender encrypted
decrypt -

Work
» Hashing: hash function

performs an operation on the original data and returns an output that

cryptocurrencies such as Bitcoin, it’s used to guess the combination of the lock
of a block. Hashing maintains the structure of blockchain data, encodes

more on mining later in this chapter, and in much more detail in Book 6.

» Symmetric encryption cryptography: Symmetric encryption is the simplest

method used in cryptography. It involves only one secret key for both the
sender and the receiver. The main disadvantage of symmetric encryption is
that all parties involved have to exchange the key used to encrypt the data
before they can decrypt it.

» Asymmetric encryption cryptography: Asymmetric encryption uses two

receiver’s public key, but the receiver can decrypt it only with their private key.

CHAPTER 2 How Cryptocurrencies Work 17

 Nodes
A node -
-

Mining
-

mining, miners.

-
-

18 BOOK 1 Cryptocurrency Basics

Proof of work

proof
of work,

How Cryptocurrencies
-

Work
-

-
proof of stake -

Proof of stake
proof-of-stake
stake

CHAPTER 2 How Cryptocurrencies Work

 Proof of importance
Proof of importance

-
-

Transactions: Putting it all together

-

1.
network and your crypto wallet automatically check your previous transactions
to make sure that you have enough cryptocurrencies to make that transaction.

minibook).

2. The transaction is then encrypted, broadcast to the cryptocurrency’s network,

and queued up to be added to the public ledger.

3. Transactions are then recorded on the public ledger through mining. The
sending and receiving addresses are wallet IDs or hash values that aren’t tied

4. -
tion. PoS cryptos attribute the mining power to the proportion of the coins

of variables when attributing the mining power to nodes in order to resolve the
“hoarding” problem that’s associated with PoS.

BOOK 1 Cryptocurrency Basics

Cruising through Other Important

Adaptive scaling

How Cryptocurrencies
Adaptive scaling
-
-

Work
Decentralization
decentralized. -

Harvesting
-

CHAPTER 2 How Cryptocurrencies Work

 Open source
open source.

Public ledger

public ledger

Smart contracts
Smart contracts self-executing contracts, blockchain contracts, or digi-
tal contracts.

immutable.

BOOK 1 Cryptocurrency Basics

Stick a Fork in It: Digging into
Cryptocurrency Forks

How Cryptocurrencies
Work
What is a fork, and why do forks happen?

fork.

»
» Rewards that miners, harvesters, or other network participants get

» How fees are calculated

CHAPTER 2 How Cryptocurrencies Work

 Hard forks and soft forks

An example of a
hard fork.
© John Wiley & Sons, Inc.

hard fork

BOOK 1 Cryptocurrency Basics