Is it a file, or something else? In short: Crypto currency is a long list of transactions written from the first day of the creation of particular coin. If it is too short. Just read the longer explanation below.
The type of questions above arise because we are used to have something physical as money, for example cash or gold. However most of us are using bank account to hold their money. But we still think physical about them, as we can go to cash machine and take some physical money out of it. For a moment just forget about cash and think in term of bank account.
So money in your bank account is just a record in the database. Just to be more general let’s think that database of the bank is a big book where the names and amounts are written. So the first thing for you to accept about money is that it “can be” just a record in the book and nothing really physical. How can you use it in the real world? Well if you go to the shop and spend some money all is needed is to edit the amount of your and the shop's accounts in the book. That is it! (Remember! These are simplifications for you just to understand a principle. I don’t intend to make a revolution here).
However the cryptocurrency is something a little bit different then just a list of names and amounts. The money was meant for the purpose of exchange. So it serves its purpose when it transits from one person to another. These are called transactions and you can see them in your bank also.
Now let’s assume that the crypto currency has just been created. So its a first day and nobody owns any coin of it so every persons account is zero. When mining of the coin starts the guy/pool who have found the first block gets a reward. So instead of putting a record like mr.X has 50 coins the system puts a record 50 coins were transferred to mr.X. Just a transaction is written.
Now suppose mr.X gives 2 coins to mr.Y The next transaction is written that 2 coins were transferred from mr.X to mr. Y. Then later mr.Y have sent 1 coin to mr.Z. The blocks miners are finding are nothing else as encoding of these transactions with the help of strong cryptographic algorithm. So when you have all the blocks you basically know all the transactions which have occurred from the very beginning.
Ok maybe for some of you it doesn’t make any sense by now, so lets see how mr.Y can see the amount of money he has, because this is what we want to know - how much do you have at the moment, right? The wallet program downloads all the blocks starting from the beginning. Actually every wallet has all the blocks for particular coin from the very beginning. By the way this is the reason why every new coin has it's own wallet. So looking on these transactions you can calculate how much money does mr.Y have. Here is how it is done. He had 0 coins in the beginning but got 2 coins from mr.X. And then 1 coin went to mr.Z. This is all written in the blocks as a transactions. So wallet have to do simple math like 0+2-1 = 1 coin at the moment. And that is it.
So what the crypto currency and coins are ? It's a list of money transactions between it's users, which is held in long chain of blocks generated by miners.
Useful links:
So money in your bank account is just a record in the database. Just to be more general let’s think that database of the bank is a big book where the names and amounts are written. So the first thing for you to accept about money is that it “can be” just a record in the book and nothing really physical. How can you use it in the real world? Well if you go to the shop and spend some money all is needed is to edit the amount of your and the shop's accounts in the book. That is it! (Remember! These are simplifications for you just to understand a principle. I don’t intend to make a revolution here).
However the cryptocurrency is something a little bit different then just a list of names and amounts. The money was meant for the purpose of exchange. So it serves its purpose when it transits from one person to another. These are called transactions and you can see them in your bank also.
Now let’s assume that the crypto currency has just been created. So its a first day and nobody owns any coin of it so every persons account is zero. When mining of the coin starts the guy/pool who have found the first block gets a reward. So instead of putting a record like mr.X has 50 coins the system puts a record 50 coins were transferred to mr.X. Just a transaction is written.
Now suppose mr.X gives 2 coins to mr.Y The next transaction is written that 2 coins were transferred from mr.X to mr. Y. Then later mr.Y have sent 1 coin to mr.Z. The blocks miners are finding are nothing else as encoding of these transactions with the help of strong cryptographic algorithm. So when you have all the blocks you basically know all the transactions which have occurred from the very beginning.
Ok maybe for some of you it doesn’t make any sense by now, so lets see how mr.Y can see the amount of money he has, because this is what we want to know - how much do you have at the moment, right? The wallet program downloads all the blocks starting from the beginning. Actually every wallet has all the blocks for particular coin from the very beginning. By the way this is the reason why every new coin has it's own wallet. So looking on these transactions you can calculate how much money does mr.Y have. Here is how it is done. He had 0 coins in the beginning but got 2 coins from mr.X. And then 1 coin went to mr.Z. This is all written in the blocks as a transactions. So wallet have to do simple math like 0+2-1 = 1 coin at the moment. And that is it.
So what the crypto currency and coins are ? It's a list of money transactions between it's users, which is held in long chain of blocks generated by miners.
Useful links: