A cryptocurrency is an online form of currency that makes use of a cryptographical system enabling the production of transacting money between people and businesses. It is not regulated by any specific authority or major bank; therefore, it is not bound to the government’s way of trading money to make purchases. With that being said, you are probably wondering how that works as far as processing and overdraft fees.
A cryptocurrency’s value cannot go any lower zero. When you buy a coin or token, the price you pay is determined by the current market value plus any trading fees. You can also receive cryptocurrency for services or products, or from mining. The lowest market value those cryptocurrencies can fall to is zero. No matter which currency you consider, it cannot have a negative value where you owe money due to owning or using the coin or token.
Cryptocurrency values can fluctuate wildly based on market speculation, but the values can never be lower than zero. That would essentially mean that you would have to pay someone to take your coins or tokens. No asset, property, security or currency can ever be worth less than zero. But you can end up with a negative balance in an account if you trade on margin or participate in short-selling, which is discussed below.
How Does it Keep from Going Negative?
Before explaining this, it is important for you to know how exactly the entire transaction process works. I’ll explain it a little bit more in detail in a later section, but just so you know the basics of it and why it can’t go negative. Cryptocurrencies like bitcoin use p2p-network technology (peer to peer). The cryptocurrency algorithms and transactions run on a blockchain computer network comprised of many nodes. Anyone can run a node.
Each node is given a list of all transaction histories along with the balance of each address. As soon as a transaction is confirmed, the file will read something like “(blank) gave Y amount to (blank),” and it is then signed before the computer nodes validate the transaction with a specific algorithm. After the transfer is officially verified, it is put together with past transactions to complete a new data block for the record books.
The data block is then set with the rest of the blockchain and cannot be changed or altered, thus completing the transaction. During the case of having insufficient funds in the account, within the algorithm is a code that will reject the transaction. But it is not actually a balance that is being checked, but rather the input and output. The output is checked when sending the coin out in a transaction.
If you need an amount that was less than the amount you were offering, the output would be added to the amount being given so that you would get back change. The best analogy to use would be if you paid with a $10 bill for something that was only $8, and you received $2 back. Rather than having an actual address balance be checked after each transaction, the inputs and outputs are monitored each time a new block is added to the chain.
This code allows the prevention of a negative “balance” by tallying each coin spent, not allowing anyone to be allotted more than what is had. The system may still re-check each block for any invalid transactions and store it so newer blocks can be added quicker. Every output added to the chain is given a designated value, and whenever one is spent, the outputs are given a new sum that can’t be any more than what is being used.
And if a node is given a transaction that does not meet up to the cryptocurrency enabler’s rules, the spending of that coin would be rejected. Or if the value is negative on the output within the transaction, the block that contains it will not accept it. One function of the blockchain system is to keep users from double-spending. With this, there is no such thing as an overdraft fee or need for it because there is no such thing as overspending.
Every Cryptocurrency has a Price
I keep using bitcoin as the main example because it is more well-known than all of the other major cryptocurrencies. For bitcoin, though there is no such thing as overdraft fees, there is a spending/miner fee. In order to use your bitcoin, you have to have enough to also cover the fee or else you can’t spend it. Consider this to be a transfer fee.
Now, say the desired item of the purchase cost only $2.50; in order to use the Bitcoin, you would need $3.05. And you can only spend your bitcoins if you have the extra $0.55 or else the transaction would be automatically rejected. By this, you can see that either way, a cryptocurrency address could not go into the negative.
Miners are the intelligence behind the blockchains, the people that verify the transactions rather than a single authoritative entity like a bank or credit card company. Typical transaction histories for purchases are generally documented through the bank, point-of-sale, and given receipts—miners manually group together blockchains and add them to a record that is easily accessible. The nodes then keep them stored for future verification.
Along with adding the transaction block to the chains, the miners are also responsible for checking the accuracy of each transaction. Meaning that they check for any sort of duplications or “double-spending.” This is important because any online or electronic info can be easily copied where the user sends an amount to one party and turns around and sends it to another without any amount being deducted from the previous transaction.
Comparing the verification process to a manual situation, if a cashier wanted to check if a customer was double-spending their money with real cash along with a counterfeit, all they would have to do is check the serial numbers on their bill to see if they were exactly the same.
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