Cryptocurrency, or "crypto," is a form of digital or virtual currency that uses cryptography for security. It is designed to work as a medium of exchange through a computer network that is not reliant on any central authority, such as a government or bank.
Here is a breakdown of the key concepts:
Key Features of Cryptocurrency
Decentralization: Unlike traditional (fiat) currencies issued by central banks, cryptocurrencies operate on decentralized networks, meaning no single entity controls them.
Blockchain Technology: The foundation of most cryptocurrencies is the blockchain, a distributed public ledger. This digital ledger records all transactions in "blocks" that are linked together chronologically and secured with cryptography. This makes the transaction history transparent and virtually impossible to alter or counterfeit.
Cryptographic Security: The name "crypto" comes from the use of encryption techniques (cryptography) to secure transactions and control the creation of new units. This involves complex coding, often using public-private key pairs, to verify ownership and authorize transfers.
Peer-to-Peer System: Cryptocurrency enables direct transfer of value between two parties over the internet without the need for a financial intermediary like a bank.
How it Works
Transactions: When a user sends cryptocurrency, the transaction is broadcast to the network.
Verification: "Miners" (in Proof-of-Work systems like Bitcoin) or "validators" (in Proof-of-Stake systems like Ethereum) group these transactions into a new block and compete to verify it cryptographically.
Ledger Update: Once verified, the new block is added to the blockchain, confirming the transaction across the entire network.
Storage: Cryptocurrencies are stored in a digital wallet, which holds the cryptographic keys necessary to access and transfer the funds.
Major Cryptocurrencies
The first and most well-known cryptocurrency is Bitcoin (BTC), which was launched in 2009. The second largest by market capitalization is typically Ethereum (ETH), which is also a platform that allows for the creation of smart contracts and decentralized applications (dApps).
