What is Cryptocurrency?
Cryptocurrency is decentralized digital money based on blockchain technology. You may be familiar with the most popular versions, Bitcoin and Ethereum, but there are more than 19,000 different cryptocurrencies in circulation. A cryptocurrency is a form of digital asset based on a network distributed across a large number of computers. This decentralized structure allows them to exist outside the control of governments and central authorities.
Experts believe blockchain and related technology will disrupt many industries, including finance and law.
The advantages of cryptocurrencies include cheaper and faster money transfers and decentralized systems that do not collapse at a single point of failure.
How Does Cryptocurrency Work?
A cryptocurrency is a digital, encrypted, and decentralized medium of exchange. Unlike the U.S. Dollar or the Euro, no central authority manages and maintains a cryptocurrency's value. Instead, these tasks are broadly distributed among a cryptocurrency’s users via the Internet.
You can use crypto to buy goods and services, although most people invest in cryptocurrencies as they would in other assets, like stocks or precious metals. While cryptocurrency is a novel and exciting asset class, purchasing it can be risky as you must conduct a fair amount of research to understand how each system works fully.
The first cryptocurrency was Bitcoin, first outlined in principle by Satoshi Nakamoto in a 2008 paper titled 'Bitcoin: A Peer-to-Peer Electronic Cash System.' Nakamoto described the project as 'an electronic payment system based on cryptographic proof instead of trust.'
What Is a Blockchain?
A blockchain is an open, distributed ledger that records transactions in code. In practice, it’s a little like a checkbook distributed across countless computers worldwide. Transactions are recorded in 'blocks' linked on a 'chain' of previous cryptocurrency transactions.
'Imagine a book where you write down everything you spend money on daily,' says Buchi Okoro, CEO and co-founder of the African cryptocurrency exchange Quidax. 'Each page is similar to a block, and the entire book, a group of pages, is a blockchain.'
With a blockchain, everyone using a cryptocurrency, has their copy of this book to create a unified transaction record. Each new transaction, as it happens, is logged, and every copy of the blockchain is updated simultaneously with the latest information, keeping all records identical and accurate.