Definition of Cryptocurrency
Cryptocurrency simply means digital or virtual currency that is secured using cryptography. Unlike the traditional money issued by governments, called fiat currency, cryptocurrencies are decentralized and use a peer-to-peer network where no single authority, such as a bank or a government, controls them.
How Cryptocurrency Works
The underlying technology behind cryptocurrencies is blockchain-a digital ledger that records all transactions being performed on a network of computers. Each transaction is verified and added into a “block,” which is joined to previous blocks, hence forming a chain. The result of this is transparency, security, and immutability of transactions when executed.
To obtain cryptocurrency, one can:
Buy it on the exchange with fiat currency.
Mine it through solving complex computational problems (specific to Bitcoin-like cryptocurrencies).
Earn it for services or trading.
Cryptocurrency Key Features
Decentralization: A cryptocurrency is controlled by no central authority; thus little need for manipulation or interference.
Security: Transactions and ownership are secured with cryptography.
Transparency: All transactions are open, thanks to blockchain technology-ensures accountability.
Global Access: Anyone with access to the internet can easily use it without restriction from any point on earth.
Examples of Popular Cryptocurrencies
Bitcoin (BTC)-the first, most popular cryptocurrency started in 2009.
Ethereum (ETH)-it is widely used for their smart contracts, which allow developers to build decentralized applications (dApps).
Ripple (XRP)-built to facilitate fast and low-cost international transactions.
Litecoin (LTC)-designed as a kind of improved version of Bitcoin to speed up transactions.
What Makes Cryptocurrency Important?
Cryptocurrency represents a transition in the way people conceptualize and work with money. The money affords great financial independence, access to worldwide markets, and innovative opportunities through the use of blockchain technology. However, risks include that of high volatility, no regulatory work done in line with other investment vehicles, and there is potential for scams.
Cryptocurrency has taken the financial world by storm and individuals should learn what cryptocurrency entails and the various potentials it poses.
