What Is Cryptocurrency?
Cryptocurrency is digital money that uses cryptography for security and operates without central banks or governments. Transactions are verified and recorded on a blockchain - a distributed ledger across many computers. Bitcoin was the first cryptocurrency; thousands now exist. Crypto can be bought, sold, and used for payments, but values are highly volatile.
Key Takeaways
- Unlike traditional money controlled by central banks, cryptocurrency operates on decentralized networks.
- Not all cryptocurrencies work the same - Ethereum enables 'smart contracts' and apps, unlike Bitcoin.
- Environmental concerns exist around energy-intensive mining, though some cryptocurrencies use less energy.
Explanation
Unlike traditional money controlled by central banks, cryptocurrency operates on decentralized networks. No single entity controls Bitcoin - it is maintained by thousands of computers worldwide running the same software. Transactions are verified through complex mathematical processes (mining or staking), and once verified, they are recorded permanently.
Blockchain is the underlying technology. It is like a shared spreadsheet that everyone can read and verify but no one can alter retroactively. Each 'block' contains transaction records and links to previous blocks, forming a chain. Tampering with old records would require changing every subsequent block across thousands of computers simultaneously - practically impossible.
You store cryptocurrency in digital wallets using private keys (secret codes). Losing your key means losing access forever. Cryptocurrency prices are volatile because markets are smaller than traditional finance, heavily influenced by speculation, and largely unregulated. Practical uses include international transfers, privacy, and speculation/investment.
Things to Know
- Not all cryptocurrencies work the same - Ethereum enables 'smart contracts' and apps, unlike Bitcoin.
- Environmental concerns exist around energy-intensive mining, though some cryptocurrencies use less energy.
- Stablecoins are cryptocurrencies pegged to regular currencies (like USDC pegged to the US dollar).