Cryptocurrency is a modern-day phenomenon that is taking over the world at a rapid pace. But what exactly is it?
What Is A Cryptocurrency?
In a nutshell, a cryptocurrency is a digital or virtual currency that uses cryptography for security and is typically used as a medium of exchange within a peer-to-peer (P2P) economic system. Cryptocurrencies are decentralized, which means that they are not controlled by any governments or institutions.
What You Need To Know About Cryptocurrencies
Bitcoin (BTC) is the first and most prominent cryptocurrency, but there are thousands of others in existence. BTC was created by a pseudonymous developer Satoshi Nakamoto, in 2009, as a means of developing a novel electronic payment system enabling users to conduct digital financial transactions without intermediaries like banks.
Cryptocurrency transactions are recorded on public digital ledgers – blockchains. Such ledgers are maintained by distributed networks of computing devices called nodes. These nodes work collectively to validate cryptocurrency transactions by solving complex mathematical problems.
As you know from the cryptocurrency definition, such systems are considered decentralized because they don’t rely on any authorities. It is also due to the fact that network nodes are widely distributed around the world and the issuance and management of crypto units are based on pre-programmed algorithms and mathematical proofs.
However, various cryptocurrencies operate in unique ways, which leads to different levels of decentralization. In other words, some crypto assets may be regarded as more decentralized than others, depending on their network structure and how their nodes are distributed.
When a person wants to trade cryptocurrency with another user, they have to broadcast a transaction to the blockchain network. Once validated, it is added to a block, which, in turn, is recorded on the blockchain. The transfer of funds is then complete and the balance of the digital wallets involved gets updated.
