What is Cryptocurrency?

WHAT IS CRYPTOCURRENCY ?

One of the biggest appeals of Cryptocurrency is that it is open-source and is not controlled by any third party. This means that no one has control of your money except you.

A cryptocurrency is a digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of this security feature. A defining feature of a cryptocurrency, and arguably its most endearing allure, is its organic nature; it is not issued by any central authority, rendering it theoretically immune to government interference or manipulation. The anonymous nature of cryptocurrency transactions makes them well-suited for a host of nefarious activities, such as money laundering and tax evasion.

Cryptocurrencies make it easier to transfer funds between two parties in a transaction; these transfers are facilitated through the use of public and private keys for security purposes. These fund transfers are done with minimal processing fees, allowing users to avoid the steep fees charged by most banks and financial institutions for wire transfers.

Central to the genius of Bitcoin is the block chain it uses to store an online ledger of all the transactions that have ever been conducted using Bitcoin, providing a data structure for this ledger that is exposed to a limited threat from hackers and can be copied across all computers running Bitcoin software. Many experts see this block chain as having important uses in technologies, such as online voting and crowd funding, and major financial institutions such as JP Morgan Chase see potential in cryptocurrencies to lower transaction costs by making payment processing more efficient.

However, because cryptocurrencies are virtual and do not have a central repository, a digital cryptocurrency balance can be wiped out by a computer crash if a backup copy of the holdings does not exist. Since prices are based on supply and demand, the rate at which a cryptocurrency can be exchanged for another currency can fluctuate widely.

Cryptocurrencies are not immune to the threat of hacking. In Bitcoin's short history, the company has been subject to over 40 thefts, including a few that exceeded $1 million in value. Still, many observers look at cryptocurrencies as hope that a currency can exist that preserves value, facilitates exchange, is more transportable than hard metals, and is outside the influence of central banks and governments.

Imagine a world where, instead of money, we used giant carved stones as our currency. Further, because these stones are so large, we kept them in a public place where everyone could see them and anyone could check who owned which stone.

When you wanted to buy something, you would simply tell everyone that you were transferring ownership of one of your rocks to someone else. Then, everyone would know that you no longer owned that rock, and you couldn’t spend it again.

Further, if anyone ever wanted to make a new stone, all they had to do is spend time carving it so that people recognized that is was the same kind of valuable stone as all of the other ones. The time spent carving the stone makes it valuable and worth something to other people in the rock-spending community.

  • Every cryptocurrency has a public ledger that contains the past and present ownership of each coin.
  • If you want to make transaction, you simply broadcast to the cryptocurrency’s network that you’re transferring ownership of some cryptocurrency of yours to someone else.
  • The network then spends computational power on both verifying your transaction (that you do own the cryptocurrency your spending and that you haven’t spent it before), and adding it to the ledger.
  • In the process, this computational time and effort creates new cryptocurrency as a reward to the community members who helped make the transaction possible