What Is Cryptocurrency? A Beginner’s Guide To Crypto

You need to understand crypto to stay safe in the digital financial future. 

Cryptocurrency has rapidly gained prominence in the financial world and has become a topic of widespread interest and discussion. 

But what exactly is cryptocurrency, and how does it work? 

In this beginner’s guide, we’ll explore the fundamental concepts of cryptocurrency, its history, and its potential impact on the future of finance. 

To many, the story of cryptocurrency starts with Bitcoin. 

Bitcoin can be said to be the first global Cryptocurrency. 

At its core, cryptocurrency is typically decentralized digital money designed to be used over the internet. 

Bitcoin, which launched in 2008, was the first cryptocurrency, and it remains by far the biggest, most influential, and best-known. 

In the decade since, Bitcoin and other cryptocurrencies like Ethereum have grown as digital alternatives to money issued by governments. 
— Coinbase 

What Is Cryptocurrency? 

Cryptocurrency is a type of digital or virtual currency that uses cryptography for security. 

Unlike traditional currencies issued by governments (fiat currencies), cryptocurrencies are decentralised and typically operate on technology called blockchain. 

Bitcoin, cryptocurrency, blockchain… So what does it all mean? 

Let’s start with some quick definitions. Blockchain is the technology that enables the existence of cryptocurrency (among other things). 

Bitcoin is the name of the best-known cryptocurrency, the one for which blockchain technology, as we currently know it, was created. 

A cryptocurrency is a medium of exchange, such as the US dollar, but is digital and uses cryptographic techniques and it’s protocol to verify the transfer of funds and control the creation of monetary units. 
— PWC 

History of Cryptocurrency 

The concept of cryptocurrency dates back to the 1980s, but it was in 2009 that the first and most famous cryptocurrency, Bitcoin, was created by an individual or group using the pseudonym Satoshi Nakamoto. 

Bitcoin’s whitepaper, released in October 2008, outlined a peer-to-peer electronic cash system that would eliminate the need for intermediaries like banks. 

Since the creation of Bitcoin, thousands of other cryptocurrencies, often referred to as altcoins, have emerged. Each has its own unique features, use cases, and underlying technology. 

Key Cryptocurrency Concepts: 

Cryptocurrency introduces a series of key concepts that are revolutionising the way we think about and engage with money and digital transactions. 

These concepts are driving the adoption of cryptocurrencies like Bitcoin, Ethereum, Tezos, and Bitcoin Cash. 

Decentralisation: 
Cryptocurrencies are not controlled by any central authority, like a government or a bank. Instead, they rely on a distributed ledger technology called blockchain, which is maintained by a network of participants. 

Digital Nature: 
Cryptocurrencies exist only in digital form. They have no physical counterparts, such as coins or banknotes. 

Security: 
Cryptography ensures the security of cryptocurrency transactions and the creation of new units. 

Safety: 
The Bitcoin network has never been hacked. Permissionless systems and open-source software are features of the network. 

Anonymity: 
While transactions are recorded on a public ledger, the identities of the participants are often pseudonymous, providing a degree of privacy. 

Global and Borderless: 
Cryptocurrencies can be sent and received across borders without the need for traditional banking systems. 

How Cryptocurrency Works 

Cryptocurrencies operate on blockchain technology, which is a decentralised and distributed ledger. 

The blockchain records all transactions across a network of computers, ensuring transparency and security. 

What is a blockchain in cryptocurrency? 

Although blockchain appears to be sophisticated as it can be, its core notion is pretty simple. A database, or blockchain, is a sort of digital ledger. 

Distributed ledger technology (DLT) is a decentralized database that various network participants administer. 

Blockchain is a type of DLT where transactions are recorded using a hash, which is an immutable cryptographic signature. 

This means that if a single block in a chain is modified, it will be immediately clear that the chain has been tampered with. 

Private and centralized blockchains, on the other hand, exist in which all of the computers that make up the network are owned and operated by a single company. 

When a cryptocurrency transaction occurs, it is added to a block, and the block is then added to the blockchain after verification by network participants, known as miners. 

Miners use powerful computers to solve complex mathematical problems, a process known as proof of work (PoW), to validate and secure transactions. In return, they are rewarded with newly created cryptocurrency and transaction fees. 

Use Cases of Cryptocurrency 

Digital Cash: Cryptocurrencies like Bitcoin can be used for online purchases and as a store of value. 

Smart Contracts: Some cryptocurrencies, like Ethereum, enable the creation and execution of self-executing contracts, automating various processes. 

Remittances: Cryptocurrencies can be a cost-effective and fast way to send money across borders. 

Tokenization: Assets, both digital and physical, can be tokenized on blockchain, enabling fractional ownership and easier trading. 

The Takeaway: 

Cryptocurrency represents a significant departure from traditional financial systems. Its decentralised, secure, and borderless nature has the potential to reshape the way we conduct financial transactions, store value, and interact with digital assets. 

As you delve deeper into the world of cryptocurrency, it’s essential to conduct thorough research and exercise caution, as the market is known for its volatility and rapid developments.