Cryptocurrency is a form of digital money that operates through code and computers.
This technology uses cryptography to create open systems where digital assets are available and transferrable to anyone worldwide, with no need for intermediaries. In other words, cryptocurrency significantly alters the way value is understood to be moved, held, and recorded.
To operate this system, cryptocurrency transactions are recorded and agreed upon by decentralized (often anonymous) nodes committed to upholding the network. Each blockchain keeps a ledger of completed transactions, ensuring that funds are never double-spent and all network activity is collectively stored openly for anyone to view.
The encoded keys of the accounts that “sign” the transactions are protected by cryptography. To prove what transactions were signed by which accounts, one can simply look it up on the blockchain (the public key); it is practically impossible for a signature to be forged because of the complexity of the code (private key). When users send funds to their crypto wallet they are sending a message to be recorded on the blockchain that the crypto asset is now in control of the public key that was specified in the transaction.
The first cryptocurrency invented was Bitcoin, developed in 2008 by Satoshi Nakamoto as “electronic cash.” What makes Bitcoin (and crypto in general) different from other currencies? You may hear the following terms used to describe the features of cryptocurrency:
Peer-to-Peer: Users can send money to other persons and accounts. All they need is the public address for the wallet and they can instantly remit money to others. No long waiting times, no central authority to pass funds through, no requirements, and no extra service fees other than the cost to send a network transaction.
Permissionless: Bitcoin and most other crypto are permissionless; that is, anyone can use the protocols as they are designed without permission or registration. There is no government oversight or KYC required to use the blockchain to buy, sell, trade, and send crypto that is decentralized and open.
Trustless: Simply stated, you don’t have to trust an authority to send and receive crypto. The code of the blockchain ensures the reliable safety and relative anonymity of transactions and can only function the way it is programmed to do.
Immutable: Once transactions are recorded on the blockchain, they cannot be changed by any one person or entity. All nodes maintaining the network participate in consensus mechanisms: they must all agree that the history of transactions is complete and accurate at all times in order to validate the blockchain.
The general and primary purpose of cryptocurrency is to provide secure yet transparent and affordable means of monetary exchange that function separately from governments and financial custodians.
Bitcoin and Ethereum are still the largest cryptocurrencies by popularity and market cap, and yet there are thousands of other different crypto projects, all with different use cases, transaction speeds, privacy attributes and transactional costs. Ethereum and other “programmable money” networks offer a variety of ways to earn interest, take out loans, or perform other activities that are typically faster and cheaper than traditional banking with fiat currency.
As time goes on, more and more retail stores and services have begun accepting cryptocurrency as payment, possibly signaling adoption for real world use cases outside of just speculating on price. The instant finality of cryptocurrency and the innovation possible within this financial sphere make it an appealing way to quickly and easily access digital funds all around the world.