What is cryptocurrency? Cryptocurrency is a digital currency that uses cryptographic functions to perform financial transactions.
As its name implies, each cryptocurrency is a digital currency that is secured by cryptography. One of its main functions is to act as a means of exchange within a peer-to-peer (P2P) economic system that relies on cryptography to prevent fraud and counterfeiting.
Cryptocurrencies are decentralized
Most cryptocurrency systems are decentralized and maintained by a distributed network of computers (nodes) at thousands of points around the world. However, there is a different degree of decentralization and some cryptocurrencies are considered to be more centralized than others (depending on their network structure and node distribution).
Speaking of cryptocurrencies , decentralization is expressed in the number of entities that exercise control. The greater the number of entities to which control is allocated, the more decentralized the currency. Another characteristic here is that financial transactions can occur directly between users (P2P) without the need for intermediaries.
Unlike centralized economic systems, the issuance and management of cryptocurrencies is determined by the network architecture. It is based on software algorithms and cryptographic evidence. In other words, there is a predefined set of rules (protocol) that defines how the cryptocurrency system should work.
All transactions are verified by communicating network nodes. Confirmed transactions are permanently recorded in a shared ledger called blockchain. It is one of the major components and core technology of most cryptocurrency systems.
Cryptocurrencies are built on blockchain
The first blockchain was created as a concept in 2008 and launched in 2009 as a core element of the first cryptocurrency network (bitcoin).
Blockchain consists of a linear chain of multiple linked blocks that are cryptographically protected. Each block is a file made up of multiple components, the main ones being a list of recent transactions and a reference to the most recently created block. Each validated block also contains a registered solution (block hash) of a complex mathematical “problem” that is part of the process of “digging” cryptocurrencies.
Blockchain technology can also be applied to other activities that do not necessarily involve financial transactions, but in the context of cryptocurrencies, they are responsible for keeping a permanent record of all verified transactions that operate as decentralized, distributed and public digital accounting.
Simply put, blockchain is an infinitely growing list of data (blockchain) that is encrypted and highly resistant to modification.
Bitcoin – the first cryptocurrency
Bitcoin is the first cryptocurrency. It was introduced in 2009 by the developer working under the pseudonym Satoshi Nakamoto (better known as the “Bitcoin father”). The basic idea is to create an independent and decentralized electronic payment system based on mathematical evidence and cryptography.
Like most older cryptocurrencies, Bitcoin has a supply limit. Once the maximum stock (21,000,000 units) is reached, no more bitcoins will be generated (or at least it is currently considered to be). Usually the offering limit is public information, which is determined when creating a cryptocurrency. It can range from several million to hundreds of billions.
Bitcoin protocol (also known as .Bitcoin Core) is open source and anyone can view or copy the code. In this way, thousands of developers around the world contribute to the development of the project.
Summary: What is cryptocurrency
Cryptocurrency is an internet based value exchange environment that uses cryptographic features to perform financial transactions. Cryptocurrencies use blockchain technology to achieve decentralization, transparency and consistency.