What is Cryptocurrency & How Does it Work?
by The Blockchain Diary on 2018-10-07
The short and easy answer to the title question is that cryptocurrency is decentralized digital money. I’ll give it a try to explain in plain simple language.
So, what is a cryptocurrency?
It is as simple as it can be
cryptocurrency = crypto + currency. Yeah, that’s actually true,
digital or virtual currency that uses cryptography for security.
First, let’s talk about what a normal currency is. According to Wikipedia, A Currency in the most specific use of the word, refers to money in any form when in actual use or circulation as a medium of exchange, especially circulating banknotes and coins.
And now, let’s talk about what cryptography is. Cryptography is the process of converting ordinary plain text into unintelligible text and vice-versa. Modern cryptography includes various aspects such as data confidentiality — information that cannot be understood by anyone, data integrity — information that cannot be altered by anyone, authentication — sender and receiver can confirm with each other, and non-repudiation — service that provides proof of the integrity and origin of data.
So joining the pieces together we have, cryptocurrency is a medium of exchange value in form of digital money that is designed to be secure and, in many cases, anonymous.
Cryptocurrency is an alternative form of payment to Cash, Credit/Debit Cards ( Visa, MasterCard, Maestro), Payment Processors ( PayPal, Due, Stripe), and Checks. The technology behind it, Blockchain Technology allows you to send it directly to others without going through a third party like a bank. In different words, cryptocurrencies are like digital or virtual accounting systems. They keep ledger of all the recorded transactions bundled into blocks, which are cryptographically signed with Hash and the software doing the signing process gets some sort of virtual currency for doing the work of calculating the cryptographic signature and securing the network simultaneously.
There are many use cases of cryptocurrency one can imagine,
- Free or Low-cost money transfers / Payments
- Smart Contracts & DApps
- Universal Digital Identity
- Censorship-Resistant Store of Value
- Investments in innovative early-stage projects / startups
- Anonymous or Private financial transactions
- Internet Of Things
- Decentralized Cloud Storage
- Decentralized Supercomputers etc, etc, etc…
Of course, Bitcoin (BTC) is the most famous cryptocurrency in the world till now, which made everyone curious about the discussion and interest of the topic of crypto by its unimaginable & explosive rise and has become the King for all the cryptocurrencies. Besides Bitcoin, there are several other pretty important cryptocurrencies such as Ethereum (ETH), Litecoin (LTC), Dash and Ripple (XRP). But the most important thing is that now, you can easily launch your own cryptocurrency with the help of Smart Contract!
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