What is a cryptocurrency?
To begin with, a cryptocurrency is a type of digital or virtual money. It serves just as ordinary money, such as dollars, pounds, euros, yen, etc. But it has no physical counterparts — banknotes or coins that can be carried around, that is, the cryptocurrency exists only in electronic form.
Simply put, a cryptocurrency (or “crypto”) is a digital currency that can be used to buy goods and services, but uses an online ledger with strong cryptography to secure online transactions.
It can be said that Cryptocurrency is virtual money based on software. When you purchase cryptocurrency, you purchase a digital asset based on an algorithm. Unlike centralized currency, which is government controlled, cryptocurrency is decentralized.
Key features of cryptocurrencies
There are a number of key principles that govern cryptocurrency use, exchange and transactions.
This is where the term “crypto” comes from. A cryptocurrency (or crypto for short) utilizes cryptography, which are techniques for securing information or communications. Cryptocurrencies use what’s called public key cryptography. In systems using public key cryptography, there is a public key, which can be shared with others; in cryptocurrency, this is the key you share with people so they can send you crypto.
Transactions are tied to a random sequence of characters and not to the owner’s identity, including personal or company data. The popularity of some virtual currencies indicates the scale of demand and supply. It is practically impossible to link contracts with people or companies.
• Blockchain technology
A blockchain is the decentralized, public ledger or list of a cryptocurrency’s transactions. Completed blocks, comprised of the latest transactions, are recorded and added to the blockchain. They are stored in chronological order as an open, permanent and verifiable record. A peer-to-peer network of market participants manage blockchains, and they follow a set protocol for validating new blocks. Each ‘node’ or computer connected to the network automatically downloads a copy of the blockchain. This allows everyone to track transactions without the need for central record keeping.
Unlike a credit card payment, cryptocurrency payments can’t be reversed. For merchants, this hugely reduces the likelihood of being defrauded. For customers, it has the potential to make commerce cheaper by eliminating one of the major arguments credit card companies make for their high processing fees.
• Digital Environment
Cryptocurrencies are available only in the digital environment. The currency can be accessed on the computer or mobile device provided with internet connectivity.
There is no physical form for this currency, like the traditional one. You cannot feel the cryptocurrency like the cash. You must store this currency in the digital wallets, a software program that allows you to send and receive Bitcoin or cryptocurrencies.
Almost all cryptocurrencies, including Bitcoin, Ethereum, Tezos, and Bitcoin Cash are secured using technology called a blockchain, which is constantly checked and verified by a huge amount of computing power
Many top cryptocurrencies such as Bitcoin, Litecoin, and Dash have a maximum supply, making them deflationary by nature. Any increase in the demand or adoption of the cryptocurrency will cause a corresponding increase in the price.
Initially, cryptocurrency was pushed as an alternative to fiat currency based on the premise that it is portable, available globally and an affordable means of executing cross-border transactions. But, other than the digital assets pinned to fiat currencies, the value of cryptocurrencies hasn’t been able to replicate the level of stability needed to function effectively as a medium of exchange.
So here you have key characteristics that make cryptocurrencies and blockchain technology so revolutionary. Plus the bonus economic characteristic of being deflationary through limited supply. These features of cryptocurrencies definitely make it unique and worthy of investing.
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