What is cryptocurrency?

Gemma says…

A cryptocurrency is a digital currency that can be sent anywhere in the world without the need of a central party.

Digital currency has been around for a long time. Bitcoin and cryptocurrencies, though, are still relatively new. So, what is the difference between digital currency and cryptocurrency?

Cryptocurrency is a type of digital currency

Cryptocurrency is a type of digital currency that uses cryptography to track transactions and prevent the creation of new coins by unauthorized parties. Digital currency is electronic money that only exists in the digital world and not physically. Digital currencies are present in many common transactions made today, like when using PayPal, Venmo, or even online banking.

Bitcoin is the first cryptocurrency…

BitcoinThe first major cryptocurrency was Bitcoin, and while there are thousands today, Bitcoin is by far the largest and most popular. When Bitcoin was created in 2008 by Satoshi Nakamoto, it was built on top of a cryptographic record-keeping and security system called blockchain.

Blockchain makes cryptocurrency possible

Blockchain makes most cryptocurrencies possible and is also the differentiating factor from traditional digital currencies. A blockchain is a distributed ledger (or record) of all cryptocurrency transactions in a network. The history of these transactions is stored on thousands of computers globally and is nearly impossible to alter. Everyone has access to the history and can see the address of both the sender and receiver in a transaction, as well as the amount of the transaction. This transparency and security remove the need to have an intermediary, like a bank, assist in transactions and makes sending value from one person to another cheaper and faster.

…but thousands of cryptocurrencies exist

Ether, LitecoinEver since Bitcoin’s well-documented rise from an early digital currency to an asset that’s been dubbed the hedge to a global currency meltdown, interest in cryptocurrencies has continued to grow. Since Bitcoin’s inception, thousands of other cryptocurrencies have sprung up. While some serve as peer-to-peer payment mechanisms like Bitcoin, others were created to solve various problems from digital advertising inefficiencies (Basic Attention Token) to car-to-car communications (Ford).

Recap: Cryptocurrency is a secure way to exchange value digitally between two parties

In summary, cryptocurrencies facilitate the exchange of value and information between two parties. They do so in a secure and trusted way, so that a third party is not needed to audit and approve the transaction. Cryptocurrency projects still have much work to be done before they can be widely adopted around the world. For example, Bitcoin will need to process transactions more quickly and efficiently if it’s going to take on incumbents. Nonetheless, cryptocurrencies represent a technology that has the potential to revolutionize the economic landscape of the world today.