Cryptocurrencies are a digital, encrypted and decentralized medium of exchange implemented on a blockchain. They are created using cryptographic techniques that enable people to buy, sell or trade them securely. It can be used to buy regular goods and services, although some people invest in cryptocurrencies as they would in other assets, like stocks or precious metals.
Introduction
Because of all of the hype in the news, there are few people who have not heard of Cryptocurrency. But, even fewer understand it. It is a relatively new type of money that operates differently than traditional currency. Primarily, cryptocurrency is virtual currency – there are no coins to carry around in your pocket.
However, when was the last time you carried coins in your pocket? And, when was the last time you used physical money to buy something? So, are we not already using virtual currency? Technically, no. But, we are using digital technology to transfer money between accounts. But, the money is still backed by a physical medium called "fiat" currency, which is simply currency backed by a government.
Origins
Bitcoin was the first cryptocurrency – outlined in principle by Satoshi Nakamoto in a 2008 paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System.” Nakamoto described the project as “an electronic payment system based on cryptographic proof instead of trust.” Individual units of cryptocurrencies can be referred to as coins or “fungible” tokens. In 2014, Ethereum introduced an extended blockchain implementation that also supports non-fungible tokens.
Implementation
Cryptocurrency runs on a technology known as a blockchain, which maintains a tamper-resistant record of transactions and keeps track of who owns what. The creation of blockchains addressed a problem faced by previous efforts to create purely digital currencies: preventing people from making copies of their holdings and attempting to spend it twice.
Advantages
Cryptocurrency is the first alternative to the traditional banking system, and have powerful advantages over previous payment methods and traditional classes of assets. For one, they remove the need for middle-men in most transactions, which can dramatically reduce business costs. Cryptocurrencies also have a cap on how many coins can be produced, which minimizes a major cause of inflation.