What is Cryptocurrency?

Posted by cryptocurrancy on July 7th, 2021

Just about everyone has heard of cryptocurrency by now, but most people still don't really understand what it is. More than just a form of digital cash, cryptocurrency and the technology underlying it have the potential to transform the financial sector and many other industries as well. Therefore, it's worth taking your time to learn a bit about cryptocurrency. 

Cryptocurrancy is an electronic cash system that doesn't rely on central banks or trusted third parties to verify transactions and create new currency units. Instead, it uses cryptography to confirm transactions on a publicly distributed ledger called the blockchain, which enables direct peer-to-peer payments.

That definition might seem downright cryptographic right now, but, by the end of this overview, you won't need a decryption key to understand crypto.

There are hundreds of different cryptocurrencies in circulation, each with varying value. The first cryptocurrency, Bitcoin, was developed in 2009 by a programmer using the pseudonym Satoshi Nakamoto.

In a 2008 white paper entitled, "A Peer-to-Peer Electronic Cash System," Nakamoto provides the first description of blockchain. Blockchain is the technology that enables cryptocurrency to work like government-issued (fiat) currencies without the involvement of any central bank or trusted third party.

Specifically, blockchain solves the "double-spending problem" associated with digital cash. Since digital information is easily copied, digital money requires a mechanism that reliably prevents a currency unit from being "duplicated" or otherwise spent more than once.

The global financial system, as a collective entity, has historically been responsible for establishing and ensuring the legitimacy of monetary transactions. The validity of cryptocurrency is established and maintained without any involvement by the world's central banks; instead, ledgers of cryptocurrency transactions are publicly maintained. But, unlike most publicly kept records, which are vulnerable to hacking and modifications, transactions verified by blockchain technology are immutable -- meaning they cannot be changed.