What is Cryptocurrency?
A cryptocurrency is a digital asset with a primary function to work as a medium of exchange value within a peer-to-peer economic system that uses cryptography to verify and secure transactions and control the creation of additional units.
Unlike centralized banking systems, most cryptocurrencies are decentralized by a distributed network of computers spread around the world, also known as nodes.
Anyone with internet or even weak-signal radio access can exchange valuables across continents with a click of a button.
The costs for cryptocurrency transactions are low compared to intercontinental bank transfers and the transactions are irreversible unlike in charge-back transactions permitted by credit card companies.
The issuance and management of cryptocurrency units are determined by the network architecture, which is based on programmed algorithms and cryptographic proofs.
These can be considered as a predefined set of rules, also known as the protocol, that define how the cryptocurrency system operates.
Being decentralized means that cryptocurrencies cannot be controlled by a single entity and transactions may occur directly between users without the need to rely on a third party intermediary.
However, many cryptocurrencies are managed and developed by private companies and foundations, so there are varying degrees of decentralization.
Depending on network structure and node distribution, some cryptocurrencies can be considered more centralized than others.
The core component for the most cryptocurrencies, is a technology called Blockchain. It consists of a linear chain of multiple linked blocks that are cryptographically secured.
Each block contains, among other things, a list of recent transactions and a reference to the block that came immediately before it.
Blockchain is responsible for keeping a permanent record of all confirmed transactions, working as a decentralized digital ledger.
This ledger is distributed across all the nodes in the network, making it highly resistant to modification.
The first decentralized cryptocurrency, Bitcoin, was created in 2009 by pseudonymous developer Satoshi Nakamoto. The main idea was to create an independent and decentralized electronic payment system based on mathematical proofs and cryptography.
As most cryptocurrencies, Bitcoin has a limited supply, which means that no more Bitcoins will be generated by the system after the max supply is reached.
Usually, the total supply is a public information that is defined when the cryptocurrency is created.
Among Bitcoin, today there are over thousand different cryptocurrencies, also called altcoins or alternative coins.
All with different properties and use cases. To get a more in-depth look into the world of cryptocurrencies and the technologies behind them, watch our other videos on Binance Academy.