Cryptocurrency is a type of digital or virtual currency that uses cryptography for security and operates independently of a central authority, such as a government or a financial institution. Unlike traditional currencies issued by governments (fiat currencies), cryptocurrencies are decentralized and rely on blockchain technology to record transactions and manage the issuance of new units.
Key features of cryptocurrencies include:
- Decentralisation: Cryptocurrencies operate on a decentralised network of computers known as a blockchain. The blockchain is a distributed ledger that records all transactions across the network. This decentralized nature means that no single entity or government controls the currency, making it resistant to censorship and tampering.
- Blockchain Technology: Cryptocurrencies use blockchain technology to maintain a secure and transparent transaction history. Each block in the chain contains a set of transactions, and blocks are linked together using cryptographic techniques, forming a continuous and immutable chain.
- Cryptography: Cryptocurrencies use cryptographic techniques to secure transactions, control the creation of new units, and verify the transfer of assets. Public and private keys are used to sign and authenticate transactions, ensuring the security and privacy of users.
- Limited Supply: Many cryptocurrencies have a capped supply, meaning there is a maximum number of units that will ever be created. For example, Bitcoin, the first and most well-known cryptocurrency, has a fixed supply of 21 million coins.
- Digital Nature: Cryptocurrencies exist only in digital form and do not have a physical counterpart like traditional paper money or coins. They can be stored and transacted electronically through cryptocurrency wallets and exchanges.
- Pseudonymity: Cryptocurrency transactions are pseudonymous, meaning that user identities are not directly tied to their wallet addresses. While transactions are visible on the public blockchain, the identities of the users involved are often not disclosed.
Bitcoin, created in 2009 by an anonymous person or group using the pseudonym Satoshi Nakamoto, was the first cryptocurrency and remains the most well-known and widely used. Since then, thousands of other cryptocurrencies, often referred to as altcoins, have been created, each with its unique features and use cases.
Cryptocurrencies have gained significant attention and adoption over the years for various purposes, including digital payments, remittances, store of value, and speculative investments. However, their volatility, regulatory uncertainties, and security risks have also raised concerns among governments, financial institutions, and investors. As a result, the cryptocurrency market continues to evolve, with ongoing efforts to improve security, scalability, and mainstream adoption.