What is Cryptocurrency?
Cryptocurrencies are digital currencies that are encrypted through different cryptography to ensure security. In order to understand cryptocurrency, first you must understand a couple things. First, what fiat money is. Fiat money is a type of currency that is backed by a government, such as the US Dollar or the Euro. Cryptocurrency is different because it is NOT backed by a government or other central entity.
Second, what the blockchain is. Blockchain is a technology that allows different nodes or servers to create “ledgers” of the transactions of a cryptocurrency. These ledgers are then verified through varying protocols, often lengthy proof of work algorithms that make it impossible to replicate. These ledgers form the “blocks”. When these verified ledgers are put together, they form a blockchain.
When combining these two ideas, you can understand cryptocurrency. A cryptocurrency is a decentralized digital currency that is backed and encrypted by blockchain technology to verify. Because of this it can be sent, received, and used all over the world without limitations, as long as there is a connection to a node.
Different cryptocurrencies have different blockchain networks. The difference in these protocols generally lies in the proof of work or verification stages. Different protocols have different proof of work steps, which affects transaction speeds, network security, network transparency. Currently top cryptocurrencies by market cap are Bitcoin (BTC) and Ethereum (ETH).
Cryptocurrency and Blockchain Uses
While cryptocurrency may not be a viable option for day to day purchases right now, it still has a lot of use. Cryptocurrency allows money to be stored where it is not controlled by a centralized entity such as a bank. This allows users freedom to do what they want with their money without having to rely on an intermediary.
Cryptocurrencies use also goes far beyond money. On the blockchain of some currencies like Ethereum, users can code “Smart Contracts” into the blockchain. Put simply, if one action takes place, the smart contract will then trigger a subsequent action. This allows decentralized applications (DApps) to be built using blockchain technology. This again makes it so the applications and programs being built are decentralized and opens an entire new world of use for cryptocurrency beyond just money.