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What is cryptocurrency?
Cryptocurrency is an encrypted data string that denotes a unit of currency. It is monitored and organized by a peer-to-peer network called a blockchain, which also serves as a secure ledger of transactions, e.g., buying, selling, and transferring. Unlike physical money, cryptocurrencies are decentralized, which means governments or other financial institutions do not issue them.
Cryptocurrencies are created (and secured) through cryptographic algorithms that are maintained and confirmed in mining, where a network of computers or specialized hardware such as application-specific integrated circuits (ASICs) process and validate the transactions. The process incentivizes the miners who run the network with the cryptocurrency.
Blockchain
Blockchain technology is central to the appeal and functionality of Bitcoin and other cryptocurrencies. As its name indicates, a blockchain is essentially a set of connected blocks or an online ledger.
Each block contains a set of transactions that each network member has independently verified. Every new block generated must be verified by each node before being confirmed, making it almost impossible to forge transaction histories. The contents of the online ledger must be agreed upon by the entire network of an individual node or computer maintaining a copy of the ledger.
Types of cryptocurrency
Bitcoin is the most popular and valuable cryptocurrency. An anonymous person called Satoshi Nakamoto invented it and introduced it to the world via a white paper in 2008. There are thousands of cryptocurrencies present in the market today. Each cryptocurrency claims to have a different function and specification—for example, Ethereum’s ether markets itself as gas for the underlying smart contract platform.
Banks use Ripple’s XRP to facilitate transfers between different geographies. Bitcoin was made available to the public in 2009 and remained the most widely traded and covered cryptocurrency. As of November 2021, over 18.8 million bitcoins were in circulation, with a total market cap of around $1.2 trillion.
Only 21 million bitcoins will ever exist. In the wake of Bitcoin’s success, many other cryptocurrencies, known as “altcoins,” have been launched. Some of these are clones or forks of Bitcoin, while others are new currencies built from scratch. They include Solana, Litecoin, Ethereum, Cardano, and EOS. By November 2021, the aggregate value of all the cryptocurrencies had reached over $2.1 trillion.