What Exactly Is Cryptocurrency?

A cryptocurrency is a digital or virtual currency that is protected by cryptography, making counterfeiting or double-spending nearly impossible. Many cryptocurrencies are decentralized networks powered by blockchain technology, which is a distributed ledger enforced by a diverse network of computers. The fact that cryptocurrencies are generally not issued by any central authority makes them theoretically immune to government interference or manipulation.

 

Cryptocurrency Fundamentals

Cryptocurrencies are digital or virtual currencies that rely on cryptographic systems to function. They make it possible to make secure online payments without the use of third-party intermediaries. The term "crypto" refers to the encryption algorithms and cryptographic techniques used to protect these entries, such as elliptical curve encryption, public-private key pairs, and hashing functions.

 

Cryptos can be extracted or bought on cryptocurrency exchanges. Not all eCommerce sites accept cryptocurrency purchases. Even popular cryptocurrencies like Bitcoin are rarely used for retail transactions. However, the cryptocurrencies' skyrocketing value has made them popular as trading instruments. They are also used for cross-border transfers to a limited extent.

 

Blockchain

Blockchain technology is central to the appeal and functionality of Bitcoin and other cryptocurrencies. Blockchain, as the name implies, is essentially a collection of linked blocks or an online ledger. Each block contains a collection of transactions that have been independently verified by each network member. Every new block generated must be verified by each node before being confirmed, making forging transaction histories nearly impossible. 1The contents of the online ledger must be agreed upon by the entire network of a single node, or computer, that keeps a copy of the ledger.

According to experts, blockchain technology can benefit a variety of industries, including supply chains, as well as processes such as online voting and crowdfunding. JPMorgan Chase & Co. (JPM) is testing the use of blockchain technology to reduce transaction costs by streamlining payment processing.

 

Cryptocurrency Types

The most popular and valuable cryptocurrency is Bitcoin. Satoshi Nakamoto, an anonymous person, invented it and published it in a white paper in 2008. Thousands of cryptocurrencies are available on the market today.

 

Each cryptocurrency asserts a unique function and specification. Ethereum's ether, for example, is marketed as gas for the underlying smart contract platform. Banks use Ripple's XRP to facilitate transfers between different geographies.

Bitcoin, which went public in 2009, is still the most widely traded and covered cryptocurrency. There were over 18.8 million bitcoins in circulation as of November 2021, with a total market cap of around $1.2 trillion. There will only ever be 21 million bitcoins.

 

Many other cryptocurrencies, known as "altcoins," have been launched in the aftermath of Bitcoin's success. Some of these are Bitcoin clones or forks, while others are completely new currencies. Solana, Litecoin, Ethereum, Cardano, and EOS are among them. By November 2021, the total value of all cryptocurrencies in existence had surpassed $2.1 trillion, with Bitcoin accounting for roughly 41% of that total value. 

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