The very word sounds mysterious- cryptocurrency! Well, let’s begin by simply breaking the word down into its two parts. The word crypto comes from the ancient Greek ‘Kryptos’ which means ‘hidden or secret’. It’s the same root word as that used in cryptography, the art of writing and deciphering secret codes. The word currency comes from Latin, and of course, we all know that means money!
How does it work? The Currency part
In effect, cryptocurrencies are a kind of money, but instead of being printed by various national banks, it is a digital asset that exists only in the digital world, there is no physicality to it. Cryptocurrencies are a medium of exchange that can be used to exchange goods and services. Unlike traditional currencies that are minted and controlled by a central authority, cryptocurrency is decentralised in nature, in other words, it is digital money created to be used on the internet. It has much in common with regular money, in that it is a medium of exchange, a unit of account, and a store of value, and it can be taxed. Check here for more about crypto tax and how you can get expert help with all your cryptocurrency needs. Cryptocurrencies don’t need the use of third-party intermediaries, making them a highly attractive means to conduct international business, making payments in cryptocurrencies popular among large corporations and for cross-border transactions.
The Crypto part
All cryptocurrency transactions are highly encrypted, which ensures transactions made with them are highly secure. Various encryption algorithms and cryptographic techniques, like public-private key pairs, hashing functions, and elliptical curve encryption make it nearly impossible for any thieves to steal it- sounds complicated? Exactly the point! The system is specifically designed to make your online payments incredibly safe. Most cryptocurrencies are built on blockchain technology, which is a distributed ledger enforced by a distributed network of computers. The cryptocurrency transaction data is stored in “blocks” of information that are then linked together in a permanent “chain.” Blocks are stockpiled in stacks, one on top of the other, with each new block relying on the previous ones for validity. The new blocks make the previous ones unmodifiable, ensuring that each block remains secure as they grow over time. This process produces a chain of blocks, which are then referred to as “blockchain.” Blockchains are decentralized, meaning they are not stored in one main computer or controlled by one specific entity, making them a public ledger. They are instead distributed across many computers in a network. This complicated and practically foolproof process is thought to make cryptocurrency superior to traditional money because of its high level of security, privacy, and immutability. Also, cryptocurrencies can be traded in a much shorter amount of time without the use of intermediaries like banks.
The Digital Mine
Amazingly, cryptocurrencies are created by a process called ‘mining’, which uses computer processing power to solve very complex mathematical problems. This process creates valid blocks that add transaction records, increasing worth and earning coins. Miners who successfully solve these difficult problems are rewarded with more cryptocurrency! What this boils down to is the exchange of cryptocurrency can result in more cryptocurrency being created, and introduced into the system. Users can also purchase the currencies from brokers, which they can then store and spend using encrypted wallets.
Cryptocurrencies are an attractive alternative to traditional banking systems, a new kind of money that sprang from the Internet, the platform where so much international business now takes place, easy to use, fast, and safe. So, cryptocurrencies are here to stay and grow in popularity day by day.