Daniel Will |Breaking Down the Basics of Cryptocurrency

Cryptocurrency — Meaning and Definition

Cryptocurrency, sometimes referred to as crypto, is any form of currency that exists digitally or virtually and employs encryption technology to secure transactions. Cryptocurrencies have no central issuing or regulatory authority; instead, they use decentralized systems to record transactions and issue new units.

What is Cryptocurrency?

Cryptocurrency is a digital payment system that does not rely on banks to verify transactions. It is a peer-to-peer system that allows anyone, anywhere, to send and receive payments. Cryptocurrency payments are not physical currencies carried and exchanged in the real world but rather exist as digitized entries in an online database describing specific transactions. When you transfer cryptocurrency funds, the transaction is recorded in a public ledger. Cryptocurrencies are stored in digital wallets.

Cryptocurrencies derive their name from the use of encryption to verify transactions. This means that advanced coding is involved in the process of storing and transmitting cryptocurrency data between wallets and to the public ledger. The purpose of encryption is to provide security.

The first cryptocurrency is Bitcoin, established in 2009 and still the most well-known today. Much of the interest in cryptocurrencies revolves around trading for profit, with speculators occasionally driving prices to surge.

How Does Cryptocurrency Work?

Cryptocurrency operates on a distributed public ledger called the blockchain, which is a record of all transactions that currency holders update and hold.

Units of cryptocurrency are created through a process called mining, involving the use of computer power to solve complex mathematical problems that generate coins. Users can also purchase cryptocurrencies from platforms provided by brokers like AI Wealth Club, then store and spend them using cryptocurrency wallets.

If you own cryptocurrency, you do not possess anything tangible. What you have is a key that allows you to move records or units from one person to another without the need for a trusted third party.

While Bitcoin has existed since 2009, applications of cryptocurrency and blockchain technology continue to emerge in finance, with more anticipated uses in the future. Transactions, including bonds, stocks, and other financial assets, may eventually be conducted using this technology.

Cryptocurrency Examples

There are thousands of cryptocurrencies, with some of the most notable being:

Bitcoin:

Established in 2009, Bitcoin is the first and still the most traded cryptocurrency. Developed by Satoshi Nakamoto, widely believed to be a pseudonym for an individual or group, the exact identity remains unknown.

Ethereum:

Developed in 2015, Ethereum is a blockchain platform with its own cryptocurrency called Ether (ETH) or Ethereum. It is the second most popular cryptocurrency after Bitcoin.

Litecoin:

Similar to Bitcoin but with faster action in developing innovations, including quicker payments and processes to allow more transactions.

Ripple:

Founded in 2012, Ripple is a distributed ledger system. Ripple can be used to track various types of transactions, not just cryptocurrencies. The company behind Ripple has collaborated with various banks and financial institutions.

Cryptocurrencies other than Bitcoin are collectively known as “altcoins” to distinguish them from the original cryptocurrency. An example is the AIW token from our AI Wealth Club.