Cryptocurrency is a form of digital or virtual currency, that has no central issuing or regulating authority. Instead it uses a decentralized system to record transactions and manage the issuance of new units and relies on cryptography to prevent counterfeiting and fraudulent transactions. This ledger that exists in the form of computerized database is called blockchain.
Cryptocurrencies are used as a medium of exchange or a store of value.
They are an alternative to standard national currencies. Cryptocurrencies have no physical form and exist only in the digital space. Digital cryptocurrency “coins” can be traded on specialized exchanges around the world and can be bought, sold, and converted back to fiat money.
The first successful cryptocurrency (Bitcoin) was introduced in 2008 by a person, or a group of people, using the name Satoshi Nakamoto.
The aim was to create a “purely peer-to-peer version of electronic cash (allowing) online payments to be sent directly from one party to another without going through a financial institution”.
The most important feature of cryptocurrencies is that they are decentralized, meaning they are not issued (controlled) by a central authority. There is a network of equally privileged participants that validate and update transactions in a shared ledger.
Cryptocurrencies operate independently from banks.
This makes them popular in countries where banking institutions are unstable. Being this alternative, cryptocurrencies provide people with full control over their money, in oppose to relying on banks to keep their money safe.
There are no restrictions for where, when or how much crypto “money” are sent.
Once a transaction is confirmed, it is irreversible.
Another important aspect of cryptocurrencies is privacy. No personal data is used, accounts are not connected to real identities. Every account has an address, comprised of a chain of about 30 random characters.
Transactions are not untraceable though, as every block of the chain is available to all nodes in the network.
Every account address, or “wallet”, has a public key and a private key, the latter known only to the owner. The private key is used to sign transactions. Both are based on a cryptography system, providing security by far exceeding the conventional methods.
Cryptocurrency transfers are done directly between two parties.
They are confirmed in minutes, regardless of the physical location of the two parties. There is no middleman between the sender and the receiver, e.g. a bank or a digital payment service and that means minimal fees are charged.
It is falsely believed that the blockchain technology is not open to the public, but available only to its network of common users. In fact, everyone with a computer or a smart phone can download the free software and see the transactions in real time. Access to cryptocurrencies is easier than to banks, so the potential of digital commerce is not to be underestimated.
Many experts believe that cryptocurrencies and blockchain will disrupt many industries, including finance and law.
Some see limitless potential, while others see nothing but risk. What the future holds for this fast-evolving technology is yet to be seen, but one thing is for certain – it has become a global phenomenon in the recent years and it’s here to stay.