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What is a Cryptocurrency?

The name cryptocurrency which can be abbreviated to “crypto,” is derived from the two words, cryptography and currency.  Cryptography is the use of practice of creating secure communication, typically through encryption.  A cryptocurrency is the use of encryption to create decentralized digital currency through encryption.  These virtual currencies have a variety of purposes and can be traded on exchanges.

The main technology behind these these cryptocurrencies is called, Blockchain.  Blockchain is a decentralized public ledger that helps facilitate secure digital transactions.  This means that all transactions are recorded and broadcasted out to the public but all records are encrypted and use public and private keys for security purposes to access accounts and read parts of transactions.

Bitcoin is the most popular cryptocurrency, which is used as a payment system.  Other cryptocurrencies like, Ethereum, use smart contracts to create contracts that are stored on the blockchain and run on the network.

Since cryptocurrencies are decentralized, trust on the network is created through a process known as mining.  Miners use computing power to confirm transactions in a block.  They are rewarded a block reward if they are the first to confirm the block.  A block in Bitcoin or on a blockchain is a group of transactions bundled together that will be placed on the blockchain as public record.  Several of these blocks linked together is a blockchain.  On the Bitcoin network, every 10 minutes a block is confirmed by miners and is officially added to the growing blockchain.

 

Related Terms

Ethereum Ethereum is a blockchain-based distributed computing platform that hosts smart contract functionality. Ether tokens are exchanged for running the contracts.
Block in a Blockchain A block in Bitcoin or on a blockchain is a group of transactions bundled together that will be placed on the blockchain as public record.
What Are Bitcoin Futures and How Do They Work? Bitcoin futures were created as a hedge against the future price of the asset. It it allows for traders to short the currency without actually owning any. 
Block Height The block height of a blockchain is the sequential number of blocks that comes before that the last block that has been confirmed.