What Is Cryptocurrency?

What Is Cryptocurrency?

First introduced in 2009 with a pioneer crypto coin – Bitcoin, cryptocurrency is a digital form of cash that is secured by cryptography behind it. Similarly to other forms of digital money, cryptocurrency can be used for making online purchases, personal transactions, or paying for various services. Despite the similarity on the surface, the mechanism and the idea behind cryptocurrency is quite different from either traditional currency or its digital alternatives. The most unique feature of cryptocurrency that separates it from any other kind of money is the fact that it is not owned by a single party. There is not a central bank or any kind of centralized power that influences the currency. Decentralization prevents cryptocurrencies from being controlled by any government or authorities and therefore, they are highly resistant against censorships and shutdowns.

Blockchain Technology and Security

Apart from its decentralized nature and benefits derived from it, cryptocurrencies have an advantage over other types of currencies in terms of privacy and security as well. The blockchain technology behind bitcoin and other cryptocurrencies ensures keeping an online ledger of each transaction ever conducted on a public network. Blockchain is a specific database in which data can only be added but not removed or changed. The chain is made up of individual blocks and each one of it contains a hash of a previous block. In combination, it creates a kind of a unique digital footprint. Modifying data in a single block would require changing the hash in every consecutive block as well. That is why it is virtually impossible to forge transactions conducted with blockchain-based cryptocurrency.

Privacy and Openness

Cryptography-based virtual currencies have the advantage of providing privacy and openness at the same time. Each owner of crypto-coins has its own public key and private key. A private key is a massive number that is impossible for anyone to guess correctly and this key is used as a kind of signature while conducting transactions. The public key, on the other hand, is generated from the private key and it is publicly available. Using Bitcoin means that individual coin-owner’s transactions are trackable through their public keys. However, it is extremely difficult and almost impossible to link certain keys to a real person to whom belongs this particular public key. Therefore, cryptocurrency creates the space for financial operations within which there is not a central authority, transactions are held in a secure network where users can take advantage of personal privacy and financial transparency at the same time.

Future prospects

Because of its reliability and immunity against forgery, cryptocurrency and blockchain technology is largely believed to have the potential of revolutionizing many industries including finances and law. In the future, it can be used for providing online voting systems, secure and reliable crowdfunding solutions, and much more. Besides, more and more industries and individual businesses are accepting cryptocurrency as a regular payment method. Even though cryptocurrency is still a novelty for the majority of the world and even though the value of individual crypto coins, including Bitcoin, is highly volatile, limitless possibilities created by blockchain technology hold the promise that cryptocurrencies are the future of the industry and they are here to stay in the upcoming decades.