Cryptocurrency is a type of decentralized digital currency that uses cryptography to secure transactions and control the creation of new units. It operates independently of traditional intermediaries like banks and payment processors.
Instead of physical coins or banknotes, cryptocurrencies exist digitally on a technology called the blockchain. The blockchain serves as a decentralized ledger that records all transactions and ensures their transparency and immutability.
The most well-known cryptocurrency is Bitcoin, but there are thousands of other cryptocurrencies with different features and purposes. Cryptocurrencies can be used for various applications, including peer-to-peer transactions, smart contracts, decentralized finance (DeFi), and non-fungible tokens (NFTs).
So how does cryptocurrency work?
Cryptocurrency works by utilizing cryptographic principles to secure and verify transactions in a decentralized manner.
Transactions are recorded on a public ledger called a blockchain, which is maintained by a network of computers known as nodes.
When a transaction is initiated, it is broadcasted to the network, where miners verify and bundle multiple transactions into a block.
Miners compete to solve complex mathematical puzzles, and the first one to solve it adds the block to the blockchain. This process ensures transaction integrity and prevents fraud.
Additionally, cryptocurrencies utilize digital wallets, which store cryptographic keys that allow users to access and manage their funds securely. Transactions are cryptographically signed, providing security and privacy.
To sum up, cryptocurrencies offer a decentralized and transparent system for peer-to-peer (P2P) digital transactions, independent of traditional financial intermediaries.