Cryptocurrency: An Overview
- Irene Goetz
- May 31
- 4 min read
What is Cryptocurrency?
Definition
Cryptocurrency, or crypto for short, is digital money that exists on the Internet (1). This is a simplified definition but is a good way to start understanding it. It can also be defined more broadly as a digital medium of exchange (2).
Key Characteristics
Key characteristics of crypto are that it is decentralized, transparent, and secure due to the use of cryptography. Because it is decentralized, no single entity controls crypto. Anyone can use it. It is considered transparent because all transactions are recorded in a digital ledger, called a blockchain, that is always publicly visible on the IInternet. Each crypto has its own blockchain. While transactions are public, the identities of the people involved in a crypto transaction remain hidden. However, crypto is not completely anonymous, it is pseudonymous (3). It is considered secure due to its use of cryptography.
Decentralized
Crypto is decentralized. This means that it is not controlled by any single entity. There is no individual, group, institution, business or government that is in charge of crypto. It exists online, on an interconnected group of computers across the Iinternet. These interconnected computers (nodes) are also known as a peer-to-peer (P2P) network and are spread all around the world. The nodes are owned by individuals who have chosen to set up computers to participate in the cryptocurrency structure. These nodes hold the copies of the digital ledger (or blockchain) which documents all crypto transactions, including ownership and transfers.
Transparent
Cryptocurrencies are transparent because they use a blockchain (a digital ledger). Every time there is any transaction involving crypto, it is recorded on the blockchain which is then copied to all the nodes. Anyone can view the blockchain and see the transactions. This is different than a traditional bank where the ledgers of transaction are not visible to the public. Because the blockchain is shared across the nodes, there is no central location that holds the information, and it is visible to everyone.
Secure
Cryptocurrency is considered more secure than regular currency due to its use of cryptography. Cryptography can be defined as, “…the process of hiding or coding information so that only the person a message was intended for can read it.” (13). Crypto uses a modern cryptographic technique involving the exchange of public and private keys. This ensures that any cryptocurrency sent out goes to the correct recipient. This also makes it is possible for two individuals to exchange crypto without knowing each other’s names or verifying personal information.This makes it less vulnerable to identity theft than traditional currency.
Usage
To use cryptocurrency, you need a crypto wallet and a crypto exchange.
A crypto wallet holds your crypto. Technically it stores the passkeys that associate your cryptos with you (your wallet). Each crypto wallet has a unique digital address that identifies it.
A crypto exchange is an online service that allows you to change regular currency to cryptos and make exchanges between cryptocurrencies. Crypto exchanges vary in the range of services offered, their ease of use, and legitimacy. It is the responsibility of the crypto user to determine if a particular crypto exchange is trustworthy. It is also possible for users to send each other crypto directly without using an exchange.
Where did it come from?
The idea for digital currency that uses cryptography had been around since the 1980s but it was never fully developed until 2009. A software developer (or group of developers) calling themselves Satoshi Nakamoto created something called Bitcoin. It was released as open-source software. No one knows who Satoshi Nakamoto is or whether they are an individual or a group. Over the years, there have been attempts to discover the identity of Satoshi Nakamoto but none have been successful. Bitcoin was the first cryptocurrency and formed the basis for all cryptocurrencies that have since been created.
Types of Cryptocurrency
At first there was just Bitcoin. After 2011, crypto developers started to create additional types of coins, or altcoins. These were developed to address some flaws in Bitcoin. Any crypto other than Bitcoin is an altcoin.
Two notable subcategories of altcoins are stablecoins and memecoins. Stablecoins are intended to have a stable value and are tied to traditional assets like gold or fiat currency like the US Dollar or the Euro. Memecoins are cryptos which are named for popular IInternet memes or jokes. This category of crypto is known for significant volatility and is full of scams.
The two most popular cryptocurrencies are Bitcoin and Ethereum, however there are many, many more cryptos. According to CoinMarketCap, there are currently more than 15 million cryptocurrencies (8). A large portion of these are scams or are inactive. According to CoinGecko the crypto market cap is currently $3.4 trillion (12).
Written by: Jennifer MacPherson
References
11. Dania, Kiana, et.al. Cryptocurrency All-in-One for Dummies. 1st ed, For Dummies, 2022.
Great overview of cryptocurrency! I appreciate how you explained its fundamentals and potential impact. I’ve been tracking different coins lately, and it’s interesting to see how market trends fluctuate, especially when considering factors like ada price. Articles like this help beginners understand the bigger picture clearly.