Cryptocurrency is a type of digital or virtual money that uses cryptography for security. Unlike traditional currencies issued by governments (like the dollar or euro), cryptocurrencies are decentralized. This means they operate on a technology called blockchain, which is a public, digital ledger of all transactions.
Each cryptocurrency, such as Bitcoin, Ethereum, or Litecoin, runs on its own blockchain. These blockchains are maintained by a network of computers around the world. When someone makes a transaction using cryptocurrency, it is verified by these computers and then added to the blockchain. This process is secure, transparent, and nearly impossible to alter, making cryptocurrency very difficult to counterfeit or double-spend.
Most cryptocurrencies use a system called mining to validate transactions and create new coins. Mining involves solving complex mathematical problems with computers. Miners are rewarded with cryptocurrency for their work. However, some newer cryptocurrencies use different methods, like proof-of-stake, which is less energy-intensive.
People can buy cryptocurrencies on online exchanges using traditional money or other cryptocurrencies. They are stored in digital wallets, which can be online, on a physical device, or even on paper. Each wallet has a private key that allows the owner to access and send their cryptocurrency.
Cryptocurrencies offer many benefits, including fast international payments, lower transaction fees, and financial access for people without bank accounts. However, they also come with risks, such as price volatility, security concerns, and uncertain regulation.
