A form of virtual or digital currency that can be used to buy goods. Many companies across the world have issued their own currency and are often called tokens. These tokens can be used to trade goods or any services that the company provides.
You will have to exchange real currency for cryptocurrency in order to obtain goods or services from that particular company. Cryptocurrencies are secured by cryptography which makes it nearly impossible to counterfeit.
The word Cryptography is derived from the Greek words Kryptos + Graphy. Krypto meaning hide or hidden and Graphy means to write. In virtual or digital terms, it simply means secured communication to send digital or virtual assets online. In order to secure the information, companies use various encryption algorithms called Cipher that convert plain text into Ciphertext.
How do they work?
Unlike the physical currency like the Rupee or the Dollar, there exists no central authority in order to maintain and manage cryptocurrency value. Cryptocurrencies exist on blockchain technology.
Blockchain technology is a public digital ledger that records transactional information in such a way that it makes it difficult for hackers to alter. The technology is secured and individuals can deal directly with each other without any intervention from the central authorities like the government or financial institutions.
The blockchain stores information in blocks that are linked together using cryptography. Each transactional information is then verified independently verified by the network of computers, time-stamped, and data is upended to a growing chain. Data once recorded cannot be altered.
According to CoinMarketCap.com, a market research website, there are close to 10,000 different cryptocurrencies that are traded publicly, and the most popular of them are Bitcoin and Ethereum.
Bitcoin was the first true currency that was created as a blockchain-based currency in 2009, which beat the double-spend or counterfeit problem inherent with digital assets.
Ethereum came into existence in 2015, uses the same blockchain network but has a more sophisticated layout. Bitcoin can simply be pictured as a database of accounts or wallets with an amount of currency stored in them. Ethereum network allows the creation of cryptocurrencies, or tokens, using a protocol called ‘Ether’ that is distributed on different blockchains that can be public or private. In some ways, Ethereum is capable of storing information faster than Bitcoin.
For those who see cryptocurrencies like bitcoin or ethereum as the currency of investments, it should be noted that these currencies need stability. Creators or investors can make profits by mining cryptocurrencies or selling them at a higher value.
While experts see blockchain technology as having huge potential in solving real world issues such as anti-money laundering tracking system, original content creation, music royalties tracking, online voting and NFT marketplaces. Major financial institutions see blockchain technology as having the potential to lower transactional costs by streamlining payment processes.