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What is Cryptocurrency, How Cryptocurrencies Work?


Simply saying, cryptocurrencies are systems that allow for secure online payments which are denominated in terms of virtual “tokens.” A cryptocurrency is a digital or virtual currency that is secured by cryptography. They are decentralized networks based on blockchain technology, which is a distributed ledger empowered by a disparate network of computers. Cryptocurrencies are different from regular and digital currencies as they are not issued by any central authority, which makes them theoretically immune to government interference or manipulation.

Generally speaking, it creates a digital payment system that doesn’t rely on banks to verify transactions. It could be defined as a peer-to-peer system that can enable anyone anywhere to send and receive payments. Unlike physical money that is carried around and exchanged in the real world, cryptocurrency payments are purely digital entries to an online database which represent specific transactions. A public ledger is used to record the transactions for transferring cryptocurrency funds.

The name cryptocurrency is coined as it uses encryption to verify transactions. Accordingly, advanced coding is used to store and transmit it’s data between wallets and public ledgers. The encryption, therefore, aims to provide security and safety.

First launched in 2008, Bitcoin was the first, and it remains by far the biggest, most influential, and best-known. Since then, Bitcoin and other cryptocurrencies like Ethereum have been digital alternatives to money issued by governments. So that they can be used to buy and sell things, and their potential to store and grow value has also attracted many investors

Key notes on cryptocurrencies

  • It is a digital asset based on a network distributed across a large number of computers. Such decentralized structure allows them to act outside the control of governments and central authorities.
  • The word “cryptocurrency” is due to the encryption techniques used to secure the network.
  • Blockchains are an essential component of many cryptocurrencies since they form the organizational methods for ensuring the integrity of transactional data, and.
  • It is believed that blockchain and related technology may weaken many industries, including finance and law.

What is cryptocurrency mining?

Most cryptocurrencies are ‘mined’ via a decentralized network of computers. However, mining not only generate more bitcoin or Ethereum but also it is the mechanism to update and secure the network through constant verification of public blockchain ledger and adding new transactions.

It is said that anyone can become a miner if they own a computer and an internet connection. though, mining is not always profitable. Depending on which cryptocurrency to be mined, how fast the computer is and the cost of electricity in the area, mining might end up as spending more money than you earn back in cryptocurrency. As a result, most crypto is mined by companies that specialize in it, or by large groups of individuals with computing power.

Where do cryptocurrencies get their value?

Where do cryptocurrencies get their value?

Similar to all goods and services, the economic value of cryptocurrency comes from supply and demand. Supply refers to the amount of good available, like how many bitcoins are available to buy at any moment. Demand, on the other hand, refers to people’s desire to own goods or how many people want to buy bitcoin and how strongly they want it. The value of a cryptocurrency always results from the balance of both factors.

What makes cryptocurrency unique?

The distinguishing feature for all cryptocurrencies is blockchain technology, which is used to keep an online ledger of all the transactions that have ever been conducted. Thus, it can provide a data structure for this ledger with quite high security and is shared and agreed upon by the entire network of an individual node, or computer maintaining a copy of the ledger. Since every new block of data must be verified by each node to be confirmed, it is almost impossible to forge transaction histories.

Many experts agree that blockchain technology has serious potential to be used with online voting and crowdfunding. Major financial institutions such as JPMorgan Chase (JPM), also, believe that using blockchains could lower transaction costs by streamlining payment processing. However, as they are virtual and are not stored on a central database, there is the risk that digital cryptocurrency balance is wiped out by the loss or destruction of a hard drive if a backup copy of the private key does not exist. At the same time, there is no central authority, government, or corporation to access and manage users’ funds and personal information. However, this further support the security and confidentiality of cryptocurrencies.


Criticism of Cryptocurrency

Since supply and demand manage the market prices for cryptocurrencies, there will be a wide fluctuation for the rate at which a cryptocurrency can be exchanged for another, noticing that the design of many cryptocurrencies ensures a high degree of scarcity.  For example, Bitcoin experienced some rapid changes in value, climbing as high as $17,738 per Bitcoin in Dec. 2017 before dropping to $7,575 in the following months.

Many concern that cryptocurrencies, like Bitcoin, in fact do not represent any material goods. On the other hand, it has identified that the cost of producing a Bitcoin is directly related to its market price, however the production requires an increasingly large amount of energy. Moreover, cryptocurrency blockchains are proven to be highly secure, though other aspects of a cryptocurrency ecosystem, including exchanges and wallets, are not safe against the threat of hackers.

Nonetheless, many users rely on potential advantages in cryptocurrencies, including the possibility of preserving value against inflation, facilitating exchange as well as being easier to transport and divide than precious metals, and being outside the influence of central banks and governments.

How Do You Get Cryptocurrency?

First, create an account on a digital wallet like Metamask which matches the cryptocurrency you wish to buy. Then, there are several crypto exchanges such as Coinbase, Cash app, and more where you can purchase cryptocurrency.


A cryptocurrency is a form of virtual assets using cryptography rather than trust between institutions such as banks. They are generated by “miners” who receive income for providing computational power to the network, using an associated blockchain. Miners of cryptocurrencies expend computing power to validate and secure transactions recorded on their given blockchains. As more users join or interact with the given blockchain, demand for that blockchain’s cryptocurrency grows. It seems that cryptos are going mainstream along with traditional assets.

About Nicolle

She is an Indian Freelance writer. She loves thinking, learning, and writing about all things Web3.

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