A cryptocurrency is a so-called virtual currency, meaning that one unit of virtual currency corresponds to one value. A cryptocurrency operates autonomously and outside traditional banking and government systems.
Cryptocurrencies are a means of payment often used for internet-based transactions within a specific virtual network of users with special software, for managing the crypto currency and for carrying out transactions.
Cryptocurrencies are created from a digital code whose function differs significantly from traditional payments and currencies. A virtual network for a cryptocurrency can be likened to a common agreement to use only a specific means of payment.
Unlike national currencies which have a legal monetary unit, such as the Swedish krona in Sweden, the virtual currency has a different coin/currency unit. Some examples of these are bitcoin for just Bitcoin and Ether for Ethereum. Bitcoin is often credited as the original and by far the most famous cryptocurrency and was launched in January 2009. Today there are more than 1000 cryptocurrencies available online.
Bitcoin was launched in 2009 and is considered the first cryptocurrency. It is a decentralised form of digital cash that eliminates the need for traditional intermediaries such as banks and governments to make financial transactions.
Traditional currencies is backed and regulated by the government that issues it. On the other hand, Bitcoin is powered by a combination of peer-to-peer technology – a network of individuals, the science of sending secret information that can only be read by the sender and the receiver. This creates a currency backed by code rather than items of physical value, like gold or silver, or by trust in central authorities like the US dollar or Japanese yen.
How does bitcoin work?
Each bitcoin (trading symbol “BTC”, although “XBT” is also used) is a data file stored in a digital wallet on a computer or smartphone. To understand how the cryptocurrency works, it helps to understand the following terms:
Blockchain: bitcoin is powered by open source code called blockchain, which creates a shared public ledger. Each transaction is a “block” that is “chained” to the code, creating a permanent record for each transaction. Blockchain technology is at the core of more than 6,000 cryptocurrencies that have followed in Bitcoin’s wake.
Private and public keys: a bitcoin wallet contains a public key and a private key, which work together to allow the owner to initiate and sign transactions digitally, providing proof of authorization.