Any kind of decentralized money that exists digitally or virtually and uses cryptography to safeguard transactions is known as cryptocurrency (or crypto for short). It is intended to function as a medium of exchange over a computer network without depending on a central management body like a bank or a government.
The first time the term “cryptocurrency” was used, according to history, was by an American cryptographer named David Chaum in 1983 during a paper conference publication where a layout of an early form of anonymous cryptographic electronic money was outlined. The idea was to have a currency that could be undetectably sent in a way that did not need a centralized structure like a bank. Building on his ideas, David Chaum developed a prototype cryptocurrency called DigiCash in 1995 but it collapsed due to bankruptcy, three years later. Then came Bit Gold, designed in 1998 by Nick Szabo. This required the participants to solve a cryptographic puzzle, and a reward was awarded upon solving it. Bit Gold was never implemented for the possible reason that Nick Szabo was not able to solve the infamous double-spend issue without a centralized structure in play. A decade later, Nick Szabo’s attempts are believed to be a direct precursor to Satoshi Nakamoto’s Bitcoin. Satoshi Nakamoto is the pseudonym for the person/persons that created Bitcoin (a peer-to-peer electronic cash system) and thus implemented the first blockchain currency.
Today, there are tens of thousands of cryptocurrencies built on hundreds of blockchain platforms. Bitcoin, being the original, continues to be the most valuable, with Ethereum being the leading smart contract platform. To see a huge ranked list of cryptocurrencies, visit https://coinmarketcap.com/ and https://coingecko.com/.
You will often hear the currencies referred to as either coins or tokens, with coins usually existing as the direct unit of a blockchain, while a token is smart contract based, with many residing on a single blockchain.
Smart contracts, originally built on the Ethereum platform, are pieces of computer code that run autonomously on a blockchain.
How does cryptocurrency work?
Cryptocurrency runs on a peer-to-peer network, supported by blockchain technology – a distributed public ledger on which transactions are recorded. This ledger allows global data sharing for transactions to be verified. Blockchain technology was created to prevent the double-spending problem or counterfeiting.
How is a cryptocurrency created?
Cryptocurrencies are created through a process known as mining (in the case of Proof-of-Work, such as Bitcoin), or staking (in the case of Proof-of-Stake, such as Cardano). Mining/staking involves validating pending transactions and creating new cryptocurrency units as rewards. Proof-of-Work requires computational power to compete in providing cryptographic puzzle solutions, while Proof-of-Stake just needs users to hold and/or lock cryptocurrency in their wallets.
Where is cryptocurrency used?
Initially, it was created as a solution to allow payments on the Internet. Today, it is heavily used for investing and trading, as well as letting developers create software on smart contract platforms.