A cryptocurrency is a digital or virtual currency that uses cryptography for security. Unlike traditional currencies issued by governments (fiat money), cryptocurrencies operate on decentralized networks based on blockchain technology. They are typically not controlled by any central authority, making them immune to government interference or manipulation.
Definition: A type of digital or virtual currency that uses cryptography for security and operates independently of a central authority.
Explanation: Cryptocurrencies are designed to be secure and, in many cases, anonymous. The most popular and widely known cryptocurrency is Bitcoin, but there are thousands of others, collectively known as altcoins.
Definition: A distributed ledger technology that records transactions across many computers so that the record cannot be altered retroactively.
Explanation: Blockchain is the underlying technology behind cryptocurrencies. It ensures the integrity and chronological order of transaction data by linking blocks of data together in a chain.
Definition: The distribution of power away from a central authority to a network of nodes.
Explanation: In the context of cryptocurrencies, decentralization means that no single entity or organization controls the entire network. This reduces the risk of central points of failure and enhances security and trust.
Definition: A digital tool that stores private and public keys, allowing users to send and receive cryptocurrencies.
Explanation: Wallets can be software-based (hot wallets) or hardware-based (cold wallets). They manage the keys that enable users to transact on the blockchain.
Definition: A secret code that allows the holder to access and manage their cryptocurrency.
Explanation: Private keys must be kept secure and confidential. Anyone with access to a private key can control the associated cryptocurrency.
Definition: A cryptographic code that acts as an address for receiving cryptocurrency.
Explanation: Public keys can be shared with others to receive funds, similar to a bank account number.
Definition: The process of using computational power to validate transactions and add them to the blockchain, earning rewards in the form of cryptocurrency.
Explanation: Mining involves solving complex mathematical problems. Successful miners are rewarded with newly minted coins and transaction fees.
Definition: A platform where users can buy, sell, and trade cryptocurrencies.
Explanation: Exchanges can be centralized (managed by a company) or decentralized (operated on a peer-to-peer network). They facilitate the conversion of fiat money to cryptocurrency and vice versa.
Definition: Any cryptocurrency other than Bitcoin.
Explanation: Altcoins include Ethereum, Litecoin, Ripple, and thousands of others. They often have different features and use cases compared to Bitcoin.
Definition: Government-issued currency that is not backed by a physical commodity but by the trust and authority of the government.
Explanation: Examples include the US Dollar (USD), Euro (EUR), and Japanese Yen (JPY). Fiat currencies are used in everyday transactions and are regulated by central banks.
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"What is Cryptocurrency?" Investopedia. Retrieved from Investopedia.