A brief overview of cryptocurrency
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What is cryptocurrency?
A cryptocurrency is a digital form of payment that, like cash, can be used as a medium of exchange for goods and services. The “crypto” in cryptocurrency stands for cryptography which is the use of encryption and decryption to secure data. Cryptocurrency runs on blockchain technology, and this operates as a digital ledger recording transactional information to assist with security.
A vital element of cryptocurrency is its decentralization. The decentralized capability allows individuals to transact (store, send, receive) digitally instantaneously through blockchain technology without any interference from a third party. Transactions today, as we know, go in a way where one party transacts with another, and a third party, typically a bank, must confirm this transaction which can take up to a few days to finalize. This issue is prominent in areas of the world where the banking system is weak but, decentralized finance allows one to have and transfer money digitally and instantaneously.
What is blockchain?
As often described, the blockchain is an immutable and shared digital ledger that enables the process of recording transactions. The immutability property of the blockchain means a transaction is unchangeable which entails it’s always accurate. As expected, the digital ledger property means there is a digital record of transactions that are stored on a computer network.
Each time a transaction occurs, a “block” is recorded. Each block is connected to other blocks that are before and after it, forming a chain of blocks. A block will confirm the time and sequence of a transaction and will connect (like a chain link) to prevent any block from being changed or inserted between any blocks. As a transaction occurs or a block is added, the verification of a previous block is strengthened, making the entire blockchain collectively stronger and more secure, providing the immutability property.
One can think of blockchain similar to this: blockchain to crypto is what the internet is to email; it makes it work securely.