Cryptocurrency is a form of digital or virtual currency that uses cryptography for security and operates on a decentralized network called blockchain. Unlike traditional currencies issued by governments and central banks, cryptocurrencies rely on a technology called blockchain to achieve decentralization, security, and transparency.
Key features of cryptocurrencies include:
Key features of cryptocurrencies include:
- Decentralization:
- Cryptocurrencies operate on a decentralized network of computers (nodes) that collectively maintain and validate the transactions. This eliminates the need for a central authority, like a bank or government, to oversee and control the currency.
- Blockchain Technology:
- The majority of cryptocurrencies use blockchain technology, which is a distributed ledger that records all transactions across a network of computers. The blockchain is a chain of blocks, each containing a list of transactions. Once a block is filled, it is linked to the previous one, creating a secure and transparent record of transactions.
- Cryptography:
- Cryptocurrencies use cryptographic techniques to secure transactions and control the creation of new units. Public and private keys are used to facilitate secure and private transactions.
- Limited Supply:
- Many cryptocurrencies have a capped supply, meaning there is a maximum number of coins or tokens that can ever be created. This scarcity can contribute to the value proposition of certain cryptocurrencies.
- Anonymity and Pseudonymity:
- While transactions on the blockchain are transparent and traceable, the identities of the participants are often pseudonymous. Users are identified by their wallet addresses rather than personal information, providing a level of privacy.
- Global Accessibility:
- Cryptocurrencies can be accessed and transacted globally, providing a borderless and inclusive financial system. Users can send and receive funds without the need for traditional banking infrastructure.
- Smart Contracts:
- Some cryptocurrencies, such as Ethereum, support smart contracts. These are self-executing contracts with the terms of the agreement directly written into code. Smart contracts automatically enforce and execute the terms when predefined conditions are met.
- Volatility:
- Cryptocurrency markets are known for their price volatility. The value of cryptocurrencies can experience significant fluctuations over short periods, presenting both opportunities and risks for investors.