What is cryptocurrency?

Cryptocurrency is a type of virtual or digital currency that employs cryptography for security.

Over the years, as humanity moved from the bartering system to different forms of currency like metal coins, paper money, plastic cards, and mobile payments, each shift was met with its share of suspicion, curiosity, and eventual acceptance. Cryptocurrency is but the latest type of money to draw everyone’s attention.

Cryptocurrency definition

With terms like bitcoin, ethereum, litecoin, blockchain, and even dogecoin making the news, many people ask: what is cryptocurrency in simple words? In a nutshell, cryptocurrency is a type of virtual or digital currency that employs cryptography for security. Many cryptocurrencies also use blockchain as a foundation.

What is cryptography in cryptocurrency?

The word "crypto" means secret, and "cryptography" is the science of secret writing. When James Bond sends a message to Ms. Moneypenny at MI6 that he doesn't want anyone to read, he may use cryptography. Similarly, cryptocurrencies rely on cryptography for privacy and security.

What is blockchain in simple words?

Blockchain is the technology that gave birth to the first cryptocurrency, bitcoin. Here’s a brief blockchain definition: A blockchain is a decentralized system that carries a record of cryptocurrency transactions across a chain of computers in a peer-to-peer network. Each block carries a series of transactions, and every new transaction adds to a participant’s ledger.

Who started cryptocurrency?

Satoshi Nakamoto is the pseudonym for the person (or persons) who developed bitcoin and created the first blockchain. Nakamoto began work on the cryptocurrency in 2007 until late 2010. While there has been plenty of speculation, exactly who is Nakamoto remains a mystery.

How does a cryptocurrency blockchain transaction work?

  1. Someone requests a cryptocurrency transaction on a blockchain.
  2. Blockchain nodes on the peer-to-peer network see the request.
  3. The nodes use sophisticated technology to validate and verify the transaction.
  4. The verified transaction adds to a block.
  5. The modified block becomes a permanent and irreversible part of the blockchain.  

What are blockchain nodes?

Blockchain nodes can be any type of device on a blockchain peer-to-peer network like desktops or laptops. They hold, spread, preserve and verify the data, and they also broadcast and spread information to other nodes to keep everything in sync.

How do you get cryptocurrency?

Your first option is to buy it from an exchange. You’ll need an app called a wallet to hold your cryptocurrency. There are online and offline versions of a cryptowallet. You can also mine for cryptocurrency by using your computer to solve complex mathematical equations associated with blockchains. Every time you crack these codes, you earn cryptocurrency as a reward. However, looking at how cryptomining works — the more a cryptocurrency matures, the harder it is to mine it profitably.

Nowadays, the cost of mining a mature cryptocurrency like bitcoin is pretty high in terms of computer hardware and energy resources. For more resources, many cybercriminals deploy cryptojacking malware to use your computer, smartphones, tablets, and servers to mine bitcoin and the like without your consent or knowledge. You can try a tool like Malwarebytes Browser Guard to block in-browser cryptojackers. Also, read up on ways to protect your computer from malicious cryptomining vectors.

What are the uses of cryptocurrency?

Security: Cryptocurrency is challenging to hack because of the nature of blockchain technology, with users constantly reviewing it.

Privacy: Cryptocurrency can offer privacy and anonymity thanks to its decentralized and digital nature. However, this is a bit of a double-edged sword. Cryptocurrency is also popular on the Dark Web amongst cybercriminals for illegal or illicit transactions.

Speed: Cryptocurrency transactions are fast. While it may take a few days to send someone money in the other part of the world through a bank, sending cryptocurrency can take minutes.

Cost: Cryptocurrency transactions are usually cheaper than conventional ones because they cut out the middle man. You can also spend cryptocurrency wherever it’s accepted when traveling without worrying about exchange rates and conversion fees.

Can cryptocurrency be converted to cash?

Yes, you can convert cryptocurrency to cash. Most people use an exchange or a broker to cash out. But you may have to pay taxes and fees depending on your local regulations and your broker.  

How safe is cryptocurrency?

Ask yourself, what are the shortcomings of traditional currency like paper notes? Well, counterfeit gangs can duplicate paper notes. Paper notes are also vulnerable to physical damage. Moreover, a central authority can significantly alter the value of paper notes at a moment's notice.

On the other hand, a cryptocurrency that uses blockchain lives in cyberspace across a peer-to-peer network of computers, it's very secure, and users determine its value instead of a central authority like a bank or a government. However, a currency that lacks the backing of a central authority such as a national government has inherent risks, too.

Although cryptocurrency is exceptionally challenging to hack, it is vulnerable to theft like any type of money. For example, hackers are known to hit crypto exchanges and steal millions in cryptocurrency, though some grey hat hackers give the money back to their targets in rare cases. In addition, if you don't follow basic cybersecurity protocols, someone may steal the private key to your bitcoin wallet. It’s critical to keep it secure because lost or stolen cryptocurrency is quite tricky to recover due to how it works.

For starters, consider using a hardware wallet, also known as a cold wallet, to store your keys. A cold wallet doesn’t connect to the Internet and is less vulnerable to online attacks, though nothing is 100% safe. Many people use a service like Coinbase, Binance, or Crypto.com to store cryptocurrency and make trades, and it's important to be cautious of phishing attacks if you do. Don't share your secret recovery phrase (or what used to be called a seed phrase), as a threat actor could use it to recover your account. 

Additional cybersecurity best practices include using a secure Internet connection like your home WiFi, or using a VPN that encrypts your data if you are accessing your crypto on shared networks. On the devices you use to store or trade, use good antivirus/anti-malware protection to block threats like keyloggers (that store your keystrokes), Trojans, and other types of attacks that can enable someone to access your device. Finally, set complex passwords for your accounts, use 2FA or MFA whenever you can, and learn to identify phishing campaigns to protect your online currency from digital threats.

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