“Bitcoin, bitcoin coin, physical bitcoin, bitcoin photo” by antanacoins is licensed under CC BY-SA 2.0
“Bitcoin, bitcoin coin, physical bitcoin, bitcoin photo” by antanacoins is licensed under CC BY-SA 2.0

What is cryptocurrency?

Cryptocurrency is a form of digital money that is designed to be secure and sometimes anonymous.1 The first cryptocurrency, bitcoin, was created in 2009 and has soared to over $40,000 this year.2 Cryptocurrencies are decentralised and allow users to make secure payments and store money without going through a bank or using their name.3 In order to make a transaction, both the sender and receiver must sign off on the payment.4 Every transaction is anonymous, transparent, and verified.5 All transactions are recorded on a distributed public ledger called blockchain.6 The ledger cannot be changed without specific conditions and is owned by no one.7 Users are also able to utilize a computer’s processing power to solve complicated math problems to create cryptocurrency, this is called mining.8 The computers audit transactions, in return, they are rewarded with the cryptocurrency they are verifying.9 Cryptocurrencies are secure and provide a certain level of anonymity.10 The transactions have low fees and cannot be faked or reversed.11 Transactions can’t be faked as they won’t be verified by the miners.12 Many use cryptocurrencies as a speculative investment.13

Definitions of different words
Definitions of different words

What are the different types of currency?

There are over 6,700 different cryptocurrencies which had a total value of over $1.6 trillion on February 18, 2021.14 The top 10 largest cryptocurrencies by market capitalization are as follows: Bitcoin, Ethereum, Tether, Binance Coin, Cardano, Polkadot, CRP, Litecoin, Chainlink, and Bitcoin Cash.15 Bitcoin was the first cryptocurrency developed by Satoshi Nakamoto in 2009.16 It is the most commonly traded cryptocurrency and has surged in value, reaching $42,000 in January 2021.17 It is used in 96 countries and has 12,000 transactions every hour.18 Ethereum was developed in 2015, the token is called ether and is the second most popular and valuable cryptocurrency.19 The Ethereum blockchain is used for many other cryptocurrencies.20 Litecoin similar to bitcoin and was developed in 2011 by Charlee Lee.20 It incorporates new innovations quicker than bitcoin, including faster payments and allowing more transactions.21

Where do you buy?

Buyers can use exchanges such as eToro, Coinbase and CoinCorner to buy bitcoin.22 Many cryptocurrencies can be purchased with U.S. dollars, but other require purchasing with bitcoin or other cryptocurrencies.23 You would also need a wallet to store your currency which could be created through an exchange.24

How is it valued?

It is valued by supply and demand.25 Bitcoin has a maximum supply of 21 million bitcoins which creates an artificial scarcity.26

Growth of cryptocurrency
Growth of cryptocurrency

How does it differ than traditional money?

Cryptocurrency removes central banks from managing the currency.27 Blockchain, the technology behind cryptocurrencies, is very different from the traditional money system.28 The strong cryptography makes transactions more secure and the decentralized monitoring system is unlike the centralized regulatory networks of traditional money.29 Some cryptocurrencies such as bitcoin can be divided up to 8 decimal places, the smallest unit is referred to as a “Satoshi”.30 There are also differences in the form the currency takes. Physical traditional money can be torn and burned. Digital currencies are not susceptible to this and can’t be destroyed.31 The currency can still be lost such as if a user forgets or loses their cryptography key; however, the currency will not be destroyed and will remain in the records of the blockchain.32 Cryptocurrencies also have an advantage in managing counterfeiting. Since cryptocurrencies use a decentralized blockchain ledger system, it would be very hard to counterfeit.33 The only way to counterfeit a cryptocurrency such as bitcoin would be to double spend, a situation where the same bitcoin is transferred two or more times.34 It is impossible to use the same dollar bill in multiple transactions, but a double attack would require a group to control over 50% of the network power.35 This would be almost impossible to do. Those are some differences between traditional money and cryptocurrency.

Differences to traditional money
Differences to traditional money


Bibliography

Genesis Mining. (2021). HOW DOES CRYPTOCURRENCY WORK? . Retrieved from Genesis Mining: https://www.genesis-mining.com/how-cryptocurrency-works Jeffrey, C. (2020, March 16). What Is Cryptocurrency and How Does It Work? Retrieved from G2: https://learn.g2.com/how-cryptocurrency-works Kelleher, J. P. (2020, June 30). Why Do Bitcoins Have Value? Retrieved from Investopedia: https://www.investopedia.com/ask/answers/100314/why-do-bitcoins-have-value.asp Potts, J., & Nabben, K. (2021, January 5). Why is Bitcoin’s price at an all-time high? And how is its value determined? Retrieved from The Conversation: https://theconversation.com/why-is-bitcoins-price-at-an-all-time-high-and-how-is-its-value-determined-152616 Royal, J., & Voigt, K. (2021, February 25). What Is Cryptocurrency? Here’s What You Should Know. Retrieved from NerdWallet: https://www.nerdwallet.com/article/investing/cryptocurrency-7-things-to-know#2.-how-many-cryptocurrencies-are-there-what-are-they-worth Telegraph Reporters. (2021, February 25). What is cryptocurrency, how does it work and why do we use it? Retrieved from The Telegraph: https://www.telegraph.co.uk/technology/0/what-cryptocurrency-why-how-work-bitcoin-ethereum/


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  10. (Telegraph Reporters, 2021) ↩︎

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  20. (SoFi Learn, 2021) ↩︎

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  27. (Royal & Voigt, 2021) ↩︎

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  34. (Kelleher, 2020) ↩︎

  35. (Kelleher, 2020) ↩︎