What is Cryptocurrency?
A cryptocurrency is defined as a digital asset, also referred to as tokens or coins, built on blockchain technology. It’s called cryptocurrency (or crypto) because it uses cryptography to maintain its peer-to-peer and immutable nature. Unlike fiat currency, a currency not supported by a commodity and most commonly used today, cryptocurrency is not backed or influenced by any central bank or nation.
The first and most popular cryptocurrency is Bitcoin (BTC). Most people who hear the word “crypto” think of the asset that uses the Bitcoin blockchain. In fact, the popularity of Bitcoin is so strong that many refer to other cryptocurrencies as “altcoins.” These altcoins include Ethereum (ETH), the second biggest blockchain, and its cryptocurrency ether is highly utilized in Decentralized Finance (DeFi) applications. Ethereum distinguishes itself by implementing smart contracts, self-executing programs that automate the actions required in an agreement, which unlocked additional applications for cryptocurrencies.
What are Cryptocurrencies Used For?
Cryptocurrencies like BTC and ETH are used as a medium of exchange. People use crypto primarily to buy and sell goods and services, exchange them for other currencies, or hold the crypto as an asset.
While Ethereum and other smart contract blockchains have multiple use cases, Bitcoin is almost exclusively used for transactions, like a traditional currency. It’s often referred to as “digital gold” because it has a fixed supply, similar to a commodity. Gold maintains its value because of scarcity and inherent value. Fiat currency, on the other hand, tends to inflate because a central bank can easily increase or decrease supply.
Not all cryptocurrencies have a fixed supply, however. Many, like Dogecoin (DOGE), have a fluctuating supply. Cryptocurrencies are often criticized for their volatility but can also be used to create things like stablecoins which are pegged to the value of a certain asset like the US dollar or gold.
How Do Cryptocurrencies Work?
Blockchain technology enabled cryptocurrencies to become the first successful type of digital currency. This is because cryptocurrency uses hashing to timestamp transactions on a public ledger. This breakthrough solved the double-spend problem that plagued previous digital currencies before Bitcoin.
Until cryptocurrency, no one had figured out how to prevent digital currencies from being infinitely copied and spent over and over. On a public and transparent blockchain, each transaction is permanently recorded and timestamped through a transparent digital ledger. This means a blockchain network can accept the first transaction and reject any subsequent attempts to reuse the same coin. Validating these transactions without an intermediary can happen without the need for a trusted third party to verify, which is a common practice in traditional banking environments.
Notable Cryptocurrency Statistics
Analytics Insights gives these important statistics for cryptocurrency in 2023:
- As of 1st December 2022, the global crypto market cap is $858.43 billion
- 67% of Millennials see bitcoin as a safe haven asset
- 52% of crypto investors consider crypto a main source of income
- 60% of users keep their crypto within centralized exchanges
- Binance is the largest crypto exchange globally, with $16.91 billion / 24-hour volume
Cryptocurrency Related Terms
Ethereum — A decentralized blockchain that enables developers to build and deploy decentralized applications (dApps) and smart contracts.
BTC — The native cryptocurrency of the Bitcoin blockchain.
Blockchain — A blockchain is a decentralized database that records transactions on a distributed ledger.
Peer-to-peer (P2P) — Peer-to-peer (P2P) refers to a type of decentralized network with no intermediary, leaving each participant to connect and transact with each other directly.
Altcoin — An altcoin is commonly defined as a cryptocurrency that is an alternative to bitcoin (BTC).
