What is Cryptocurrency? Definition, Uses and How It Works

Cryptocurrency is a type of digital or virtual currency that uses cryptography to secure transactions, control the creation of new units, and verify transfers. Unlike traditional money, cryptocurrency is decentralized, meaning it isn’t controlled by any central bank or government. Instead, it runs on a blockchain, a public ledger that records all transactions.
 
Think of cryptocurrency like digital cash that you can send and receive over the internet without needing a bank or other middleman.

How Does Cryptocurrency Work?

Cryptocurrencies rely on blockchain technology to function. Here’s how it works in simple terms:

• Digital Wallets: You store cryptocurrency in digital wallets, which have two parts: a public key (like your email address) and a private key (like your password). You need the private key to access your funds, while the public key is used to record when your wallet makes a transaction.
• Transactions: When you send or receive cryptocurrency, you broadcast a transaction to the network that is confirmed then recorded to the blockchain.
• Mining or Validation: Depending on the cryptocurrency, either miners or validators confirm transactions by solving complex cryptographic puzzles or using a consensus mechanism.
• Blockchain: Once the transaction is confirmed, it's added to the blockchain—an unchangeable, transparent ledger that everyone on the network can see.

Key Features of Cryptocurrency

• Decentralization: There’s no single entity (like a bank or government) controlling cryptocurrency. Instead, it's maintained by a distributed network of computers.
• Security: Cryptocurrencies are secured by cryptography, making them resistant to fraud and counterfeiting.
• Global: Cryptocurrency can be sent or received by anyone, anywhere, with an internet connection.
• Transparency: Every transaction is publicly recorded on the blockchain, though the identities of users remain anonymous.

Common Uses of Cryptocurrency

• Digital Payments: Buy goods and services with crypto from online stores and physical locations that accept it.
• Investments: Many people buy cryptocurrencies like Bitcoin or Ethereum as an investment, hoping their value will increase over time.
• Decentralized Finance (DeFi): A growing sector where people can use crypto to earn interest, borrow, or lend money without a traditional bank.
• Remittances: Send money across borders quickly and often at lower fees than traditional bank transfers.

Other Glossary Terms