Cryptocurrency, in essence, is a form of decentralized virtual currency, meaning it is not issued or regulated by a central authority. Cryptocurrencies are also almost impossible to counterfeit as they are secured by cryptography. The cryptocurrency market emerged in 2009 with the creation of bitcoin (BTC) and has since become a prominent investment market with in excess of 300 million users worldwide. More than 18,000 businesses accept BTC and other types of cryptocurrency payments.
Blockchain is one of the most important terms to know to truly understand how cryptocurrencies work. The blockchain is a decentralized digital ledger that details every transaction made in a specific cryptocurrency. Every transaction is composed of “blocks,” and new blocks are created when they reach capacity. Transactions are saved and copied onto thousands of servers and computers worldwide and typically made public so that all transactions can be traced to particular individuals. The transaction chain is essentially immutable—it would take an enormous, impractical amount of computing power to tamper with the record. Some blockchains, including Monero, are private by design and allow for anonymous transactions.
Facilitated via computers designed to solve intricate computational math problems, mining refers to the process of creating BTC for circulation and is also a core component of blockchain ledger development and maintenance. Those who operate these computers are known as miners and act as auditors as they are tasked with verifying BTC transactions and preventing double-spending, which refers to the illicit spending of the same BTC multiple times. Miners can receive BTC once they have verified a block, or 1 MB, of BTC transactions.
A private key is unique to the holder of cryptocurrency assets and should not be shared with anyone. It involves a series of numbers and letters and acts as a password to access these assets. The private key is also required to verify cryptocurrency sales or withdrawals.
Transactions made on the blockchain are subject to fees known as gas price. Because of the sophisticated computer network required to mine cryptocurrencies, transactions carry relatively high energy costs and the gas price helps cover this. Individuals can pay higher gas prices for faster transactions.
Although Bitcoin was the first to market, several other types of cryptocurrencies have emerged in recent years. As of January 2021, there were more than 4,000 different cryptocurrencies. These are all known as altcoins. Ethereum (ETH) is the most prominent altcoin, while other popular altcoins include Litecoin (LTC), Ripple (XRP), Tron (TRX), and Chainlink (LINK), the latter of which is an ETH spin-off.