Cryptocurrency is any form of currency that exists either digitally or virtually. It uses cryptography to secure transactions and is decentralised from any central issuing or regulating authority.
Cryptocurrency can therefore be viewed as a digital payment system that doesn't rely on banks to verify transactions.
Much like physical money, cryptocurrencies are storied in a wallet, albeit a digital one. When you transfer funds, the transactions are recorded in a public but online ledger purely as digital entries.
The most well known cryptocurrency is Bitcoin, which was founded in 2009 and remains the largest and most popular digital currency in the world.
How does it work?
Cryptocurrencies run on a distributed public ledger called blockchain, a record of all transactions updated and held by currency holders.
Units of cryptocurrency are created through a process called mining. Complicated mathematical problems are solved using intense computing power to generate coins. Users can then buy the currencies from brokers and store and spend them using digital wallets.
Although bitcoin has been traded since 2009, cryptocurrencies and blockchains application technology is still emerging in financial terms and more uses are expected in the future. Transactions involving bonds, stocks and other financial assets could eventually be traded using blockchain technology.
What is Blockchain technology?
A blockchain is a decentralised ledger of all transactions across a network of participants. The main difference between a typical database and blockchain is how it is structured.
Blockchain collects information together in groups, known as blocks, that hold sets of information. When each block's storage capacity is filled it is closed and then linked to the previously filled block. All new information that follows is compiled into a newly formed block that is itself added onto the chain when filled.
Unlike a typical database that is structured into tables, a blockchain is strung together into an irreversible timeline of data. The blocks cannot be altered when they are added to the chain and are always added and stored linearly and chronologically.
Furthermore, each subsequent block of data strengthens the verification of the previous block and renders the entire chain tamper--evident. This is done because each block contains its own hash, as well as the hash of the previous block and a time stamp.
Currently, tens of thousands of projects are looking to implement blockchains in a variety of ways, not just as a means to transparently record a ledger of payments.
For example, a voting system that gives each voter a single cryptocurrency token and then asks them to send it the specific wallet address of the candidate for whom they wish to vote. The transparent and traceable nature of blockchain would eliminate the need for human vote counting and the ability of bad actors to tamper with physical ballots.