What is Cryptocurrency?
As the name suggests, a cryptocurrency is a digital currency that is secured by cryptography. One of its primary functions is to work as a medium of exchange within a peer-to-peer (P2P) economic system, which relies on cryptography to prevent frauds and counterfeiting. Most cryptocurrency systems are decentralized and maintained by a distributed network of computers (nodes) spread around the world. However, there are varying degrees of decentralization and some cryptocurrencies are considered more centralized than others (depending on their network structure and nodes distribution).
Being decentralized means that cryptocurrencies cannot be controlled by a single entity and do not rely on a central authority, like governments and banks. Financial transactions may occur directly between users (P2P) without the need for intermediaries.
Unlike centralized economic systems, the issuance and management of cryptocurrency units are determined by the network architecture, which is based on programmed algorithms and cryptographic proofs. In other words, there is a predefined set of rules (protocol) that defines how the cryptocurrency system should operate.
All transactions are verified by the communicating network nodes and confirmed transactions are permanently recorded in a public distributed ledger, called Blockchain – which is one of the core components and underlying technology of most cryptocurrency systems.
The first blockchain was conceptualized in 2008 and implemented, in 2009, as a core element of the first cryptocurrency network (Bitcoin).
A blockchain consists of a linear chain of multiple linked blocks that are cryptographically secured. Each block is a file made up of multiple components. It contains, among other things, a list of recent transactions and a reference to the block that came immediately before it. Each validated block also contains a registered solution (block hash) of a complex mathematical problem, which is part of the process of Mining.
Blockchain technology may also be applied in other activities that do not necessarily involve financial operations, but in the context of cryptocurrencies, they are responsible for keeping a permanent record of all confirmed transactions, working as a decentralized, distributed and public digital ledger.
Simply put, a blockchain is an endless growing list of data records (chain of blocks) that is secured by cryptography and highly resistant to modification.
Bitcoin was the first cryptocurrency to be ever created. It was introduced in 2009 by pseudonymous developer Satoshi Nakamoto. The main idea was to create an independent and decentralized electronic payment system based on mathematical proofs and cryptography.
As most cryptocurrencies, Bitcoin has a limited supply, which means that no more Bitcoins will be generated by the system after the max supply is reached (21 million units). Usually, the total supply is a public information that is defined when the cryptocurrency is created.
The Bitcoin protocol (aka. Bitcoin Core) is open source and anyone can review or copy the code. Many developers around the world contribute to the development of the project.