By using cryptography, virtual currencies, known as cryptocurrencies, are nearly counterfeit-proof digital currencies that are built on blockchain technology.
Comprised of decentralized networks, blockchain technology is not overseen by a central authority, therefore, cryptocurrencies function in a decentralized nature which theoretically makes them immune to government interference.
The term, cryptocurrency derives from the origin of the encryption techniques that are employed to secure the networks which are used to authenticate blockchain technology.
Cryptocurrencies can be thought of as systems that accept online payments which are denoted as “tokens.” Tokens are represented as internal ledger entries in blockchain technology while the term crypto is used to depict cryptographic methods and encryption algorithms such as public-private key pairs, various hashing functions, and an elliptical curve.
Every cryptocurrency transaction that occurs is logged in a web-based ledger with blockchain technology, which then must be approved by a disparate network of individual nodes (computers that maintain a copy of the ledger). For every new block generated, the block must first be authenticated and confirmed ‘approved’ by each node, which makes forging the transactional history of cryptocurrencies nearly impossible.
Bitcoin became the first blockchain-based cryptocurrency and to this day is still the most demanded cryptocurrency and the most valued. During the time of composing this publication, Bitcoin contributed for 64.2% of the cryptocurrency market volume.
Out of the wake of Bitcoin, iterations of Bitcoin became prevalent which resulted in a multitude of newly created or cloned cryptocurrencies. Contending cryptocurrencies that emerged after Bitcoin’s success is referred to as ‘altcoins’ and they refer to a cryptocurrency such as Bitcoin, Peercoin, Namecoin, Ethereum, Ripple, Stellar, and Dash.
Cryptocurrencies promise a wide range of technological innovations that have yet to be structured into being. Simplified payments between two parties without the need for a middle man is one aspect while leveraging blockchain technology to minimize transaction and processing fees for banks is another.
Of course, cryptocurrencies have their disadvantages too. Such as tax evasion, money laundering, and other illicit online activities where anonymity is a dire ingredient in solicitous and fraudulent activities.