• A cryptocurrency acts as a medium of value exchange.
• Bitcoin is currently the biggest crypto asset.

Mediums of exchange have evolved drastically over the years. From the barter system to fiat currencies, humans have come a long way. The present era is all about digitization. Like smartphones have replaced traditional transatlantic phones, cryptocurrency has done the same to fiat currency. However, it has not yet gone mainstream. So what are cryptocurrencies? What significance do they hold? We will learn the answer to these questions in the following paragraphs.

What is Cryptocurrency?

It is simply a virtual token used as a medium of value exchange among users. Furthermore, Satoshi Nakamoto’s Bitcoin (BTC) is considered the first cryptocurrency. While similar concepts were developed before including B-money, Bitgold, Hashcash and more, nonetheless, these were not nearly as successful or popular as Bitcoin.

Cryptocurrencies are decentralized, which means that central authorities do not have power to control them. Nevertheless this is not completely true as digital assets like Cardano (ADA), Solana (SOL), Ethereum (ETH) and more were developed and are backed by foundations. To this date, Bitcoin remains the only ecosystem worth calling a decentralized network.

How Does Cryptocurrency Work?

It uses a distributed ledger technology (DLT) called blockchain on which all transactions are recorded digitally. A virtual asset is developed using cryptography, a system of securing information using codes. Transactions are verified by people running nodes linked to a particular network, maintaining trust among the community.

Virtual currencies use algorithms like proof-of-work (PoW), proof-of-stake (PoS), proof-of-history (PoH) and more to verify transactions. Once the transaction is verified, a miner, an entity mining digital asset, receives a set amount of crypto assets upon block validation.

Similar to natural resources like gold or silver, digital assets are mined digitally. A crypto miner requires advanced equipment like graphics processing unit (GPU), application-specific integrated circuit (ASIC), field programmable gate array (FPGA) chips and more to mine cryptocurrency.

How Many Types of Cryptocurrencies are There?

There’s no specific type of cryptocurrency. However, digital currencies except Bitcoin are addressed as altcoins. Stablecoins are a separate category of cryptocurrency as their price remains steady by design unlike the other crypto assets. BTC has traded as high as $69K and as low as $0.05.

If one still desires to learn about the categorizing cryptocurrencies, you can read about generations of blockchain to get a better idea.

How Safe Are Cryptocurrencies?

Cryptocurrencies use cryptography and operate on a blockchain. Both the aspects are considered largely secure. However, the crypto sector has seen its fair share of hacks in its short history. The Ronin Network hack of 2022 and PolyNetwork hack of 2021 are some of the biggest attacks in crypto history, yet.

The attack on PolyNetwork was simply an attempt to show the vulnerability in the systems. The actor returned the funds to the network in August 2021.