Back in 1990, people started asking “what is the Internet?” Thirty short years later, it’s a question that no longer needs to be asked.
Thirty years from now, people won’t need to ask, “what is a cryptocurrency?” It will be a normal part of their everyday lives, just like the internet is today.
There are many kinds of cryptocurrencies, but they all have the same six things in common. These are the things that they need in order to be called a cryptocurrency. Get ready for some big words!
Digital: Cryptocurrency is digital money. This means that it only exists in computers.
There are 5 important terms to understand about Cryptocurrency:
Peer-to-Peer: Cryptocurrencies are passed from person to person online.
Global: There isn’t one cryptocurrency for Spain and another for China, for example. A cryptocurrency is the same in every country. They can be used freely between countries and across borders.
Encrypted: There are no rules about who can use cryptocurrency, and what they can use it for. Real names aren’t used for accounts. Each user is given codes instead. This is where we get the crypto part of the cryptocurrency definition. Crypto is Latin for “hidden.” So, cryptocurrency translates as hidden money.
Decentralized: In the cryptocurrency world, there are no banks. Everyone is in charge of their own money, it isn’t kept in a bank. A bank is a center where lots of people keep their money. Cryptocurrencies are not managed by a central server, that’s why we say they are decentralized.
Not trust-demanding: The way cryptocurrencies are built means that you don’t have to trust anyone in the system in order for it to work.
Cryptocurrencies don’t need banks and governments. Users can send each other money online, without needing to trust each other or any third parties with their money or information.
Cryptocurrencies do this by recording every transaction on a shared database called a blockchain. This blockchain is shared across thousands of powerful computer systems called nodes.
Each new transaction is verified by a node. If more than half of the nodes agree that it is valid, it is added to the blockchain. Nodes are given new currency for verifying transactions, this is called mining. Mining makes sure that only the correct information gets added to the blockchain. Once transactions are added to it, they can’t be changed or deleted.
You don’t have to give your name, address, or date of birth when you use cryptocurrency. Your account has a public key and a private key. Think of it as being like your email account. Your public key is like your username and your private key is like your password. You need both to access your account.
Users are hidden, but transactions aren’t. Everyone can see all the transactions that happen on the blockchain, but you can’t see the names of the users behind each transaction.
Now, if a newbie (and we all know one!) asks you, “what is a cryptocurrency?” tell them that it’s digital money that you can send to anyone on the planet without using a bank. They don’t need to provide any personal information to make a transaction, and transactions take place on a network they can trust.