Learning Centre

Ok so a cryptocurrency also referred to as a digital currency or a virtual currency is a form of digital money. A cryptocurrency allows the owner to buy goods and services in exactly the same way as physical cash does, however it’s not physical. It only exists as data and cannot be held in your hand. They allow the owner to pay for goods and services electronically over the internet. 

Think of the concept this way – many years ago, goods and services were paid for in gold. This slowly moved on to physical money, notes and coins, whose value was back by the government of that country. Now with cryptocurrencies we have taken this progression further with an internet-based medium of exchange.

So if Gold holds its value through its precious metal status and physical money stores value by its government backing, what guarantees do we have with cryptocurrencies? ‘The simplest way to answer this question is a ‘’collective guarantee’’ of sorts is given’. The digital currency is not backed or owned by one establishment, country or central bank, but by the collective masses. 

Cryptocurrency transactions are not conducted through banks, but through a digital ledger known as a blockchain on the internet. The blockchain is made up of the ‘’collective’’, millions of users and these users verify that the cryptocurrency is owned by you and that it has been legitimately created by a miner.    

A very secure time-stamped series record of data, that is run and owned by the ‘’collective’’ – millions of independent users, unable to modify the data contained in the blockchain, but they act its gatekeepers. Think of blockchain as an internet-based system that stores the data and facilitates the transactions which allows cryptocurrencies to function.

Miners maintain the blockchain on which cryptocurrencies function. Miners facilitate the digital transactions, by verifying the ownership of the cryptocurrency, its legitimacy, and adding it to the blockchain. Miners get rewarded for their work with crypto tokens.

A crypto wallet is a piece of software or hardware that enables the user to send, receive and track ownership of a digital currency. It does this by storing private and public keys and interacting with a blockchain. The wallet itself does not store the actual cryptocurrency, which is publicly held in a blockchain, but holds the data associated with it and allows the user to interact with the blockchain – receiving or sending digital coins. Hardware crypto wallets tend to be more secure than software wallets. 

In simple terms it’s a split in the blockchain network. Remember the network is an open source software, maintained and up-graded by the ‘’collective’’. This ‘’collective’’ can become misaligned, causing a fork in the chain and the creation of two versions of the blockchain – some miners will follow one and while others the second. An example of a blockchain fork is Bitcoin Cash.