Definition:
Cryptocurrencies are a digital or virtual currency designed to work as a medium of exchange. Similar to conventional currencies (e.g., US, EURO, GBP, etc.), cryptocurrencies can be used to carry out various types of purchases. Cryptocurrencies can also be used as tokens to provide access to features and functions of a particular application or service.
Explanation:
The term cryptocurrency comprised of two words – cryptographic and currency. What makes cryptocurrencies unique is its use of a process known as cryptography to:
- Secure financial transactions
- Verify the transfer of digital assets
Cryptography is essentially a set of complex mathematical functions used to “code” transactions so that they are sent in a secure format. This ensures that the data for whom the transaction is intended for can only be received, read and processed by that person.
Another defining characteristic of cryptocurrencies is its decentralized nature. In other words, these virtual currencies are not centrally owned or controlled by any bank, government, or any other organization.
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