CRYPTOCURRENCY EXPLAINED IN PLAIN ENGLISH

Cryptocurrency is a type of digital or virtual currency designed to work as a medium of exchange. Unlike traditional currencies such as the British Pound or US Dollar, cryptocurrencies are completely digital and are secured by special computer techniques known as cryptography. These digital currencies are decentralised, meaning they are not controlled by governments or central banks.

Instead, cryptocurrencies operate through a specialised technology called blockchain. A blockchain is a public, digital ledger that records every transaction made using the currency. This makes cryptocurrency transactions transparent, secure, and difficult to tamper with.

Cryptocurrencies are accessed and stored digitally using what’s known as a digital wallet. These wallets can be apps or hardware devices that hold the encryption keys needed to send and receive coins.

One of the defining features of cryptocurrencies is that they are peer-to-peer. This means users can send money directly to each other online, anywhere in the world, without a bank or third-party processor. This decentralised aspect has made cryptocurrencies both innovative and controversial, particularly in financial and regulatory circles.

Most cryptocurrencies are limited in supply, giving them the potential to gain value over time. Others are created with specific uses in mind, from buying services to powering complex decentralised systems.

In plain English, cryptocurrency is:

• Digital: You can’t hold it in your hand.
• Decentralised: No single entity, like a government, controls it.
• Encrypted: Security is kept tight using complex mathematics.
• Global: Transactions can occur across borders at any time.

Early adopters viewed cryptocurrencies as an alternative to traditional money systems, while recent years have seen growing interest from investors and technology companies alike.

To understand how cryptocurrency works, it helps to know the basic mechanics behind blockchain technology and digital value exchange.

Each cryptocurrency is based on a series of computer programmes that run on a distributed network of computers, often referred to as nodes. These nodes maintain and validate the data across the entire network. When a user wants to send cryptocurrency to someone else:

1. A transaction request is initiated.
2. The network validates the transaction using its existing record of entries (the blockchain).
3. Once validated, the transaction is added to a new ‘block’ of data.
4. The block is permanently attached to the chain of previous transactions — hence “blockchain”.

These blocks are linked using cryptographic algorithms, ensuring that each one connects securely to the one before it. This structure makes altering past records extremely difficult without the consensus of the majority of users, which significantly boosts security and prevents fraud.

Every transaction on a blockchain is public, although personal identities are hidden by long strings of letters and numbers — these are the wallet addresses. While this offers a degree of privacy, it also ensures transparency because anyone can verify the transactions going through the system.

To keep everything running smoothly and securely, many cryptocurrency networks employ a process called mining. In a proof-of-work system like Bitcoin’s, miners are individuals who use powerful computers to solve complex mathematical problems that validate transactions. As a reward, miners earn new cryptocurrency tokens. Other cryptocurrencies use what’s known as proof-of-stake, where token holders stake their coins to verify transactions and earn rewards.

In summary, cryptocurrency works through:

• Blockchain: Keeps a continually updated ledger of transactions.
• Encryption: Secures data and wallets using cryptographic keys.
• Consensus mechanisms: Ensure that all users agree on the transaction history.
• Digital wallets: Enable users to send and receive funds securely.

This combination of features allows cryptocurrencies to function without the need for traditional banking institutions or legal tender, paving the way for financial innovation and disruption.

Over the years, cryptocurrency has grown beyond just a single digital coin. There are now thousands of cryptocurrencies in circulation. However, a few have become prominent due to their technology, adoption, and market value. Here are key examples of major cryptocurrencies:

1. Bitcoin (BTC)

Launched in 2009 by a mysterious individual or group under the name Satoshi Nakamoto, Bitcoin was the first and remains the best-known cryptocurrency. It was created as a decentralised form of currency that allows people to store and transfer value without relying on banks. Bitcoin set the foundation for how most cryptos function today and is often considered ‘digital gold’ due to its limited supply of 21 million coins.

2. Ethereum (ETH)

Created in 2015 by Vitalik Buterin and a team of developers, Ethereum introduced a concept called smart contracts. These are self-executing agreements coded into the blockchain, allowing users to build a range of decentralised applications (known as dApps). Ethereum goes beyond merely processing transactions – it’s a whole platform for blockchain development.

3. Tether (USDT)

Tether is a stablecoin, meaning its value is linked to that of a traditional currency — in this case, the US dollar. One Tether is typically worth $1, which makes it useful for people who want the advantages of cryptocurrency (like fast transactions) without the price volatility of coins like Bitcoin.

4. Binance Coin (BNB)

Initially launched to be used on the Binance cryptocurrency exchange, Binance Coin has become a utility token that can be used to pay fees, participate in token sales, and access services on Binance’s platform. It also incorporates smart contract capabilities, following the massive growth in decentralised finance (DeFi).

5. Ripple (XRP)

Ripple aims to provide fast, affordable cross-border payment solutions for banks and financial institutions. Unlike many other cryptocurrencies, XRP doesn’t rely on mining. Instead, it uses a unique consensus algorithm across trusted validators for transaction verification.

6. Cardano (ADA)

Regarded for its strong academic foundations, Cardano is a blockchain platform focused on sustainability, scalability, and transparency. It uses a proof-of-stake system and has ambitious goals of supporting smart contracts, decentralised apps, and solutions for global challenges.

Other Notable Mentions

• Solana (SOL): Known for high-speed transactions and low fees.
• Polkadot (DOT): Aims to integrate multiple blockchains into a single network.
• Dogecoin (DOGE): Originally a joke, but gained popularity due to widespread community support and celebrity endorsements.

Each of these cryptocurrencies serves different purposes, from daily transactions to facilitating smart contracts or enabling fast global finance. Investors and users choose them based on technology, network effect, and perceived stability or utility.