Cryptocurrencies, also called coins or tokens, are digital currencies that are secured through cryptography.
What is Cryptography? Well, that’s a lesson for another time but the four basic points to remember about modern cryptography are:
1) Confidentiality (the information cannot be understood by anyone for whom it was unintended)
2) Integrity (the information cannot be altered in storage or transit between sender and intended receiver without the alteration being detected)
3) Non-repudiation (the creator/sender of the information cannot deny at a later stage his or her intentions in the creation or transmission of the information)
4) Authentication (the sender and receiver can confirm each other’s identity and the origin/destination of the information)
So what does this have to do with cryptocurrencies?
These currencies rely on blockchain technology—a distributed ledger of all transactions that is decentralized and unable to be changed under most circumstances as long as nobody controls more than 50% of the computing power on the network.
So what makes this different from the US dollar? The Euro? Even Rubles? Unlike the few I’ve mentioned, cryptocurrencies are not controlled by any central government or authority. In the case of some of them (Bitcoin, Monero, and Litecoin for example), the supply of coins is controlled by a process called mining, a computationally intensive process where computers compete against each other to secure the network by solving mathematical equations – We’ll dive deeper into this in our Mining Course.
Some other currencies go a different route, these currencies are pre-mined. How it works is the coins are mined before the public launch of the currency.
Most cryptocurrencies around today have been created as open-source software. This is done so they can continue to improve as the developers work and so they are able to implement solutions for any problems that arise. Common problems we see are scalability and security issues.
The features and purpose of different coins vary. Several were created by developers looking to solve shortcomings of certain coins. Litecoin for example was created as a faster and cheaper version of Bitcoin.