What Is Cryptocurrency? A Simple Guide For Beginners!
05 January 2021
Cryptocurrency is just like our local fiat currency, except it can be stored, moved, and transacted online. In short, one can assume cryptocurrency as digital cash.
It is called a cryptocurrency because it is protected by cryptography technique, where every user is provided with a secret private key. The private key is essential to facilitate transactions. Every user has their unique private key (must not be shared) and public key (which can be shared).
Cryptocurrencies make payments faster and safer, unlike our fiat currency. It can be used to purchase both online and offline products, tickets, tokens, coupons, and a lot more.
The main perk of cryptocurrency, when compared with the existing fiat currency, is that they are decentralized. It means the users are connected in a peer-to-peer network, unlike a central server that stores all the data. Here, every user is their own server. They get to own a copy of the entire database. That’s what we call a multi-nodal operation. There’s no single point of failure.
To help you understand this better, here’s an example.
EXAMPLE: Assume you purchase a product by making an online payment. You seek the support of your registered bank to facilitate the payment process. For processing the transaction, the bank levies a charge. Beyond the charging fee, all your data is stored in a centralized server. So, when someone hacks the system, they can gain easy access to every users’ data and funds. This monumental barrier is overcome by decentralization and cryptocurrency. Because users can directly pay the concerned party without the presence of a financial body and any middle-men. Thereby, huge savings are seen. Moreover, your account won’t get hacked.
Similar to private keys, digital signatures also encrypt the transaction. And, every transaction is added to the public database and remains immutable.