What is Cryptocurrency?

A Beginners Guide to Understanding the Digital Currency Revolution

The digital currency revolution is changing the world as we know it. But many people are still unsure of how exactly it works. Understanding the technology and processes behind cryptocurrency can appear challenging at first glance, but once you understand the main principles, the rest will fall into place.

Whatever your level of understanding, it’s obvious that something significant is happening with the advent of digital currency. What is Cryptocurrency? 

Cryptocurrency is digital money that can be stored and sent electronically. In other words, it’s an online form of currency that uses encryption and decryption to keep it secure. This is what makes it so unique. Instead of storing the transactions on a centralized server, transactions are recorded on a distributed public ledger, and this public ledger is known as a blockchain.

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How Does Cryptocurrency Work?

It’s important to know that there is a difference between digital currency and cryptocurrency. Digital currency is essentially a digital version of a regular fiat currency like the US dollar. Cryptocurrency exists purely as data—no government or bank controls it. Instead, a network of computers (miners) creates and verifies the transaction data. These miners earn a small reward in the form of digital tokens (cryptocurrencies) for their work. At its core, cryptocurrency is a form of digital money that can be verified and transferred between two parties without the need for a centralized authority.  Why Use Cryptocurrency?

The most notable advantage is that cryptocurrency transactions are completed instantly and can be sent from one party to another without the need for a banking system. Let’s say you want to send someone $100,000 through a bank—you’d first have to make sure your bank has the funds available to send, and this can take days to process. With cryptocurrency, you can send 0.0001 bitcoins instantly. Furthermore, cryptocurrency is highly scalable and can easily handle high volumes of traffic that other payment methods simply cannot.Who’s Using Cryptocurrency?

While cryptocurrencies are accepted by a select few companies and merchants, they are – for now, at least – primarily used as a speculative investment vehicle. When you exchange money for cryptocurrencies like Bitcoin, Ether, or Litecoin, you’re not actually purchasing a tangible product. Instead, you’re investing in the future success of the cryptocurrency. As such, the value of cryptocurrency can shift dramatically and can be difficult to predict. While Bitcoin was once worth just a few cents, it’s now worth thousands of dollars. Likewise, some cryptocurrencies that were worth thousands of dollars are now worth just a few cents. Like any financial product, they are tied to the economic market.

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Blockchain

The underlying technology is what makes cryptocurrency revolutionary. The technology that makes cryptocurrencies work is known as the blockchain, which is a distributed public ledger that leverages a decentralized network for security. The ledger is a huge list of records that are held on many different computers across the globe. All of these computers are constantly checking one another to make sure no one has tampered with the records. If someone tries to hack into the system or change a record, the rest of the computers will automatically be notified.This makes the blockchain incredibly secure and almost impossible to hack. 

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Looking Towards the Future

It’s important to remember that cryptocurrency is still in its infancy—which is both an advantage and disadvantage. As it steadily grows into a viable form of currency, Sprocket is intent on modernizing the financial services industry with a combination of classic banking and crypto banking, helping build a new world of decentralized finance that democratizes access to online banking for everyone, everywhere.