A cryptocurrency is a digital currency designed to work through a computer network that is not reliant on any central
authority, such as a government or bank, to uphold or maintain it.[1] However, a type of cryptocurrency called a stablecoin may rely upon government action or
legislation to require that a stable value be upheld and maintained. They’re
secured by cryptography (complex math) and stored on a
blockchain.
( The first cryptocurrency
was bitcoin, which was first released as open-source software
in 2009. As of June 2023, there were more than 25,000 other cryptocurrencies in the marketplace, of which more than 40
had a market capitalization exceeding $1 billion.[11] As of April 2025, the cryptocurrency market
capitalization was already estimated at $2.76 trillion.)
A blockchain is like a digital notebook shared by thousands of computers worldwide.Every time someone makes a transaction, it’s written in the notebook. Everyone can see it, but no one can erase or cheat because the data is secured and verified by many computers. Example: If you send 1 Bitcoin to a friend, it’s recorded forever on the blockchain.
The blockchain is a distributed ledger with growing lists of records (blocks) that are securely linked together via cryptographic hashes.[1][2][3][4] Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data (generally represented as a Merkle tree, where data nodes are represented by leaves). Since each block contains information about the previous block, they effectively form a chain (compare linked list data structure), with each additional block linking to the ones before it.
Blockchains are typically
managed by a peer-to-peer (P2P) computer network for use as a public distributed ledger, where nodes collectively adhere to a consensus algorithm protocol to add and validate new transaction blocks.
Although blockchain records are not unalterable, since blockchain forks are possible, blockchains may be considered secure by design and exemplify a distributed computing system
with high Byzantine fault tolerance.[5]
How is work
·
They are managed by networks of computers (nodes)
that all run the same software.
·
These nodes follow the same rules
(called a protocol),
so the system keeps working even if some computers go offline.
· This idea is called decentralization → power is spread out, not in one place.
Imagine you want to send 1
Bitcoin to your friend:
1.
You open your wallet
app and type your friend’s wallet address.
2.
You sign the transaction with your private key (like your
secret digital signature).
3.
The transaction is sent to the network, where thousands
of nodes check:
o Do
you really have 1 Bitcoin?
o Are
you trying to spend it twice? (double spending problem)
4.
Once verified, the transaction goes into a
"block."
5.
That block gets added to the blockchain (a permanent
public record).
6. Now everyone can see that the 1 Bitcoin moved from you to your friend.
What
is Mining?
- Mining
happens in cryptocurrencies that use Proof of Work (PoW) (like
Bitcoin).
- Mining is
how Bitcoin and some
other coins process transactions.
- Miners are computers that compete to solve very hard
math puzzles.
- The winner adds the new block of transactions to the
blockchain and gets rewarded with new coins + transaction fees.
- Mining = Security + New Coins Creation.
- Example: Bitcoin miners earn new Bitcoins every
10 minutes when they mine a block.
· Think of miners like digital accountants racing to update the public ledger. The winner gets paid.
What is Staking?
·
Used in Proof
of Stake (PoS) systems (like Ethereum, Cardano, Solana).
·
Instead of solving puzzles, you lock up (stake) your coins to support
the network.
·
The more coins you stake, the higher chance you
have to be chosen to validate transactions and create blocks.
·
In return, you earn rewards (like interest).
· Staking uses much less energy than mining.
How
Does Crypto Have Value?
Crypto has value because of a few
key reasons:
- Scarcity
→ Bitcoin, for example, has a fixed supply (21 million coins only). Just
like gold is valuable because it’s rare, Bitcoin is scarce.
- Utility
→ Some coins (like Ethereum) are used for smart contracts, apps, and
payments.
- Trust in the network
→ The blockchain is secure, transparent, and can’t easily be hacked or
changed. People trust it.
- Adoption
→ The more people, businesses, and apps that use a cryptocurrency, the
more demand increases → raising its value.
- Decentralization
→ No government can print more or take it away, which makes it attractive
as an alternative to traditional money.
Types of Cryptocurrencies
Not all coins are the same. There are different
categories:
🔹 Coins (own
blockchain)
·
Bitcoin
(BTC) → Digital gold. Main purpose = store of value & payments.
·
Ethereum
(ETH) → “Programmable money” → runs smart contracts and decentralized
apps (DeFi, NFTs, games).
·
Solana
(SOL), Cardano (ADA), Avalanche (AVAX) → Competing blockchains that
are faster or cheaper.
🔹 Tokens
(built on another blockchain)
·
These don’t have their own blockchain, they run
on others (usually Ethereum or Solana).
·
Examples:
o Uniswap (UNI) → Governance token for a
crypto exchange.
o Chainlink (LINK) → Provides real-world
data to blockchains.
o Shiba Inu (SHIB), Dogecoin (DOGE) → Meme
tokens, often community-driven.
🔹 Stablecoins
·
Cryptos tied to real-world money (usually 1:1
with USD).
·
Examples: USDT
(Tether), USDC, DAI.
· Purpose → reduce volatility, used in trading and DeFi like digital dollars.
Why
is Bitcoin Different from Ethereum?
- Bitcoin (BTC)
- First crypto (2009).
- Main purpose: store of value (like gold) and payment.
- Very secure, but slow (7 transactions per second).
- Supply is capped at 21 million → makes it scarce.
- Ethereum (ETH)
- Created in 2015.
- Adds smart contracts: self-running code that
can handle things like loans, NFT sales, or games without
banks/companies.
- Think of Ethereum as a global computer where
apps can run.
4.
Mining vs Staking in Value Creation
- Mining (PoW)
→ secures Bitcoin and creates new BTC.
- Staking (PoS)
→ secures Ethereum 2.0 and many others, rewarding users for locking coins.
- Both systems protect the blockchain and keep it running fairly.
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