What Is Cryptocurrency?

  • Cryptocurrencies (often referred to as โ€œcryptoโ€) are decentralized digital currencies.

  • They are not issued or governed by a central bank.

  • Some cryptocurrencies are created by developers, while others are generated by network algorithms.

  • Unlike physical banknotes or coins, cryptocurrencies exist purely in digital form.

How Does Cryptocurrency Work?

  1. Digital Currency: Cryptocurrency is essentially digital currency that exists only on computers.

  2. Peer-to-Peer Transactions: Transactions occur directly between peers without intermediaries like banks.

  3. Blockchain Technology: Cryptocurrency transactions are recorded on a digital public ledger called a blockchain.

    • A blockchain is a chain of blocks, where each block contains a list of transactions.

    • The ledger is encrypted using cryptography, which is why itโ€™s called โ€œcryptoโ€ currency.

Key Points:

  • Market Structure:

    • Cryptocurrencies are traded globally on various platforms.

    • Major financial centers participate in this decentralized market.

  • Currency Pairs:

    • Cryptocurrencies trade against each other in pairs (e.g., BTC/USD, ETH/BTC).

    • Each pair represents the exchange rate between two digital currencies.

  • Why Invest in Cryptocurrency?:

    • Speculation: Investors bet on price movements.

    • Hedging: Manage risk related to traditional currencies.

    • Portfolio Diversification: Include crypto for balance.

  • Continuous Trading: The crypto market operates 24/7 across different time zones.

Last updated