What is cryptocurrency?

A cryptocurrency is a type of digital money designed to be used over the internet, and is typically decentralized in nature, which means it doesn’t have a single organization, like a bank or government, controlling it. Instead, the control is shared across a network of participants. Meaning, the decision-making, governance and day-to-day operations are more spread out among many people, rather than being  concentrated or controlled by a single entity. 

Since cryptocurrency is decentralized and not secured by a third party, such as a central bank or government, it is instead secured by an underlying technology called ‘blockchain’. To understand how this works, let’s first define what a digital asset is, then we’ll unravel the basics of blockchain technology. Note that not all cryptocurrencies are decentralized.

A digital asset refers to any type of content or data that exists purely in a digital form and has economic value or ownership rights attached to it. For example, cryptocurrencies, intellectual property and digital media are all types of digital assets. Going back to the idea of decentralization, for blockchain technology it means no single entity has complete control over the network. Instead, the network is made up of multiple participants, known as Nodes, all of which contribute and work together to manage the day-to-day operation and security of the network.

We can think of a blockchain like a literal chain of blocks, all of which are interconnected. Each individual block acts as a store of data, keeping a comprehensive set of transactions that anyone can view and verify. When we say ‘anyone can view and verify’, this is referencing the ability for anyone to access the details of all the transactions recorded on-chain. Meaning, anyone participating in the network can look back and inspect any transactions made in the history of the blockchain. However, even though anyone can see the transactions, the blockchain safeguards sensitive information by encrypting it, ensuring that only the parties involved have access to it. For example, if Alice wants to send cryptocurrency to her friend Bob, only Alice and Bob are able to see the details of their transaction. For a more in depth breakdown of what blockchains are, find our lesson on this topic linked here.

The first cryptocurrency came to light in 2009 after a pseudonymous author, using the name Satoshi Nakamoto, released the Bitcoin Whitepaper. The paper, titled Bitcoin: A Peer-to-Peer Electronic Cash System, introduced the concept of bitcoin as the first ever decentralized cryptocurrency. It outlined the underlying technology and core principles of how this new digital currency system would allow people to send money to each other directly without the need for an intermediary, such as a bank. The whitepaper also explained how blockchain technology, a type of decentralized digital ledger, could record all the transactions securely and transparently. 

The release of the whitepaper in 2009, not only laid the foundation for  the development of Bitcoin but also paved the way for the creation of numerous other cryptocurrencies and overall influenced the trajectory of digital currencies and decentralized systems.

It’s important to note that in this and other lessons within The Uphold Academy, we reference the blockchain protocol for Bitcoin with a capitalized ‘B’ and the cryptocurrency with a lowercase ‘b’.

Government issued currencies are known as fiat currencies, for example; USD, GBP and EUR. These currencies share some common traits with cryptocurrencies, but also have significant differences.

Both serve as a medium of exchange, meaning they can be used to buy and sell goods and services, and rely on consumer trust to successfully function effectively. Both types of currency also have value attributed to them, although how that value is determined differs greatly.

The key differentiator between cryptocurrency and fiat is that cryptocurrencies operate independently and do not rely on a bank or government to create the asset, facilitate exchange or approve any of the transactions. Cryptocurrencies look to offer more freedom in how and when you can spend or receive money, being accessible to anyone, anywhere, anytime. Every transaction is recorded separately and permanently on the blockchain, providing transparency and trust among the transacting parties.

Uphold is a crypto wallet, and provides you with a range of crypto tools to help you buy and sell over 250 different cryptocurrencies. Plus, unlike some other platforms Uphold allows you to trade in one step between any supported asset of your choice.

Simply create a free account on Uphold.com or via the Uphold app and follow the three steps below to start buying crypto. Here's how:

• Verify your identity

• Choose a payment method to deposit funds

• Choose which cryptocurrency you’d like to buy, trade in one step any supported asset of your choice