Introduction to Cryptocurrency
What is Cryptocurrency?
Cryptocurrency is a type of digital currency that uses blockchain technology, serving as a decentralised medium of exchange that is not controlled by any central authority such as a government or bank.
Features of Cryptocurrency
- Decentralisation and Distributed Ledger: Cryptocurrency uses a distributed public ledger (blockchain) to verify and record transactions, without relying on any central authority or third-party intermediary.
- Cryptographic Security: Cryptocurrencies use cryptographic algorithms, such as elliptic curve encryption, digital signatures, and hash functions, to build a secure and transparent platform that ensures the verifiability and immutability of transactions.
- Convenience of Cross-border Payments: Cryptocurrency transactions occur on the internet, unrestricted by geographical boundaries or national borders, providing great convenience for cross-border payments.
- Limited Supply: The total supply of most cryptocurrencies is limited and usually based on pre-defined algorithms, which gives cryptocurrencies an anti-inflation characteristic.
How Cryptocurrency Works
- Distributed Public Ledger: Cryptocurrency uses blockchain technology to verify and record transactions. The blockchain is a distributed public ledger that records all transactions.
- Cryptographic Verification: The validity of cryptocurrency value is provided by the blockchain. Cryptocurrencies employ various timestamping schemes, such as proof of work and proof of stake, to verify transactions without needing a trusted third party.
- Decentralised Incentives: In a proof of stake system, transactions are verified by holders of the relevant cryptocurrency, sometimes forming a stake pool. This method is different from proof of work as it does not require extensive computational power.
Use Cases of Cryptocurrency
Initially designed to facilitate online financial transactions, cryptocurrency has evolved into a digital asset that can be converted into other global currencies. It has vast application prospects in areas such as international trade and outsourcing services.
Types of Cryptocurrency
There are various types of cryptocurrencies, including base cryptocurrencies, smart contract platforms, privacy coins, and decentralised finance tokens. Each type has its specific supporters and application scenarios.
Advantages of Cryptocurrency
- Decentralisation and Autonomy: Cryptocurrencies allow users to escape the control of traditional financial systems, providing greater autonomy and privacy protection.
- Security and Transparency: Transaction records for cryptocurrencies are maintained on a public and transparent distributed ledger, making them traceable and auditable, with related transactions secured through cryptographic algorithms ensuring safety and verifiability.
- Speed and Low Cost: Cryptocurrency transactions are quicker and more cost-effective, creating new opportunities for global capital flow.
