Cryptocurrency – Definition, Origin, Characteristics, and More

Cryptocurrency Definition

Cryptocurrency is a type of digital currency usages cryptography to provide a secure payment system. These encryption techniques serve to regulate the generation of monetary units and verify the transfer of funds. They do not need a central bank or other institution to control them.

Cryptocurrencies are a kind of digital currency, which are those that do not exist in physical form, but that serves as an exchange currency, allowing instant transactions through the Internet and regardless of borders. Other digital currency types are virtual currencies (usually controlled by developers), electronic money, and Internet coupons.

In 2009, the first fully decentralized cryptocurrency appeared, Bitcoin, which Satoshi Nakamoto created along with the software supporting it (blockchain). To this day, it is not known who is behind the name of the creator. The appearance of bitcoin was so innovative that the terms of cryptocurrency and Bitcoin merge into one, and it is indistinct to speak of one or the other.

In our days, more cryptocurrencies based on the pioneer Bitcoin have appeared, which are known as an altcoin, some of them are Namecoin (2011), Litecoin (2011) or Peercoin (2012).

What is the Origin of Cryptocurrency?

  • Throughout history, there have been various means of exchange for goods and services. All of them have been undergoing evolutions and changes, or, directly, they have disappeared. The case of barter or precious materials gave way to the system works until now, the bills and coins.
  • However, in an age where technology is gaining more and more ground every day, a medium of exchange more adjusted to the times is necessary: ​​ cryptocurrency.
  • In the wake of the cypherpunk movement in the 80s, cryptocurrency emerged. This art defended the widespread usage of writing with secret keys that could only be understood by those who knew how to decode them.
  • A decade later, David Chaun created Digicash to provide a centralized electronic money system that allowed for more safe and anonymous transactions. In the same period, Adam Black proposed Hashcash, a method to control spam and denial of service attacks.
  • Although it would not be till 2009 when Bitcoin emerged, the first fully decentralized cryptocurrency.

Characteristics of a Cryptocurrency

The main characteristics of cryptocurrencies are:

Cryptography: They use encryption techniques to make secure payments and collections.

Decentralization: They do not need to be controlled by any institution.

There is no possibility of forgery or duplication: A cryptographic system protects users.

There are no intermediaries: Direct person-to-person contact.

Transactions are irreversible: Once the payment is made, there is no possibility of cancellation.

They can exchange for other currencies.

Privacy of use: It is not necessary to reveal your identity when doing business.

Advantages and Disadvantages of Cryptocurrency

The main advantages that characterize the cryptocurrency are:

  • Low transaction costs, as a consequence of the absence of intermediaries.
  • Security, since each coin, belongs only to its owner.
  • Transparency, since the transactions, incorporate into a free access register.
  • It accumulates in a tiny space like a USB.

For its part, the disadvantages are:

  • The volatility of their prices.
  • Lack of current acceptance by some companies.
  • By not needing a regulator like the Government or the Central Bank and providing privacy, they can use illegal transactions.

How does Cryptocurrency Works?

  • In cryptocurrency networks, the computational effort to validate transactions generates new coins as a reward. This process knows as mining.
  • Such a reward also lowers transaction fees by creating an extra incentive to contribute to the network’s processing power.
  • Of course, in return, it consumes the resources (energy and computer performance) of the user who performs said work.
  • The technology that makes this decentralized system likely is the Blockchain. A blockchain chain a database distribute among all users whose elements work on and modified interdependently.
  • It was initially conceived by bitcoin developers to facilitate p2p transactions without intermediaries (such as banks and financial institutions), and the model has been a success.
  • Blockchain transparency can be a powerful weapon and a useful measure to ensure that user data is accurate and transmit intact and secure.

Security Risks of Cryptocurrency

  1. This reliable defence system for cryptocurrencies is, however, a double-edged sword. The anonymity it offers is one of the most attractive aspects of cybercriminals.
  2. After all, a digital currency that guarantees ease of transactions is an ideal payment method for hackers. Today, virtually all ransomware attacks require payment via bitcoin or other cryptocurrencies.
  3. The digital wallet used to store cryptocurrencies acts the same as your real-world wallet.
  4. So if someone gets access to it, they can steal all the content.
  5. Because it is virtually untraceable, there is little chance that the thief will catch, which is why its theft and fraud are becoming increasingly popular, and precautions must take.
  6. The principles for staying safe when using cryptocurrencies are similar to those used when shopping online.
  7. Never give a stranger your Bitcoin account details, or make sure your computer adequately protect against hacking and malware using a security solution like Panda Dome.
  8. Also, at the end of 2017, PandaLabs already indicated in its annual report. Cryptocurrency mining infections were going to rebound due to the increase in these currencies that summer.
  9. In this type of threat, the victim’s computer infects to act as a coin miner for others.
  10. Although the theft or loss of the wallet has a higher impact, users notice a significant loss of performance on their computers invested in creating wealth for the authors of the infection.


The principle that defines it is the same as that of the traditional currencies that we use daily. Since it uses a scale of assigned values, its difference is that it only has digital support.

In other words, there are no physical bills or coins. The other fundamental element is that these coins encrypt; that is, they can only use by a person who has access to the corresponding code.

Blockchain undoubtedly the best know, for there are many others such as Ethereum or Monero.

Also Read: What is Forex (FX)? – Definition, Market Basics, How Large, and More

In addition, you can find more helpful resources at Thewebscience.

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