Definition: Cryptocurrency is a type of digital or virtual currency that uses cryptography for security and operates on a decentralized network of computers. Unlike traditional currencies issued by governments and central banks, cryptocurrencies rely on blockchain technology to secure transactions, control the creation of new units, and ensure the integrity of the entire system.
Decentralization: Cryptocurrencies operate on a decentralized network of computers, often referred to as nodes. This decentralization eliminates the need for a central authority, like a bank or government, to oversee transactions.
Blockchain: The blockchain is a distributed ledger that records all transactions across a network of computers. It consists of a chain of blocks, each containing a list of transactions. Once a block is completed, it is linked to the previous one, creating a secure and transparent record of all transactions.
Security: Cryptocurrencies use cryptographic techniques to secure transactions and control the creation of new units. Public and private keys are essential components that enable secure ownership and transfer of digital assets.
Mining (Proof of Work): Some cryptocurrencies, like Bitcoin, use a consensus mechanism called proof of work. Miners solve complex mathematical problems to validate transactions and add new blocks to the blockchain.
Proof of Stake: Other cryptocurrencies, like Ethereum 2.0, are transitioning to proof of stake, where validators are chosen to create new blocks based on the number of coins they hold and are willing to "stake" as collateral.
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