Block Chain - Cryptocurrency

Cryptocurrency is a digital or virtual currency secured by cryptography and operated on a blockchain-based decentralized network. It functions without central authorities such as governments or banks.

Key Explanation Points (Exam-Ready):

  1. Digital Asset
    Exists only in electronic form. No physical notes or coins.

  2. Decentralized Control
    Managed by distributed nodes instead of a central institution.

  3. Blockchain-Based
    Transactions are recorded on an immutable, distributed ledger.

  4. Cryptography
    Uses cryptographic algorithms to secure transactions and control currency creation.

  5. Peer-to-Peer Transactions
    Enables direct transfers between users without intermediaries.

  6. Consensus Mechanism
    Network agreement achieved via mechanisms like Proof of Work (PoW) or Proof of Stake (PoS).

  7. Limited Supply
    Many cryptocurrencies have a fixed maximum supply (e.g., Bitcoin: 21 million).

  8. Transparency
    Transaction history is publicly verifiable on the blockchain.

  9. Irreversibility
    Once confirmed, transactions cannot be altered or reversed.

  10. Wallet-Based Ownership
    Ownership is controlled through private keys stored in digital wallets.

Examples:

  • Bitcoin (BTC): First cryptocurrency; store of value.

  • Ethereum (ETH): Supports smart contracts and decentralized applications.

  • Ripple (XRP): Focused on cross-border payments.

Uses:

  • Digital payments

  • Investment and trading

  • Smart contracts and DeFi

  • Cross-border remittances

Limitations:

  • High price volatility

  • Regulatory uncertainty

  • Energy consumption (PoW systems)

  • Security risks if private keys are lost

One-line Definition (for exams):
Cryptocurrency is a decentralized digital currency that uses cryptography and blockchain technology to enable secure, peer-to-peer transactions without intermediaries.