So what exactly is cryptocurrency?
Today, there are problems with the way we create and use money, called fiat. Money is made in big buildings called mints. Lots and lots of money gets made there. The more money that gets made, the less it is worth, because there is so much of it. It gets harder and harder to have enough money to buy the things we need or want.
Cryptocurrency is made differently. It is not made in massive buildings called mints. It is made on computers connected to the internet. Anyone can use their computer as it solves math problems to help with making cryptocurrency. A computer that helps make cryptocurrency is called a miner, just like miners who search for gold or silver, for example.
When a miner successfully mines a block of cryptocurrency, the person who owns the computer is rewarded with the block. This person can keep it, buy things with it, sell it, or send to it anyone they please. So, no single person makes or holds the currency. It is not made in any single central place. Instead, it is made by all the computers connected to the network. In other words, cryptocurrencies are decentralised.
Cryptocurrency uses computer code called cryptography that keeps it safe and prevents it from being copied or stolen. This makes it worth more because nobody can just make up more of it whenever they feel like it. This is a big problem with government-issued money, called fiat, since it can be printed whenever central banks decide it should be printed. The problem with this, is that the more it gets made, the less it is worth. This causes inflation, where everything we buy costs more than it used to cost. Cryptography also makes sure any time someone buys, sells, or trades cryptocurrency, that nobody is lying and that all the trades are correct.
Miners help with making sure that all the trades are correct and can be rewarded for doing this work. Most cryptocurrencies record these trades in a chain of blocks, called the blockchain, with each block keeping track of trades. Each block gets checked by miners to make sure it is true. When miners agree that a block is true, it gets added to the chain. This makes cryptocurrency much safer and more secure than fiat money.
Cryptocurrency is also very cheap and easy to send anywhere in the world, unlike fiat. Since it is decentralised and no banks are needed to send it anywhere, fees can be tiny. If you try to send traditional money across borders, it can be a very slow and expensive process, with lots of fees and sometimes days spent waiting for money to arrive. With cryptocurrency, miners are rewarded with small rewards for their work, sending cryptocurrency wherever people choose and making sure it goes to the right place.
This way, money can be sent anywhere in the world from one person to another. Sending cryptocurrency to the other side of the world costs as little as it would to send it to your neighbour.
Sometimes people say that cryptocurrency is bad because people can use it to pay for bad things like crime or drugs. In truth, any currency can be used for both good and bad things. If someone uses fiat money to pay someone to do something bad, does that make fiat money bad? Of course not!
Of all cryptocurrencies, the best known by far is Bitcoin. It is the oldest blockchain with the most miners. It is the safest and most secure because it has been around the longest and has the most miners checking it to make sure it is safe and correct.
But there are many other cryptocurrencies that can do different things. Ethereum, for example, is not just a cryptocurrency for buying and selling things. It can be used to tell computers or other machines what to do with commands written in the blockchain. There are lots and lots of cryptocurrencies that do different things like Litecoin, Monero, and Ripple.
You can learn to mine cryptocurrencies on your own computer or you can buy them from exchanges like Coinbase, Kraken, and Binance. There are new exchanges constantly springing up around the world, so look for cryptocurrency exchanges where you live.
Next time you hear someone say “what is cryptocurrency?” you will know what to say! You can also learn a ton more in our other guides!