LeoGlossary: Cryptocurrency

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A cryptocurrency is a digital medium of exchange that allows wallets to engage in peer-to-peer transactions. This is done using encrypted algorithms.

Cryptocurrencies function both as a currency (medium of exchange) and a virtual accounting system. All transactions are logged on a blockchain, most which do not require permission. Anyone is free to utilize the system and post to the ledger.

One of the promising aspects to cryptocurrency is the removal of the banks, central or commercial. The blockchain is the one responsible for securing each transaction on the ledger. This is done through a variety of methods, depending upon how the system is set up.

The three most common consensus mechanisms are:

The introduction of blockchain also brought the idea of triple-entry accounting. This is viewed by many as kicking off the next evolution of money.

Cryptocurrency has the ability to tokenize most asset classes. Many are projecting that stocks, bonds, real estate, and an assortment of other assets will end up tokenized. Synthetic Assets are derivatives that mirror other financial products but reside in the world of decentralized finance (DeFi).

All of this comes under the heading of digital assets. This means cryptocurrency does not exist in physical form. It is also run on open-source software.

Anyone with the ability can create new tokens. This is because of the premissionless nature of the networks. This is different from central bank currencies which are overseen by a central authority.

Some examples are:

Since cryptocurrency is built on blockchain technology, it is decentralized to the degree that the ledger is distributed.

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Cryptocurrency is getting a lot of traction because of its potential and the fact that it is decentralized. Early users are the ones that will benefit much from it.