Digital currency

Digital currency

Digital currency is a type of currency available only in digital form, not in physical form like banknotes or coins. One common type of digital currency you may have heard of is cryptocurrency. Cryptocurrency is a specific type of decentralized digital currency that uses cryptography for security.

Basics of Cryptocurrency

Cryptocurrency operates on technology called blockchain. A blockchain is a decentralized technology spread across many computers that manages and records transactions. This decentralized structure allows them to exist outside the control of governments and central authorities.

Bitcoin: The First Cryptocurrency

Bitcoin, created in 2009, was the first decentralized cryptocurrency, and remains the most valuable in terms of market capitalization. The identity of its creator, who used the alias Satoshi Nakamoto, remains unknown. Bitcoin was designed to work as a medium of exchange that uses cryptography to control its creation and management, rather than relying on central authorities.

How Cryptocurrencies Work

Cryptocurrencies work using a technology called blockchain. Blockchain is a decentralized technology, spread across many computers, that records and manages transactions. Part of the appeal of this technology is its security. The functioning of cryptocurrencies involves three main steps:

  • Transaction: When a user wants to send some cryptocurrency units to another user, they transmit this instruction to the network.
  • Block: The transaction is packed into a piece, commonly known as a 'block'. The block can contain multiple transactions.
  • Validation: This block is sent out to the network, where users validate the transaction. Once it is validated, it is added to the blockchain.

Pros and Cons of Cryptocurrency

There are many potential benefits and drawbacks to the use of cryptocurrencies.


  • Decentralization: As they are not managed by any central authority, cryptocurrencies can not be controlled by governments.
  • Safety: The use of blockchain technology ensures transparency and reduces the chances of fraud.
  • Accessibility: Cryptocurrencies can be accessed and used by anyone with an internet connection, providing potential financial services to underbanked populations.


  • Legality: Because they are still relatively new, the legal status of cryptocurrencies varies widely from country to country.
  • Volatility: Cryptocurrencies have proven to be significantly more volatile than traditional fiat currencies. This volatility may result in significant losses for the investors.
  • Complexity: The fundamental concepts of cryptocurrency and blockchain can be difficult for many to grasp, posing a barrier to adoption.