Cryptocurrency is a unique type of digital currency which is created to work as a medium of exchange. It does not have any physical features, and it is entirely electronic in nature. It is decentralized digital money which is based on blockchain technology and secured by cryptography. Cryptocurrency is based on three principles – Blockchain, decentralization and cryptography.

Blockchain is basically a digital ledger whose access is distributed among authorized users. The ledger records transactions related to a range of assets such as money, house or intellectual property. The access is shared between the users, and any information shared is transparent, immediate and immutable. Hence anything that the blockchain records stay there and cannot be modified or tampered with even by an administrator.

Legal tenders or centralized money are the regular money governed by central authorities like the Federal Reserve System, Reserve Bank of India, Central bank of the United Arab Emirates, etc. Decentralization in Cryptocurrency makes this currency free from any state control. Due to decentralization, Cryptocurrency has a few benefits over centralized money, such as (i) There is no need for cryptocurrency owners to trust a single governing entity because everyone in the network has access to the same information, which no one can change. (ii) The data remains accessible only to the users of the network, and it is highly secured. Shared ownership also means that all the users sign off on how accurate the data is, which means there is very less scope for data mismanagement or miscommunication. (iii) Security is a fundamental part of a blockchain.

Cryptography is a method which secures data by using encryption techniques. Cryptography enables the blockchain to claim privacy and immutability. Cryptocurrency has originated from a “blinding algorithm” invented in the 1980s. This algorithm secures digital transactions and keeps them immutable. This characteristic remains fundamental to modern-day technology.

In 2008, Satoshi Nakamoto (a pseudonym for a group of people) created the guiding principles of the first Cryptocurrency, Bitcoin, which was launched in 2009. The underlying blockchain technology is presently used in banking, insurance and other business sectors. Cryptocurrency is expected to grow at a higher rate in future.

Cryptocurrency has a few advantages and disadvantages. Advantages include – first, they are private and secure. Second, they are decentralized, immutable and transparent. Third, they are a hedge against inflation. Whereas the disadvantages are as follows – first, they are not widely understood. Second, they are prone to high risks. Third, it isn’t easy to scale.