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August 22, 2019 Updated

Cryptocurrency is digital money. But how is it created? Unlike fiat with gold reserves, let’s learn how digital currencies are made and why people use it.

BitPinas. Cryptocurrency, also known as the money of the internet or the money of the future. Let us help you understand this digital asset more.

What is Cryptocurrency?

To put it simply, Cryptocurrency is a form of digital money. Unlike your usual fiat money, cryptocurrencies built on the blockchain are decentralized. This means that no single person or entity is controlling it.

Cryptocurrency and Miners

Miners and their computers called nodes, are what verifies and relays transactions in the blockchain. They enter the network voluntarily and receives cryptocurrency incentives for their work.

Everybody can be a crypto miner as long as your computer has enough power to handle the network. Why? because nodes automatically get a whole chunk of the blockchain that they see in real time.

Cryptocurrency Analogy

If you’re still having a tough time wrapping your head around cryptocurrency, think of it as your money inside a bank.

For example, you have Php 10,000 in your BPI account that you can see online. You know it’s there, BPI knows it’s there too. Now, you want to send Php 3,000 to your friend using your BPI account online. You need to login to your BPI account and have your friend’s account number ready before you can send. After making the transaction, BPI’s own “nodes” will verify it and relay it to your friend’s account. You will then have a total of Php 7,000 in your account. How? BPI knows you made a transaction worth Php 3,000 because they have a central server that keeps the record of all balances.

Let us now try it with Blockchain and Cryptocurrency.

You have 1 Bitcoin and you want to send it to a friend. You will need your friend’s “address” also known as Public Key for you to send it to the correct person. In order to access your 1 BTC in your account, you need to use your Private Key to access your funds. After using your Private Key and getting your friend’s “address” you can now send 1 BTC. This transaction is then relayed to all the nodes in the blockchain to verify and relay it to your friend’s “address”. You now have 1 BTC less in your wallet. How? Cryptocurrency, like Bitcoin, uses a peer-to-peer network. The transaction will be sent to the network and be sent to every node to verify and relay. After confirmation, the transaction is complete and irreversible because it is already in the blockchain.

What’s the difference?

Cryptocurrency is decentralized, unlike banks and other financial institutions. It doesn’t have a central system but makes use of a Peer-to-Peer network. It is also irreversible, meaning after you send a BTC it is already sent. The only way to get it back is to ask the receiver to give it back (thus creating another transaction). Read more about the blockchain in this article: What is the blockchain?

Cryptocurrency Summary

  • It is a digital money.
  • It is decentralized and using a peer-to-peer network.
  • Irreversible.

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Notes and Disclaimer:

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  • Invest in bitcoins (or in any altcoins) only the amount you can afford to lose!
  • Don’t put all your eggs in one basket. Spread your bitcoin and cryptocurrency investment.
  • Before investing in any cryptocurrency, check the people behind it, its mission, and other details to ensure that they are worth investing for. Don’t invest in something you don’t know.
  • This article is for informational purposes only and does not constitute an investment advice. Your actions are solely your own responsibility. There is no substitute for doing your own research. This website is not responsible for any losses you may incur, nor will it claim attribution for your gains.

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