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Simply put crypto Currency is a digital or virtual currency that is secured by Cryptography. which makes it very very difficult to counterfeit. Further for most cryptocurrencies like Bitcoin and Ethereum each transaction is stored on a digital ledger called blockchain, which is distributed and decentralized.
Here is how that works- now the blockchain as the name suggests is a chain of blocks with each block containing information about a cryptocurrency transaction. Now this blockchain ledger is being managed with several nodes which are computers situated Around The World hence it is called a distributed ledger so if someone wants to hack into the blockchain ledger and shift things around they would have to hack into all the computers all nodes managing the blockchain. That obviously would be very difficult and that brings us to the next most important feature of cryptocurrencies, their decentralization.
Lets understand what this means through comparison, the money that we exchange in the form of paper currency or the money that you see in your Google pay or phonepe wallet is issued and regulated by the Reserve Bank of India. The RBI on its own decides to print more currency or pull currency notes out of circulation, but in the case of cryptocurrencies Bitcoin there is no single authority that creates new coins or regulates Bitcoin.
It has its pros and cons. The good part is that cryptocurrencies can really democratize finance and facilitate Quicker cross border payments for minimal cost among several other benefits. The bad part is that since there is no Central authority over seeing these transactions, criminals often use it for nefarious purposes. Crypto is the preferred mode of payment on the dark web for everything ranging from child-porn to hack data. That is why governments Around The World shy away from legalizing cryptocurrencies as a form of payment.
But that has meant that the crypto currencies have found another use as an investment instrument. Their very volatile prices make them high-risk high reward investments. Consider this in April 2021 Bitcoin has touched an all time high of $65000. That is a massive 450% spike in just six months. However in fall it lost more than half of its value stabilizing at around $30000.
Finally, let's talk about how cryptocurrency like Bitcoin are made. continuing with the Bitcoin example, remember that Bitcoin and other cryptocurrencies don't exist in any physical form. they exist only Virtually. So a Bitcoin transaction has to be validated and then entered into the public digital ledger of all Bitcoin transactions. The validation to put it simply means checking if the Bitcoins being transferred are real but this validation is performed by a high-powered computer solving Complex computational mathematical problems, the computer that manages to solve the problem not only validates the Bitcoin transaction but is also rewarded with 6.25 Bitcoins. This acts as an incentive for minors to continue making the Bitcoin system work and this process of validating Bitcoin transactions and thereby adding new Bitcoins to the blockchain is called mining.
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