What is cryptocurrency, and how does it work?

Cryptocurrency is a form of digital currency that uses cryptography to secure transactions. It operates on a decentralized system known as blockchain, where all transactions are verified and recorded on a distributed ledger maintained by a network of computers.

Unlike traditional currencies, cryptocurrencies do not rely on intermediaries such as banks. Transactions are conducted directly between parties and secured using public and private keys—analogous to bank account numbers and passwords, respectively.

Types of Cryptocurrencies

• Stablecoins: these are cryptocurrencies whose value is pegged to another asset such as a fiat currency (e.g., USD, EUR), a commodity (e.g., gold), or a financial instrument. Examples include Tether (USDT), USD Coin (USDC), and DAI.
• Privacy Coins: they enhance anonymity by obscuring transaction details and the flow of funds across their networks. Notable examples of privacy coins are Monero (XMR), Zcash (ZEC), and Dash (DASH).

Virtual Assets and Tokens

Virtual assets also include tokens, which are digital assets built on existing blockchains (for example, ERC-20 tokens on the Ethereum blockchain). Tokens can serve different purposes, such as:

• Utility Tokens – Provide access to a product or service.
• Security Tokens – Represent ownership in an asset or company and may be subject to regulation.
• Governance Tokens – Allow holders to participate in decision-making within a blockchain project.
• Gaming Tokens – Used within gaming ecosystems.
• Non-Fungible Tokens (NFTs) – Represent unique digital assets like art, collectibles, or virtual property.