By now, most of us have heard of cryptocurrency in some form. You’ve likely seen the headlines about Bitcoin’s stock value soaring or heard financial experts claiming that cryptocurrency is the money of the future. The fact of the matter is that nobody truly knows whether cryptocurrency will truly replace cash and coins or be the Dipping Dots of the 21st century.

1: What is cryptocurrency?

According to Investopedia, cryptocurrency is a digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of this security feature. A defining feature of a cryptocurrency, and arguably its most endearing allure, is its organic nature; it is not issued by any central authority, rendering it theoretically immune to government interference or manipulation.

2: Who invented cryptocurrency?

Satoshi Nakamoto (known to most as the inventor of Bitcoin) devised the first blockchain database in 2008. Nakamoto found a way to build a decentralized digital cash system. In his announcement of Bitcoin in late 2008, Satoshi said he developed “A Peer-to-Peer Electronic Cash System.“

3: How does cryptocurrency work?

Cryptocurrency selects a base unit and how much that unit is worth when compared to other currencies. Generally speaking, the U.S. dollar is used as a baseline. In order to realize digital cash, you need a payment network with accounts, balances, and transaction (easy enough, right?). One issue every payment network must solve is to avoid the so-called double spending, which prevents one entity from spending the same amount twice. This is done by a central server who keeps record about the balances.

4: How does cryptocurrency differ from ‘normal’ money?

The main difference between cryptocurrency and traditional money (other than the fact that there’s no physical form) is that a specific government or government-sanctioned organization does not create cryptocurrencies. For example, the US dollar is created by the US government and protected by US banks and a variety of government controls to control inflation, prevent counterfeiting, and adjust interest rates whereas cryptocurrency is created by private organizations that don’t offer this type of support…yet.

5: I’ve heard of Bitcoin but what other types of cryptocurrencies are out there?

While Bitcoin is certainly the most recognizable form of cryptocurrency, there are several other cryptocurrencies out there today such as Ethereum, Ripple, Litecoin, Monero, Dash, and Augur to name a few.