Crypto-currency is digital money based on encrypted information and a shared ledger. The ledger shows every transaction since the beginning of the block chain. Crypto coins have value and purchasing power in the same way as “real”, fiat, currencies. However since there is no central controlling entity, the price is completely decided by supply and demand.
The technology behind crypto-currencies is called blockchain. In a simplified explanation, blockchain is a chain of information, where new information-blocks are encrypted and stored chronologically. The detailed history and encrypted structure makes it nearly impossible to steal and counterfeit.
As an example, the blockchain can be likened to a car's proof of registration, where the mileage, damage, service and previous owners are all logged.
The process of creating crypto currencies is called “mining”. The whole process is a hunt for the right block or hash, a complicated sequence of numbers. The mining process requires numerous guesses with the help of algorithms which uses a lot of energy. One new block is created once the sequence is solved, and the finder gets rewarded. Upon completion the new block is added to the chain.
A private key lets the user access their coins in the blockchain. Therefore private keys should always be kept in secure places such as a cold wallet, a usb stick. Or custodial services keeping them for you. Unlike your regular wallet the currency itself is not stored. Instead the owner needs to keep track of the unique private codes connected to the public ownership.
A big part of the popularity of crypto is the absence of a controlling entity. Instead of one regulating organ, every piece of information needed is stored within the blockchain itself. The ledger, history of transactions, are then stored in millions of computers globally and easily accessible by the owner holding the keys.
A simpler way of investing in crypto is buying certificates. A certificate mirrors the price of the crypto without you having to own the currency itself. No need for keys, wallets or keeping track of info. The certificate is a deal with the provider that your invested money is following the value of crypto.
In the same way as you would invest in oil or gold. You yourself don’t have to store any metal or oil barrels. The investment is an agreement between you and the facilitator.
Every new piece of information gets added to the blockchain, and is stored on all of the computers involved in creating the chain. When a crypto coin changes owner the information gets added to the chain and is available as soon as the transaction is accepted.
Bitcoin rose to attention as the first crypto currency based on blockchain, launched in 2009. Since then several other coins have gained popularity and market share, Etherium, Cardano, Tether and Litecoin to name a few.