Mint Money Knowledge Center: What is a 'cryptocurrency'?

CryptocurrencyA cryptocurrency is a digital currency. It is generated using encryption techniques. Cryptocurrency works independently of centralized banks. Other than the fact that it is digitally generated and electronically traded, as opposed to being created and used in the physical sense like paper dollars or metal coins, it can be exchanged electronically exactly like the transfer of any other currencies, such as the U.S. Dollar or Euros in the U.K. Cryptocurrency is used to secure transactions (just like when you use PayPal to buy something from eBay), and the process of cryptography generates new coins (valid currency). Cryptocurrency is sometimes called Altcoins.

One of the values of cryptocurrency is that it is not regulated by the Federal Reserve System or any other government agency, either in the U.S. or abroad. The decentralized nature of cryptocurrency means that it will not collapse nor devalue in the event of a governmental collapse. Most of the cryptocurrencies are created in such a way as to decline in production over time. Bitcoin, for example, has an established market cap. The reason for this is because generation of too much currency leads to inflation (as happens when the government simply prints more money instead of generating real wealth).

The first cryptocurrency created by this digital currency generation process was Bitcoin, which started up in 2009. Bitcoin is still the most recognized and utilized cryptocurrency. Others include Namecoin, Litecoin, and Ripplecoin.

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