How do cryptocurrencies work?

Bitcoin is the first and most famous cryptocurrency, but there are now thousands of them. Many cryptocurrencies, like Litecoin and Bitcoin Cash, share Bitcoin's core features but explore new ways to process transactions. Others offer broader functionality. For example, Ethereum can be used to run applications and create contracts. But all four are based on a concept called blockchain, which is key to understanding how cryptocurrencies work.

Simply put, a blockchain is a list of transactions that anyone can view and verify. For example, the Bitcoin blockchain is a record of every time someone has sent or received a bitcoin. This transaction list is fundamental to most cryptocurrencies because it allows strangers to make secure payments without requiring third-party verification such as banks.

Blockchain technology is also exciting because it has many uses beyond cryptocurrency. Blockchain is being used to explore medical research, improve medical record sharing, streamline supply chains, enhance privacy on the internet, and more.

The principles behind Bitcoin and its blockchain first appeared online in late 2007 in a white paper published by a person or group named Satoshi Nakamoto.

The blockchain ledger is distributed across all computers on the network, which continuously verify its accuracy. This means there's no central repository, entity, or database that can be hacked, stolen, or manipulated.

Cryptocurrencies use a technique called public-private key cryptography to transfer currency ownership to a secure distributed ledger. Your private key is a highly secure password that never needs to be shared with anyone, allowing you to send assets on the network. The associated public key can be freely and securely shared with others to receive value on the network. It's impossible for anyone to guess your private key using your public key.