Bitcoin operates on a technology called blockchain, which is a decentralized ledger that records all transactions across a network of computers, making it nearly impossible to alter or delete transactions once they are confirmed.
The concept of cryptocurrency was first introduced in 1983 by David Chaum, who created a form of digital cash called ecash, but it wasn't until Bitcoin's release in 2009 that the idea gained significant traction.
The maximum supply of Bitcoin is capped at 21 million coins, a feature designed to create scarcity and potentially increase value over time, similar to precious metals like gold.
The term "mining" in cryptocurrency does not refer to extracting physical minerals.
Instead, it involves solving complex mathematical problems to validate transactions and secure the network, rewarding miners with new coins.
Ethereum introduced the concept of "smart contracts," which are self-executing contracts with the terms directly written into code, enabling automated and trustless agreements between parties without the need for intermediaries.
The first real-world transaction using Bitcoin was for two pizzas, purchased in May 2010 for 10,000 BTC, a transaction that is now famously cited as the most expensive pizza ever bought given Bitcoin's current market value.
Cryptocurrencies can be stored in digital wallets, which can be software-based (hot wallets) or hardware-based (cold wallets), the latter being more secure as they are offline and less susceptible to hacking.
The blockchain technology underlying cryptocurrencies has applications far beyond digital currency, including supply chain management, voting systems, and digital identity verification, showcasing its versatility.
The concept of a "51% attack" occurs when a single entity or group gains control of more than half of a blockchain's mining power, potentially allowing them to manipulate the blockchain, double-spend coins, or halt transactions.
Stablecoins are cryptocurrencies designed to minimize price volatility by pegging their value to a stable asset, such as the US dollar, making them more suitable for everyday transactions and as a safe haven during market turbulence.
The environmental impact of cryptocurrency mining, particularly Bitcoin, has raised concerns due to the significant energy consumption required for the mining process, prompting discussions around sustainable practices and alternative consensus mechanisms like Proof of Stake.
Decentralized finance (DeFi) refers to financial services using smart contracts on blockchains, allowing users to lend, borrow, and earn interest on their assets without traditional banks, democratizing access to financial resources.
The development of central bank digital currencies (CBDCs) represents a growing trend where governments are exploring their own digital currencies, which could potentially coexist with or compete against decentralized cryptocurrencies.
Cryptography, the foundation of cryptocurrency security, employs complex mathematical algorithms to secure transactions and control the creation of new coins, making unauthorized access and fraud exceedingly difficult.
Non-fungible tokens (NFTs) have emerged from the cryptocurrency space, representing unique digital assets on the blockchain, such as art, music, and virtual real estate, challenging traditional notions of ownership and value in the digital world.
The Lightning Network is a second-layer solution built on top of Bitcoin, designed to enable faster and cheaper transactions by creating payment channels between users, facilitating microtransactions and reducing congestion on the main blockchain.
The decentralized autonomous organization (DAO) is an emerging governance model in the crypto space, where decisions are made through smart contracts and community voting, allocating power away from centralized authorities.
The phenomenon of "pump and dump" schemes in cryptocurrency involves artificially inflating the price of a coin through false information, only for the perpetrators to sell off their assets at the peak, leaving other investors with losses.
Regulatory challenges continue to shape the cryptocurrency landscape, as governments worldwide grapple with how to classify and regulate digital assets, balancing innovation with consumer protection and financial stability.