Cryptocurrency and Blockchain
A cryptocurrency is digital value recorded on a blockchain, a shared ledger maintained by a network rather than a central authority. New transactions are validated by consensus, such as proof of work or proof of stake, instead of by a bank.
Why it matters
Replace one bank holding the official ledger with thousands of copies that the network agrees to update by rule. That removes the central intermediary, but it costs speed, energy, and settlement finality.
Worked examples
You send Bitcoin to a friend. What happens without any bank involved?
The payment is broadcast to the network, bundled into a block, and confirmed when validators append that block to the chain. No bank clears it, but confirmation takes minutes and pays a fee.
Common mistakes
- ✗Crypto is anonymous and untraceable. Most blockchains are pseudonymous and fully public, so flows can often be traced back to people.
- ✗Blockchain and Bitcoin are the same thing. The blockchain is the ledger technology, and Bitcoin is just one application built on it.
Revision bullets
- •Digital value on a distributed ledger
- •Validated by consensus, not a central bank
- •Pseudonymous and public, not truly anonymous
Quick check
What replaces a central authority in validating cryptocurrency transactions?
Connected topics
Sources
- Mishkin (2018), Ch. 3Mishkin, F. S. The Economics of Money, Banking, and Financial Markets. 12th ed. Pearson, 2018. ISBN 978-1-292-26885-9.The meaning of money, payment systems, electronic money, and cryptocurrencies.