Hi There! My name is Michael Jones. Welcome to the next video in this series. Investor and Crypto Videos for Beginners.

What is Cryptocurrency?

Cryptocurrency is decentralized digital money, based on blockchain technology. You may be familiar with the most popular versions, Bitcoin and Ethereum. There are more than 5,000 different cryptocurrencies in circulation.

You can use crypto to buy regular goods and services, although many people invest in cryptocurrencies as they would in other assets, like stocks or precious metals.

How Does Cryptocurrency Work?

A cryptocurrency is a medium of exchange that is digital, encrypted and decentralized. Unlike the U.S. Dollar or the Euro, there is no central authority that manages and maintains the value of a cryptocurrency.

All transactions are verified and recorded in a form of program called a blockchain.

What Is a Blockchain?

A blockchain is an open, distributed ledger that records transactions in code.

Transactions are recorded in “blocks” linked together on a “chain” of previous cryptocurrency transactions, by users via the internet.

Software logs each new transaction as it happens, and every copy of the blockchain is updated simultaneously. This keeps all records identical and accurate.

To prevent fraud, each transaction is checked using one of two main validation techniques. Proof of Work or Proof of Stake.

Proof of work and proof of stake are two different validation techniques, used to verify transactions before they’re added to a blockchain. Cryptocurrencies typically use either proof of work or proof of stake to verify transactions.

Proof of Work

Each participating computer, often referred to as a “miner,” solves a mathematical puzzle that helps verify a group of transactions—referred to as a block—then adds them to the blockchain leger. The first computer to do so successfully is rewarded with a small amount of cryptocurrency for its efforts.

Proof of Stake

With proof of stake, the number of transactions each person can verify is limited by the amount of cryptocurrency they’re willing to “stake,” or temporarily lock up in a communal safe, for the chance to participate in the process. Each person who stakes crypto is eligible to verify transactions, but the odds you’ll be chosen to do so, increase with the amount you front.

Both proof of stake and proof of work rely on consensus mechanisms to verify transactions. This means while each uses individual users to verify transactions, each verified transaction must be checked and approved by the majority of ledger holders.

How can you use Cryptocurrency?

You can use cryptocurrency to make purchases, but it’s not a form of payment with mainstream acceptance quite yet.

This may change in the near future. Recently, Payments giant PayPal announced the launch of a new service that will allow customers to buy, hold and sell cryptocurrency from their PayPal accounts. In the near future, cryptocurrency may become a widely adopted means of payment for goods and services throughout the world.