IN PLAIN ENGLISH:
Fiat currency is a medium of exchange created by the federal government (usually in paper or coin form). Cryptocurrencies are an online, digital medium of exchange (rather than physical paper or coin) created, owned and validated by the community that is using it.
The technical explanation:
Cryptocurrencies are a decentralized, digital form of money. They use cryptography to create a secure, anonymous transaction system.
Being decentralized means that cryptocurrencies are not controlled or maintained by one central entity. Instead, a Distributed Ledger is used to maintain trust and accuracy in place of a third party, such as a bank.
A Distributed Ledger is a list of all accounts, balances and transactions, which are distributed to thousands of computers throughout the network. The total transparency of this system, and the fact that all ledgers on all computers must match at all times, means this ledger cannot be tampered with. Transactions are validated, usually through a process called mining. Mining will be covered in a future article.
The technology that lies behind cryptocurrency is called a Blockchain. Learn more about it in our next post!
