Cryptocurrency is a digital currency designed to act as a medium of exchange, a unit of account, a store of value, and to serve a range of other purposes, all with the aid of cryptography.
Although greatly varying by design, cryptocurrencies are usually based in electronic networks of nodes, which are often structured as peer-to-peer (P2P). Each participant of the network may perform the functions necessary for the cryptocurrency to operate. This is done using automated software via dedicating a part of the participant’s computing power.
Cryptography is used to ensure proper generation of the cryptocurrency units, to secure transactions, and the overall functioning of the underlying infrastructure.
The most famous example of a cryptocurrency is Bitcoin. It is customary to call all other cryptocurrencies altcoins (alternative coins).
In Forex trading, cryptocurrencies are used both as a method of payment (to deposit and withdraw funds) and as a trading instrument, forming pairs with other cryptocurrencies and currencies.
Electronic Ledger
The easiest way to understand Bitcoin and most of other cryptocurrencies is to think of them as electronic ledgers where each participants stores an electronic copy of all the transactions performed in the network. These ledgers are encrypted in a special way. Each participant has his own private key to sign new transactions in the ledger and has access to public keys of other people to verify their transactions.
However, you do not need to understand this if you are only going to trade cryptocurrencies or use them as a funding option with your broker. The technical part is taken care of by the specialized software. Still, a trader who owns some cryptocurrency needs to pay attention to the security of funds.
Popular Cryptocurrencies in Trading
These cryptocurrencies are not necessarily better or offer superior use-cases (except for Bitcoin). They are just popular among Forex brokers and will probably be available to you in form of CFDs.