Cryptocurrency facts for kids

A cryptocurrency is a type of currency that uses digital files as money. These digital files are often created using special methods from cryptography, which is like the science of secret codes. Digital signatures help keep transactions safe and prove they are real. The first cryptocurrencies were made to be separate from money issued by governments.

Cryptocurrencies use something called 'decentralized control'. This means no single person or government is in charge of them. This is different from regular electronic money or money from central banks. Each cryptocurrency works using a distributed ledger. This is like a shared list of all transactions that everyone can see. Often, this list is a blockchain. Bitcoin, which came out in 2009, is known as the first decentralized cryptocurrency. Since then, over 4,000 other cryptocurrencies have been made. Sometimes, these are called altcoins, which means 'alternative coins'.

Why Cryptocurrency Value Changes

Many cryptocurrencies cannot be easily changed into regular money. You might only be able to swap them for other cryptocurrencies or use them to buy certain things. Some cryptocurrencies can be changed into regular money. But their value can change very quickly, which is called high volatility. This makes them risky to use. They can also be targets for tricks that make their price go up and down fast.

Cryptocurrencies act like a big shared money system. Since no central banks create or control them, their value is hard to manage. This means they cannot really be a stable type of money.

Cryptocurrencies are often used for speculation. This means people buy them hoping their price will go up, so they can sell them for more later. This makes it hard to have steady exchange rates. Another issue is that a few people own a lot of the cryptocurrency. For example, about 1,000 people own half of all the Bitcoin in the world. If one of these people starts using their cryptocurrency, it can change the exchange rate for everyone. This also means these people have a lot of power over the currency's value. The currency itself only records who owns what. The exchange rates for cryptocurrencies are set by brokers and traders, not by a central system. The cryptocurrency unit itself does not have a value on its own.

In comparison, regular money is made and controlled by central banks. Things like inflation (when prices go up) or deflation (when prices go down) can change the value of regular money. But the people who own the money do not directly control its value.

How Cryptocurrencies Work

A cryptocurrency system needs to meet certain conditions to work. Here are some of the main ideas:

• The system does not need one main boss. Everyone agrees on what is happening together.
• It keeps track of all the cryptocurrency units and who owns them.
• The system decides if new cryptocurrency units can be made. If they can, it explains how they are made and who gets them.
• You can prove you own cryptocurrency units using special secret codes (cryptography).
• The owner of a cryptocurrency unit can send it to someone else. To do this, the owner must prove they own it.
• If two different instructions to change ownership of the same units happen at the same time, the system will only do one of them.

In March 2018, the word "cryptocurrency" was added to the Merriam-Webster Dictionary.

Images for kids

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  The very first block of Bitcoin's blockchain, with a note from The Times newspaper.

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  A machine used for Bitcoin mining.

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  An example of a paper Bitcoin wallet. It has an address to receive Bitcoin and a private key to spend it.

See also

In Spanish: Criptomoneda para niños