Cryptocurrencies are essentially limited entries in a database that can only be changed under specific conditions. They’re used as a medium to exchange value (just like money is used in our daily lives), making them a digital currency.
Cryptocurrencies use cryptography to secure and verify transactions and control the generation of new cryptocurrency units.
Blockgeeks gives a great example, showing how cryptocurrencies work just like real currencies:
“Take the money on your bank account: What is it more than entries in a database that can only be changed under specific conditions? You can even take physical coins and notes: What are they other than limited entries in a public physical database that can only be changed if you match the condition that you physically own the coins and notes? Money is all about a verified entry in some kind of database of accounts, balances, and transactions.”
When you own a cryptocurrency, you have a private key (essentially a long password) to an address on the chain, which is where the ownership of that given cryptocurrency is recorded.
Cryptocurrencies are now used in a variety of industries, with institutional investors, banks and governments catching on to their importance.