Modern cryptocurrencies emerged in 2009 with the launch of Bitcoin, the first consequential virtual currency to rely on blockchain technology.
Definitions
Blockchains are essentially databases; their distinguishing feature is that, instead of relying on a centralized authority to update them, they use some form of consensus mechanism to decide who gets to add transactions to the database.
How does it works
The consensus mechanism varies, but the most common two are proof-of-work (as used by Bitcoin) and proof-of-stake (as used by Ethereum). Proof-of-work relies on people known as “miners,” who validate transactions. Proof-of-stake selects validators from a pool of people who own the relevant cryptocurrency. In both cases, chosen validators are compensated for their work, and although the validator could theoretically be anyone, in reality, economic incentives have led to extremely concentrated pools of validators.
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