How Cryptocurrency Works | NYT

Cryptocurrency is digital money that is used to buy and sell online.

• It's not based on an asset like gold.
• It doesn't go through traditional institutions like banks.

It is an entirely decentralised system that uses blockchain technology to track transactions.

Say you want to buy a bike from a friend using, for example, Bitcoin. 

• You will log into your Bitcoin wallet with a private key.
• Instead of a bank recording the money that is subtracted from one side and added to another, your transaction is shared with everyone in the Bitcoin network.
• The networked computers add your transaction to a shared list of recent transactions (known as a block).
• Every 10 minutes, the newest block of transactions is chained to all the previous blocks. (known as a blockchain.)

To ensure that every block of transactions on the chain is verified, a subset of Bitcoin's network tries to solve the complex puzzle. The first one to succeed is rewarded with Bitcoins of their own. The network then adds the new block on the chain. 

This process is known as mining. The Bitcoin protocol states that mining will continue until there are 21 million Bitcoins in existence. That will happen around 2140.