A cryptocurrency is a digital medium of exchange that uses encryption to secure the processes involved in generating units and conducting transactions.
Cryptocurrencies are a subset of digital currencies and, as such, have no physical representation. They may be used for online or in-person transactions with any vendors who accept them. In-person transactions using cryptocurrencies are typically conducted through mobile payment from a digital wallet.
There are hundreds of cryptocurrencies around the world. Among them, Bitcoin is the most prominent example -- in fact, other cryptocurrencies are sometimes referred to as altcoins, as in alternatives to Bitcoin. The Bitcoin protocol enables peer-to-peer (P2P) exchange in a decentralized system that, unlike conventional currencies, is not associated with any financial institution or government.
Bitcoin-to-Bitcoin transactions are conducted through anonymous, heavily encrypted hash codes across a peer-to-peer network.Each user’s digital wallet maintains their Bitcoins. The wallet also stores all addresses the user sends and receives Bitcoins from, along with a private key known only to the user. The P2P network monitors and verifies Bitcoin transfers.
Other cryptocurrencies include Litecoin, primecoin, Namecoin and Feathercoin.
Paul Vigna provides a crash course on cryptocurrencies: