A cryptocurrency is a digital currency that uses cryptology to control transactions and the creation of additional currency. This boils down to a decenteralised banking system on the internet.
Blockchains
To control the transactions one needs a ledger system. Cryptocurrencies tend to use Blockchains. A Blockchain is a public distributed ledger of transactions. You have a network of computers (nodes) running the ledger software. The network is setup where the ledger system adds transactions to the ledger for those computers (codes) that are subscribed to it. If one or more computers are removed the system still works.
Miners
The computers (nodes) are often referred to as miners. These are the computers that run the ledger software. The ledger software can be run on anyone’s computer. The ledger is encrypted. Those running the ledger software (miners) are rewarded with some of the currency as payment for being part of the system (transaction fees).
Transactions
A cryptocurrency transaction is very similar to a standard bank transaction. When one sends the cryptocurrency one needs the sender/receiver details plus the amount. A cryptocurrency transaction may have one or more senders plus one or more receivers. To put it another way, a transaction can have many sub-transactions.
Supply
Since cryptocurrencies aren’t tied to anything real world, scarcity must be created artificially. This means that the cryptocurrency many issue x amount every y minutes. This information would be publicly known for the selected cryptocurrency.
What this means is those who mined at the beginning would have received, more currency than those mined later. This is due to the suppy increase over time.
Privacy
Since all the information (transactions) isn’t private. One could be concerned over privacy. However, your cryptocurrency id has no relation to who you are. This could still pose problems both ways.
Law enforcement warrants could become an issue where the user’s cryptocurrency id is unknown.
Sometimes it’s possible to de-anonymise information, which has been shown many times by Researchers from different Universities.
Good
Fast – it’s on the internet, the transaction is almost instant.
Transaction fees – Transaction fees are very small compared to international transfers.
Transparent – the ledger is public.
Decentralised – it’s a distributed network.
Anonymous – your cryptocurrency id maybe public, but no one knows you own that id or ids.
Setup – you can set up online with ease.
Bad
Bank issues – Banks would see cryptocurrency as a competitor.
Local Currency – Countries would be less likely to use a standard cryptocurrency, as this would be a loss of control (see euro). They could create their own cryptocurrency, however.
Grey/Illegal markets – cryptocurrencies can be used in such markets due to the problems law enforcement have monitoring the activity.
Un-regulated – Could allow people to evade taxes. Allows money laundering, due to being anonymous.
Speculative bubble – A popular cryptocurrency has been labelled a speculative bubble due to a quick rise in price for no particular reason (no economic reason).
Decentralised – There is no government agency controlling the supply of money being created this could pose a real problem for a country that accepts such a currency as their own.