What is Cryptocurrency?
A cryptocurrency is a kind of a broker / medium of exchange. It's almost like normal currencies (USD, EUR,...), with the difference of being used for exchanging digital information through a process which is made possible by certain principles of cryptography. Cryptography is used to control the creation of new coins and also secure the transactions of them. Bitcoin was the first cryptocurrency ever created in 2009. Now there are numerous other alternatives, referred al Altcoins.
To explain it the more simple way, cryptocurrency in converted lines of code, which has monetary value. Therefore it is the digital currency.
Cryptocurrency is fully decentralized, which means government has no control over it. With paper money, government decides when and how much of it to print, thus also having control over the value of it. Cryptocurrency uses no such thing as a federal reserve system or a central bank.
Cryptocurrencies create a cap in them, because they are designed to decrease in production over time (like Bitcoin). That separates them from fiat currencies. In fiat currencies the financial institutions can always create more. That's how we get inflation. Bitcoin for example will never have more than 21 million coins in circulation.
All cryptocurrencies are created from miners/users who produce them on home computer or ASIC machines. While hundreds of different cryptocurrency specifications exist, most are derived from one of two protocols; Proof-of-work or Proof-of-stake.