Cryptocurrency

A cryptocurrency (colloquially crypto) is a digital currency that works through a computer network. It does not need a central authority, like a government or bank, to manage it. However, a type of cryptocurrency called a stablecoin might depend on government rules to keep its value steady.

Ownership of coins is recorded in a digital ledger or blockchain. This is a computerized database that helps keep track of transactions, create new coins, and confirm when ownership changes. The two most common ways to agree on these records are called proof of work and proof of stake.

The first cryptocurrency was bitcoin, released as open-source software in 2009. By June 2023, there were over 25,000 other cryptocurrencies available, with more than 40 having a market capitalization over $1 billion. As of April 2025, the total value of all cryptocurrencies was estimated at US$2.8 trillion.

History

Further information: History of bitcoin and Cryptocurrency bubble § History

Cryptocurrencies began in 1983 when an American expert named David Chaum came up with a way to make digital money. In 2009, a person called Satoshi Nakamoto made bitcoin, the first famous cryptocurrency. Since then, many more have been created, such as Litecoin and Ethereum.

Some countries have accepted cryptocurrencies, like El Salvador in 2021, while others, like China in 2021, have not allowed them. Cryptocurrencies have had times when they were worth a lot and times when they were worth less, and many people are still learning how to use them safely.

Formal definition

Cryptocurrencies are digital currencies that do not use banks or governments. Instead, they use a network of computers to keep track of who owns what. These systems have rules for creating new coins, proving ownership, and letting people trade coins.

After Bitcoin was created in 2008, many other cryptocurrencies were made. These are called "altcoins." Examples include Litecoin, which can confirm transactions faster, and Ethereum, which can run special programs called smart contracts. Some cryptocurrencies, called stablecoins, try to keep a steady value, but sometimes they lose that stability. Memecoins are based on internet jokes, like Dogecoin, which can change value very quickly.

Physical crypto

Physical cryptocurrency coins have been made as fun collectibles. Some of these coins have a secret code inside that lets you access a tiny amount of cryptocurrency. These coins can be made from metals like silver, brass, or aluminum, and some even have gold plating. Popular examples include the Casascius and Titan Bitcoin coins, which many coin collectors enjoy. These physical coins are special items for collecting, and they only have value if they contain actual cryptocurrency.

Architecture

Cryptocurrency is created by a system that works together. The speed of creating it is set when the system starts. No bank or government can make more of it or control it. The idea of cryptocurrency started with someone called Satoshi Nakamoto.

In some types of cryptocurrency, like bitcoin, people called miners help keep things safe. These miners use their computers to check and record transactions, adding them to a list. Other systems use people who already have cryptocurrency to check transactions.

Most cryptocurrencies are made so that less and less is created over time. This means there will only ever be a certain amount of that currency. Unlike regular money, cryptocurrencies can be harder for law enforcement to take away.

Blockchain

Main article: Blockchain

The system that makes cryptocurrency work is called a blockchain. A blockchain is a growing list of groups of information, called blocks, that are linked together with special codes. Each block has a time stamp and information about transactions. Because of how blockchains are made, the information in them is very hard to change after it is added.

For blockchain to work, a group of computers, called a peer-to-peer network, all follow the same rules to check new blocks. Once a block is added, it cannot be changed without all the blocks after it also being changed, which would need most of the network to agree.

Nodes

A "node" is a computer that connects to a cryptocurrency network. Nodes help the network by sending transactions, checking them, or storing a copy of the blockchain. When a transaction happens, the node that starts it tells other nodes about it, so everyone knows.

Mining

See also: GPU mining

Mining is how transactions are checked on a blockchain. Miners who successfully check transactions get new cryptocurrency as a reward. This reward also helps pay for the work of checking transactions. As more people started using cryptocurrency, it got harder to mine, so miners needed to spend more money on better computers.

Wallets

A cryptocurrency wallet is a tool for keeping the special codes, called keys, that let you get or spend cryptocurrency. With the private key, you can spend the cryptocurrency. With the public key, others can send you cryptocurrency. Wallets can be on paper, special hardware, computers, or online services.

Privacy

Main article: Blockchain privacy

Bitcoin is pseudonymous, meaning it is not tied to a person's identity but to special keys. While owners are not immediately identifiable, all transactions are public. Some cryptocurrencies, like Monero, use extra methods to increase privacy.

Economics

See also: Cryptoeconomics

Cryptocurrencies are used instead of banks and governments and are traded on the Internet. They work through a system where each coin's ownership is recorded in a digital ledger called a blockchain.

Cryptocurrencies like bitcoin give rewards to people who help check transactions, called miners. These rewards add more coins to the system. The system is made so that checking transactions costs money, which helps keep the network safe. The cost of power and special equipment for mining can be more than the rewards, but this can change.

Prices for cryptocurrencies can change a lot very fast. For example, in one week in 2022, bitcoin lost 20% of its value. This is more than big companies' stocks lost in the same time. The value of cryptocurrencies depends a lot on what people think they are worth and can go up and down based on events like changes in money supply or inflation.

Social and political aspects

See also: Crypto-anarchism and Cypherpunk

Many people like cryptocurrencies such as bitcoin because they think money should not be controlled by governments or banks. They believe it lets people have more control over their money. Others think it can change old ways of thinking about money.

Economists and writers have different opinions about cryptocurrencies. Some say they come from ideas that oppose government control of money. Others see them as a way to change old systems and give more power to everyday people.

Usage

Cryptocurrencies can be used to send money between countries. Some people use them because they cost less than other ways.

Some big companies have said they might buy cryptocurrencies like bitcoin. But the value of cryptocurrencies can change a lot, so they might not be good for companies that want steady investments.

Regulation

Main article: Regulation of cryptocurrency

Governments around the world are working to protect people who use cryptocurrencies. The Financial Action Task Force (FATF) has suggested that companies handling cryptocurrencies follow the same rules as banks to stop bad activities like money laundering.

Many countries have made their own rules for cryptocurrencies. For example, the United States has laws to control how cryptocurrencies are used and traded. Some countries, like China, have stopped certain cryptocurrency activities, while others, like El Salvador, have made cryptocurrencies legal money. These different rules show how governments are trying to let people use new technology while keeping things safe and fair.

Legality

Main article: Legality of cryptocurrency by country or territory

The rules about cryptocurrencies are different in every country. Some countries let people use and trade them, while others have banned or restricted their use. For example, countries like China and Russia have strict rules or bans on cryptocurrencies.

In places like the United States and Canada, governments are working to stop scams and unfair practices related to cryptocurrencies. Different agencies and courts in these countries have different ideas about how to treat cryptocurrencies legally. Some see them as property for tax purposes, which means people have to pay taxes on any profits they make from selling them.

Many platforms like Facebook, Google, and Twitter have stopped allowing ads about cryptocurrencies because of concerns about scams and unfair trading. This helps protect people from being tricked into losing their money.

Impacts and analysis

Cryptocurrencies have faced many criticisms. Some people think they can be unstable, use a lot of energy, and be risky. Regulators in different countries have warned people about the risks of investing in cryptocurrencies. Banks often don’t work with cryptocurrency companies directly.

Cryptocurrencies can also harm the environment. Mining for some, like bitcoin, uses a lot of electricity and creates pollution. This has led some places to stop allowing cryptocurrency mining. Other cryptocurrencies use less energy, but the biggest ones still affect the planet.

Many experts and leaders have questioned the value of cryptocurrencies. Some have called them risky or unfair, while others worry there aren’t enough rules to protect investors. These concerns have led to debates about how governments should handle cryptocurrencies.