Cryptocurrency

A cryptocurrency (colloquially crypto) is a digital currency designed to work through a computer network that is not reliant on any central authority, such as a government or bank, to uphold or maintain it. However, a type of cryptocurrency called a stablecoin may rely upon government action or legislation to require that a stable value be upheld and maintained.

Individual coin ownership records are stored in a digital ledger or blockchain, which is a computerized database that uses a consensus mechanism to secure transaction records, control the creation of additional coins, and verify the transfer of coin ownership. The two most common consensus mechanisms are proof of work and proof of stake.

The first cryptocurrency was bitcoin, which was first released as open-source software in 2009. As of June 2023, there were more than 25,000 other cryptocurrencies in the marketplace, of which more than 40 had a market capitalization exceeding $1 billion. As of April 2025, the cryptocurrency market capitalization was estimated at US$2.8 trillion.

History

Further information: History of bitcoin and Cryptocurrency bubble § History

Cryptocurrencies started in 1983 when an American expert named David Chaum thought of a way to create digital money. In 2009, a person known as Satoshi Nakamoto created bitcoin, the first well-known cryptocurrency. Since then, many others have been created, like Litecoin and Ethereum.

Some countries have accepted cryptocurrencies, like El Salvador in 2021, while others, like China in 2021, have banned them. Cryptocurrencies have gone through times of high value and low value, and many people are still learning how to use them safely.

Formal definition

Cryptocurrencies are digital currencies that work without a central authority like a bank or government. Instead, they use a network of computers to keep track of who owns what. These systems have specific rules about creating new coins, proving ownership, and allowing ownership to change through transactions.

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

Physical crypto

Physical cryptocurrency coins have been created as promotional items and collectibles. Some of these coins have a private key embedded in them, allowing access to a small amount of cryptocurrency. Examples include silver, brass, or aluminum coins, sometimes with gold plating, like the Casascius and Titan Bitcoin coins, which are popular among coin collectors. These physical items do not have value on their own; they are made for collecting and do not contain actual cryptocurrency unless specified.

Architecture

Cryptocurrency is created by a whole system together, at a speed that is set when the system starts. Unlike regular money controlled by banks or governments, no company or government can make more of it or back it up. The idea behind cryptocurrency was started by someone called Satoshi Nakamoto.

In some types of cryptocurrency systems, like bitcoin, safety and balance are kept up by people known as miners. These miners use their computers to check and record transactions, adding them to a list called a ledger. Other systems use holders of the cryptocurrency itself to check transactions.

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

Blockchain

Main article: Blockchain

The system that makes sure each cryptocurrency works is called a blockchain. A blockchain is a growing list of groups of information, called blocks, that are linked together using 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 by giving extra value. 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. Researchers have suggested new ways to improve privacy further.

Economics

See also: Cryptoeconomics

Cryptocurrencies are mainly used outside banks and governments and are traded over 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 verify transactions, called miners. These rewards increase the number of coins available. The system is designed so that verifying transactions costs money, which helps keep the network secure. The cost of electricity and special equipment for mining often outweighs the rewards, but this can change.

Prices for cryptocurrencies can change a lot very quickly. 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 who support cryptocurrencies like bitcoin do so because they believe money should not be controlled by governments or banks. Some see it as a way to take control of money back into their own hands. Others think it challenges traditional ideas about how money should work.

Economists and writers have different views on cryptocurrencies. Some say they are based on ideas from groups that oppose government control of money. Others see them as a way to disrupt old systems and give power back to regular people.

Usage

Cryptocurrencies can be used for international transfers, like sending money between countries. In June 2020, transfers under $10,000 to and from Africa reached $316 million. Some people in the United Arab Emirates used cryptocurrencies to send money home because they said it cost less than traditional ways.

Some big companies announced plans in 2025 to buy and hold cryptocurrencies like bitcoin as part of their assets. However, because the value of cryptocurrencies can change a lot, they might not be suitable for companies that prefer steady, low-risk investments.

Regulation

Main article: Regulation of cryptocurrency

Governments around the world have been looking at ways 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 prevent illegal activities like money laundering.

In recent years, many countries have been creating their own rules for cryptocurrencies. For example, the United States has passed laws to help control how cryptocurrencies are used and traded. Some countries, like China, have banned certain activities involving cryptocurrencies, while others, like El Salvador, have made cryptocurrencies legal money. These different approaches show how governments are trying to balance letting people use new technology while also keeping things safe and fair.

Legality

Main article: Legality of cryptocurrency by country or territory

The rules about cryptocurrencies change a lot from one country to another. Some countries allow people to 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 looking into 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 are unstable, use too much energy, and can be risky. Regulators in different countries have warned people about the risks of investing in cryptocurrencies. Banks often don’t deal with cryptocurrency companies directly.

Cryptocurrencies can also harm the environment. Mining for some cryptocurrencies, 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 have a big impact on the planet.

Many experts and important leaders have questioned the value of cryptocurrencies. Some have called them bubbles or scams, while others worry about the lack of rules to protect investors. These concerns have led to debates about how governments should handle cryptocurrencies.