What are cryptocurrencies?

Bitcoin, Ethereum, and other cryptocurrencies are revolutionizing the way we invest, use banks, and use money. Read this beginner's guide to learn more.

Cryptocurrencies are essentially decentralized digital currencies designed specifically for use on the internet. Bitcoin, launched in 2008, was the first cryptocurrency and remains the largest, most influential, and best-known. In the decade since, other cryptocurrencies like Bitcoin and Ethereum have evolved into digital alternatives to government-issued currencies.

The most popular cryptocurrencies by market capitalization are Bitcoin, Ethereum, Tether, and Solana. Other well-known cryptocurrencies include Tezos, EOS, and ZCash. Some cryptocurrencies are similar to Bitcoin. Others are based on different technology or have new capabilities beyond just transferring value.

Cryptocurrencies allow value to be transferred online without the need for middlemen like banks or payment processors, allowing value to be transferred almost instantly around the clock and around the world with low fees.

Cryptocurrencies are not usually issued or controlled by any government or other central authority. They are managed by a peer-to-peer network of computers running free, open-source software. Generally, anyone who wants to participate can participate.

How can cryptocurrency be secure if there are no banks or governments involved? Cryptocurrencies are secure because all transactions are vetted through a technology called blockchain.

Cryptocurrency blockchains are similar to a bank’s balance sheet or ledger. Each currency has its own blockchain, which is a constantly revalidated record of every transaction made using that currency.

Unlike a bank ledger, a cryptocurrency blockchain is distributed among participants across the entire network of digital currencies.

No company, country, or third party has control over it; anyone can participate. Blockchain is a breakthrough technology that has only recently been made possible through decades of innovation in computer science and mathematics.

Most importantly, cryptocurrency allows individuals to have complete control over their assets.

Coinbase CEO Brian Armstrong on the future of cryptocurrency

Key concepts:

Transferability, cryptocurrency makes transactions between people far apart as smooth and easy as paying with cash at your local grocery store.

Privacy, when paying with cryptocurrency, you don’t need to provide merchants with unnecessary personal information. This means your financial information is protected and not shared with third parties such as banks, payment services, advertisers, and credit rating agencies. And, since there is no need to send sensitive information over the internet, there is little risk of your financial information being compromised or your identity being stolen.

Security, almost all cryptocurrencies, including Bitcoin, Ethereum, Tezos, and Bitcoin Cash, are secured using a technology called blockchain, which is constantly checked and verified by massive amounts of computing power.

Portability, since your crypto assets are not tied to financial institutions or governments, you can use your cryptocurrencies no matter where you are or what happens to the major intermediaries of the global financial system.

Transparency, every transaction on the Bitcoin, Ethereum, Tezos, and Bitcoin Cash networks is published publicly without exception. This means there is no room for manipulating transactions, changing the money supply, or adjusting the rules mid-run.

Irreversibility, unlike credit card payments, cryptocurrency payments cannot be reversed. For merchants, this greatly reduces the possibility of being defrauded. For customers, it has the potential to eliminate important disputes over high processing fees charged by credit card companies, making commercial transactions cheaper.

Security, the network that supports Bitcoin has never been hacked. The fundamental concept of cryptocurrency makes it secure: the system is permissionless and its core software is open source, allowing countless computer scientists and cryptographers to examine every aspect of the network and its security.