What Is Cryptocurrency?

Crypto is a new kind of digital money that functions like traditional currency without the backing of a government or bank. Instead, crypto is supported by decentralized technology called blockchain that relies on a network of computers to verify and enforce transactions. It is mined by individuals and businesses using computer processing power, a process that requires large amounts of electricity (including for cooling). Cryptocurrency is stored in secure digital wallets, where it can be exchanged for other types of crypto or used to purchase goods and services.

The value of cryptocurrencies changes constantly, sometimes by the hour or day. They may also be more volatile than more traditional investments, meaning they can go up or down in price faster and to a greater extent.

While many cryptocurrencies were developed to serve a monetary function, others have become popular as collectibles and can be traded for their own sake. Some cryptocurrencies have been hacked and lost, and many people have suffered losses due to scams.

A cryptocurrency’s security is based on cryptography—a system of rules that makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are built on a decentralized network, which makes them theoretically immune to the interference or manipulation of governments or central banks.

The list of goods and services that accept crypto as payment grows daily as people and vendors become more comfortable with virtual money. Insurance, consumer staples, luxury watches, and event tickets are among the items you can buy with cryptos. Most brick-and-mortar retailers and stores that accept cryptos do so through point-of-sale hardware linked to cryptocurrency payment service providers, which generally guarantee the crypto to fiat conversion at the time of the transaction to avoid price slippage.

Never pay for anything with cryptocurrency that you didn’t agree to in advance, and don’t click on a link in an unexpected email, text, or social media message that asks you to do so. These are likely scams. The emergence of crypto has raised questions about its potential to be used for illicit activities, including money laundering and financing terrorism. It is also posing challenges for financial regulators, who are working to balance consumer protection and market stability with the need to embrace innovation.