What Is Cryptocurrency?


Cryptocurrency is a digital currency that’s underpinned by cryptographic systems. These include the encryption algorithms and techniques that safeguard online transactions, such as elliptical curve cryptography and public-private key pairs. They enable fast, secure and low-cost electronic money transfers without the need for middlemen. Cryptocurrencies have gained mainstream popularity in recent years, and are now held as investments and used to buy a wide range of goods and services.

Bitcoin, the best-known cryptocurrency, launched in 2009 under the pseudonym Satoshi Nakamoto. Its appeal stems from the fact that it’s decentralized. That means that transactions are recorded in a digital ledger called a blockchain, and can be made between anyone with access to the internet. Each block contains a record of all previous transactions, and each record is linked to every other record by cryptography. In this way, if someone tried to hack the system and alter a single piece of data, everyone else’s copy would instantly become out of sync.

A growing list of retailers and even some brick-and-mortar stores accept cryptocurrency as payment. Sending and receiving crypto is a simple process, involving downloading a wallet app, linking it to your bank account and entering the details of the transaction you’d like to make.

It’s worth pointing out that cryptocurrencies are volatile and can lose value quickly. That’s why it’s recommended that you invest only a small percentage of your portfolio in them. One common guideline is no more than 10%. In addition, it’s a good idea to diversify your holdings. Different cryptocurrencies tend to rise and fall at different rates, so by spreading your money around you can help insulate yourself from losses in any one particular coin.

There are also concerns about the lack of regulation surrounding cryptocurrencies. They’re taking billions of dollars in transactions in a largely unregulated sector, and that raises issues about fraud, tax evasion, and cybersecurity. It may also limit the ability of central banks, particularly those in smaller countries, to set monetary policy through control of their money supply.

Despite these concerns, cryptocurrencies remain popular. Bill Gates and Al Gore are among many prominent figures who support them, while famous investors such as Warren Buffett and Nobel laureates Paul Krugman and Robert Shiller have spoken out against them.

The main appeal of cryptocurrencies lies in their decentralized nature, which makes them fast and inexpensive to transfer, especially across borders. They’re also useful for dissidents in authoritarian countries to raise funds outside of state control. However, some governments are also concerned about their use in criminal activities and want to regulate them.