The world of cryptocurrency is constantly evolving. Use our crypto guide to master the basics, learn about crypto innovations, and consider the many ways it’s possible to invest in crypto now.
Crypto Basics
In this section:
- 1. What Is Cryptocurrency?
- 2. How Does Cryptocurrency Work?
- 3. What Is Blockchain Technology?
- 4. How Does Crypto Mining Work?
- 5. What are Crypto Exchanges?
- 6. Why Has Crypto Become so Popular?
What Is Cryptocurrency?
Cryptocurrency, often simply called “crypto,” is any type of decentralized, digital currency that’s based on cryptography. Those three terms are key to understanding the thousands of different types of crypto being traded today.
“Decentralized” means that cryptocurrency isn’t issued by a central authority like a government or bank, the way the dollar, euro, yen, and other fiat currencies are. Instead, cryptocurrencies are created, exchanged, and often overseen by a distributed peer-to-peer network.
Crypto is digital, meaning two things. First, with a couple of exceptions, the value of most crypto is not pegged to a fiat currency like the dollar or euro, nor is it determined by a precious metal like gold. And though people may refer to crypto in physical terms (e.g., as coins), crypto is generated and traded in only a digital format.
Cryptography refers to the mathematical technique used to secure each unit of cryptocurrency and ensure it can’t be copied.
Most crypto exists on a blockchain platform. Blockchain is the digital ledger that records most crypto transactions. This use of blockchain technology as a foundational element for cryptocurrency began in 2009, in tandem with the launch of Bitcoin. But blockchain technology is evolving rapidly, and a range of other industries are exploring its potential applications as well.
How Does Cryptocurrency Work?
There are thousands of cryptocurrencies, and while many are designed to provide some new feature or function on a given blockchain platform, many, if not most are founded on similar principles to those that established Bitcoin. Crypto is secured by a peer-to-peer network, and users can trade or transfer value — globally and almost instantly, 24 hours per day, seven days per week — without relying on a middleman, like a bank or payment processor.
Cryptocurrencies are considered secure because they employ a “trustless” system of verification for all transactions. This means that users don’t have to rely on a third party to verify transactions: the system itself is self-governing.
As of November 2023, estimates of the number of cryptocurrency you can trade are around 8,800, with a total market capitalization of over $1.32 trillion. The biggest cryptocurrencies by market capitalization are Bitcoin and Ethereum – by a wide margin. Cryptocurrencies are generally stored in digital wallets, commonly a blockchain wallet, which allows users to manage and trade different crypto.
What Is Blockchain Technology?
The widespread use of blockchain technology as the underlying platform for most forms of crypto began in 2009, when an innovative use of blockchain enabled the successful launch of Bitcoin. For that reason, many people think of blockchain and cryptocurrency as synonymous, when in fact blockchain technology has a wide variety of applications.
Blockchain is a digital, append-only ledger that can be used to track or record almost any type of asset, from goods and services to patents, smart contracts, and more. It’s transparent, meaning the transactions on a public blockchain are accessible to anyone, and unlike a physical system of record keeping, the record of transactions is designed to be permanent and immutable.
Why Is It Called Blockchain?
The reason blockchain records are theoretically unchangeable is because the system is built from “blocks” of data that are “chained” together in chronological order (hence the name “blockchain”) so that all transactions are visible to everyone on the network. Blockchain technology relies on cryptography to secure these transactions and, in the case of many types of crypto, to mine coins and tokens.
Why Is Blockchain Considered Secure?
A blockchain runs on a decentralized network of computers, called nodes, which enable a form of consensus (peer-to-peer) confirmation that can drive faster, more secure transactions. The distributed, self-governing nature of blockchain thus makes fraud and duplication far more difficult compared with legacy record-keeping systems.
The combination of speed, security, and transparency has not only enabled the growth of cryptocurrencies worldwide, many other industries are now exploring blockchain’s uses as well.
