Quick definition

Copy link to section
Updated: Jan 20, 2023

Cryptocurrency is electronic cash that operates outside of the traditional financial system.

Key details

Copy link to section
  • A cryptocurrency offers a way for people to send money to each other directly, without needing approval from a central authority, such as a bank. 
  • Cryptocurrencies are based on blockchain technology, which is like an online public ledger that stores a history of all transactions.
  • Bitcoin was the first cryptocurrency, released in 2009, and remains by far the largest and most popular one.

What is cryptocurrency?

Copy link to section

It’s digital, or virtual, currency that can be used as a means of payment online. The ‘crypto’ part refers to the fact that it uses cryptography, a form of digital encryption, to keep the money safe and transactions secure.

Cryptocurrency is very different to a ‘normal’ currency. Rather than being created and regulated by a government or financial institution, it uses a blockchain to store transactions and manage the movement of money. No one person or entity decides how much of it exists or how it is valued.

In its own lingo, that means cryptocurrency is both ‘decentralised’ and ‘peer-to-peer’; that is, control is shared out among the people who own it and a person can send money directly to another user without going through an intermediary.

The fact that it lives outside of the normal financial system means that it’s quite difficult to use cryptocurrency to pay for everyday items at the moment. Instead, it’s most popular as an asset that can be traded, where traders can buy or sell individual coins to try to profit from any changes in their value.

How does cryptocurrency work?

Copy link to section

By using a blockchain, an online public ledger, to replicate the role that a bank plays in a fiat currency. Any time someone transfers money to another person, details of the transaction are added to the blockchain and, once there, the data cannot be changed.

This ‘immutability’ is very important because it keeps cryptocurrency secure. Most of the time, the only way to delete a transaction or change the record is to control more than half of the coins in existence. At which point, there would be no incentive to do so because it would destroy the value of what you own.

How many cryptocurrencies are there?

Copy link to section

There are tens of thousands and more are being created all the time. However, most of these are small and mainly used as assets for traders to speculate on. 

There is a more select group, led by Bitcoin and Ethereum, that has gained widespread public awareness and which have more practical uses. Some other well-known cryptocurrencies include the likes of Dogecoin, Litecoin, and Cardano. 

Where can I learn more?

Copy link to section

You can find out more about cryptocurrency and how it works by taking one of our courses, such as Bitcoin 101. To learn more about buying them and the different ways you can do so, head to the cryptocurrency hub.

Sources & references
Risk disclaimer
James Knight
Editor of Education
James is the Editor of Education for Invezz, where he covers topics from across the financial world, from the stock market, to cryptocurrency, to macroeconomic markets.... read more.