Quick definition

Updated: Jan 20, 2023

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

Key details

  • 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?

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?

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?

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?

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

Invezz is a place where people can find reliable, unbiased information about finance, trading, and investing – but we do not offer financial advice and users should always carry out their own research. The assets covered on this website, including stocks, cryptocurrencies, and commodities can be highly volatile and new investors often lose money. Success in the financial markets is not guaranteed, and users should never invest more than they can afford to lose. You should consider your own personal circumstances and take the time to explore all your options before making any investment. Read our risk disclaimer >

James Knight
Editor of Education
James is a lead content editor for Invezz. He's an avid trader and golfer, who spends an inordinate amount of time watching Leicester City and the… read more.