Cryptocurrency

Key points

• Cryptocurrency is a digital currency secured by cryptography that serves as a medium of exchange in a peer-to-peer system, with no central authority.
• It runs on a blockchain, which records who holds what and validates transfers without relying on an intermediary bank.
• The term covers everything from Bitcoin to stablecoins and thousands of other assets, with purposes and risks that vary widely among them.

What is a cryptocurrency?

Cryptocurrency is a form of digital money that uses cryptography to secure transactions and control the issuance of new units. Instead of a central bank keeping account balances, a distributed network records and validates each transfer, allowing people to transact directly with one another.

How it works

Each user controls a wallet associated with a pair of cryptographic keys. The public key generates the address used to receive funds; the private key authorizes spending. When sending a transaction, the user signs it with the private key, and the network verifies the signature before recording it on the blockchain.

Issuance follows rules defined in the protocol. Some cryptocurrencies have a fixed maximum supply, like Bitcoin; others follow different policies. No institution can create units outside these rules, which makes the monetary policy predictable and verifiable by any participant.

Because the network is public, anyone can audit the transaction history, although addresses are pseudonymous and do not directly reveal the identity of the person controlling them.

Why it matters

Cryptocurrencies allow value to be transferred between countries without depending on banking hours or a chain of intermediaries. For payments, stablecoins, a type of cryptocurrency with stable value, are the most widely used, precisely because they avoid the price swings that make assets like Bitcoin harder to use commercially. Beyond payments, cryptocurrencies serve as a store of value, a means of accessing on-chain services, and a unit of account in programmable contracts. What each asset actually does in practice depends on its design, not on the generic label.

Risks and limitations

Many cryptocurrencies have volatile prices, which makes them risky as a short-term store of value. Responsibility for safeguarding the keys falls on the user: losing the private key means losing access to the funds, with no support desk to recover it. Transactions are irreversible, which requires extra care with addresses and destinations. Even so, for many users, autonomy over their own funds is precisely the main advantage over the traditional system.