Cryptocurrency

Cryptocurrency is digital or virtual currency that uses cryptography for security and operates on decentralized networks based on blockchain technology. The “crypto” in cryptocurrency refers to the complex cryptographic techniques used to secure transactions, control the creation of new units, and verify the transfer of assets. Unlike traditional currencies issued by governments (called fiat currencies), cryptocurrencies exist independently of central authorities like central banks or governments.

Bitcoin, created in 2009 by the pseudonymous Satoshi Nakamoto, was the first cryptocurrency and remains the most valuable and widely known. Since then, thousands of alternative cryptocurrencies (often called “altcoins”) have been created, each with different features, use cases, and underlying technologies. As of 2025, the total cryptocurrency market capitalization exceeds $2 trillion, with Bitcoin accounting for roughly 50% of that value.

What makes cryptocurrency revolutionary is its ability to enable peer-to-peer transactions without intermediaries. When you send a bank transfer, the bank validates and processes your transaction. With cryptocurrency, the transaction is validated by a decentralized network of computers using consensus mechanisms, recorded permanently on a public ledger (blockchain), and completed without any single entity controlling the process.

Creating Cryptocurrency

Most cryptocurrencies are created through mining (for Proof of Work blockchains) or staking/validation (for Proof of Stake blockchains). In Bitcoin mining, specialized computers compete to solve complex mathematical puzzles; the winner adds a new block and receives newly created Bitcoin as a reward. Bitcoin’s supply is capped at 21 million coins, with the last Bitcoin expected to be mined around 2140.

Sending and Receiving

To send cryptocurrency, you need a wallet containing your private keys. When you initiate a transaction, you specify the recipient’s address and amount. Your wallet creates a digital signature using your private key (proving ownership) and broadcasts the transaction to the network. Nodes verify the signature and check that you have sufficient balance. Once verified, the transaction is bundled into a block and becomes permanent.

Value and Volatility

Cryptocurrency prices are determined by supply and demand on exchanges. Unlike fiat currencies stabilized by central banks, cryptocurrency prices can be extremely volatile. Bitcoin has experienced multiple price swings of 50% or more in single months. This volatility creates opportunities for traders but also significant risks for investors.

Custody and Control

“Not your keys, not your coins.” When you buy crypto on an exchange, the exchange holds your private keys. If the exchange is hacked, goes bankrupt, or freezes your account, you lose access. FTX’s 2022 collapse cost users billions. For significant amounts, transfer crypto to a wallet you control, preferably a hardware wallet.

Common Scams

Cryptocurrency attracts scammers due to irreversible transactions. Common scams include: fake giveaways, phishing sites that steal your keys, Ponzi schemes promising guaranteed returns, and rug pulls where developers abandon projects after raising funds. Never share your seed phrase and be skeptical of guaranteed returns.

Tax Implications

In most countries, cryptocurrency is treated as property for tax purposes. Every trade, sale, or use of crypto creates a taxable event. Keep detailed records of all transactions. Consult a tax professional familiar with cryptocurrency.