Cryptocurrency is a broad term for digital money that is created, transferred, and verified using cryptography and a distributed computer network, rather than issued by a central bank or held in a traditional bank account. Bitcoin, launched in 2009, was the first working example. Since then, thousands of other cryptocurrencies have launched, each with its own rules, purpose, and trade-offs, and you can browse a live snapshot of the wider market on our crypto markets page.
What actually makes something a cryptocurrency
Three features tend to separate cryptocurrencies from ordinary digital money like the balance in your bank app:
- A shared public ledger. Transactions are recorded on a blockchain or similar distributed ledger that many independent computers maintain together, rather than one company’s private database.
- Cryptographic ownership. You prove ownership with a private key, not a username and password tied to an account an institution controls.
- Rules enforced by code, not by discretion. How new units are created, how transactions are validated, and how supply changes over time are defined in open-source software and enforced automatically by the network.
None of this requires a company to stay solvent or a government to back the currency — the system is designed to keep functioning as long as enough independent participants keep running the software.
How new coins are created and validated
Cryptocurrencies rely on a consensus mechanism to agree on which transactions are valid without a central referee. The two most common approaches are proof of work, where participants called miners compete using computing power (as with Bitcoin), and proof of stake, where participants called validators lock up, or “stake,” coins as collateral for the right to validate transactions. Our guide on what a blockchain is covers this mechanism in more depth.
Coins versus tokens
Not every cryptocurrency works the same way. A “coin” like bitcoin or litecoin typically has its own independent blockchain. A “token,” by contrast, is usually built on top of an existing blockchain — for example, many tokens run on Ethereum using a shared technical standard. Tokens can represent all sorts of things: a claim on a project’s governance, a stake in a decentralized application, or a stable unit of value pegged to a currency like the US dollar (see our guide on stablecoins).
Why cryptocurrencies exist at all
Different projects were built to solve different problems, and it is worth being specific rather than treating “crypto” as one monolithic idea:
| Category | What it is trying to do |
|---|---|
| Store-of-value assets | Bitcoin is the leading example, prized by holders mainly for its scarcity and independence from any government or company. |
| Smart contract platforms | Networks like Ethereum let developers build applications — from lending markets to games — that run on the blockchain itself. |
| Stablecoins | Tokens designed to hold a steady value, usually pegged to a currency such as the US dollar, used as a unit of account inside crypto markets. |
| Payment-focused coins | Projects like Litecoin prioritize fast, cheap transfers over other features. See our guide on what Litecoin is. |
What gives a cryptocurrency value
Cryptocurrencies have no cash flows, dividends, or government guarantee behind them the way a stock or a bond does. Their market price is set entirely by what buyers are willing to pay, which in turn is shaped by factors like scarcity, adoption, usefulness of the underlying network, liquidity, and, often, speculation and sentiment. This is a fundamentally different valuation problem than traditional finance, which is why direct price comparisons between crypto and stocks can be misleading — see our guide on crypto versus stocks for more on that distinction.
A cryptocurrency’s price reflects what people are collectively willing to pay right now, not a verified measure of the project’s usefulness or a guarantee of future value. Rising and falling prices are both normal, ordinary outcomes in this market, not evidence that something is broken or that a rally will continue.
Why the market is so uneven
Thousands of cryptocurrencies exist, but the market is highly concentrated: a small number of large, liquid assets account for most of the total value, while a long tail of smaller projects trades thinly and can be far harder to buy or sell without moving the price. Liquidity, not just price, is a meaningful factor in how risky a given asset is to hold. Our top gainers and top losers pages give a live sense of how differently individual assets can move on any given day, even when the broader market is calm.
Risks that apply across the whole asset class
- Volatility. Prices can swing sharply and quickly, in both directions, across the entire market.
- Custody risk. If you hold crypto yourself, you are responsible for securing it; see our guide on storing crypto safely.
- Project risk. Unlike a public company, many crypto projects have thin disclosure requirements, and some fail outright or turn out to be scams.
- Regulatory uncertainty. Rules differ by country and are still evolving, which can affect how, or whether, you can buy, hold, or sell certain assets.
Reading a project honestly before you buy
Because there is no single regulator vetting every crypto project the way there is for a listed company, the burden of due diligence falls more heavily on the individual. Useful questions to ask before treating any coin or token as more than speculative interest include: what problem is this network actually trying to solve, who can change its rules, how concentrated is ownership among a small number of wallets, and how long has the project operated through both rising and falling markets. None of these questions guarantee an outcome, but skipping them tends to correlate with worse decisions.
How to explore the market responsibly
Before putting money into any cryptocurrency, it helps to understand what the project actually does, who can change its rules, and how its supply works. Our comparison tool lets you look at multiple assets side by side, and our glossary defines the vocabulary you will run into along the way. None of this replaces your own research and judgment.
This guide is educational and is not financial advice. Cryptocurrency prices are volatile and you should never risk money you cannot afford to lose. Always do your own research before acting.
Frequently asked questions
Is cryptocurrency the same as Bitcoin?
No. Bitcoin is one specific cryptocurrency -- the first and largest by most measures. Cryptocurrency is the umbrella term covering thousands of coins and tokens.
Is cryptocurrency legal?
This varies by country and changes over time. Many countries permit it, some restrict specific activities, and a few ban it outright. Check current rules in your jurisdiction.
Does every cryptocurrency use the same technology?
No. They differ in consensus mechanism, transaction speed, programmability, and purpose, even when their price charts look similar.
Do all cryptocurrencies have a maximum supply?
No. Some have a hard-capped supply, others issue new coins indefinitely, and some periodically burn coins to offset issuance. It varies project by project.