What Is Cryptocurrency?

Cryptocurrency is a type of currency that’s digital and decentralized. Cryptocurrencies can be used to buy and sell things, and their potential to store and grow value has also caught the eye of many investors.

There are thousands of different cryptocurrencies available today. The most popular — and the original — is Bitcoin, which was created in 2009. Other common cryptocurrencies include Ethereum, XRP, and Bitcoin Cash. Each of these currencies serves a different purpose, with some optimized for use in place of cash, and others designed for private, direct transactions.

Cryptocurrencies are wholly digital, so there’s no physical coin or bill connected to the crypto you own. Instead, owners hold the cryptocurrency in a digital wallet, and buy or sell through an online exchange. Your wallet may be online (some popular exchanges like Coinbase offer an in-app wallet) or stored offline on a hardware device similar to a USB drive.

Decentralization is a primary tenet of cryptocurrency. Whereas most currencies are backed by a central bank — the U.S. dollar, for example, is backed by the “full faith and credit” of the U.S. government — cryptocurrencies are maintained and valued by their users.

Cryptocurrency transactions are recorded on a decentralized ledger. This ledger is called a blockchain. Every time crypto is bought or sold, the transaction is added to the blockchain — a public database of the transactions, which is available to other crypto holders. Anyone can join and participate in the blockchain, but data on individual transactions — and the people involved with them — are secured using cryptography (the basis for the term cryptocurrency). For each transaction added to the blockchain, there’s a digital validation process to verify it and prevent fraud.