What is cryptocurrency?

The short version

When you pay with a bank card, your bank keeps the record of who owns what. With cryptocurrency, that record is a shared ledger called a blockchainBlockchain A shared, append-only record of transactions that many independent computers keep in sync., copied across thousands of computers around the world. No single company controls it, and anyone can check it.

You prove what’s yours with a secret called a private keyPrivate key A secret number that proves ownership of crypto. Anyone who has it can move the funds., usually managed for you by a walletWallet Software or a device that stores the keys you need to access and move your crypto. app.

Why people care

• No middleman required. You can send value to anyone with an internet connection, at any hour, without asking a bank’s permission.
• Transparent rules. For networks like Bitcoin, the rules, including how many coins will ever exist, are written into public software.
• Programmability. Networks like Ethereum run smart contractsSmart contract A program stored on a blockchain that runs automatically when its conditions are met.: programs that can hold and move money automatically. That’s the foundation for DeFiDeFi Financial services such as trading, lending and borrowing that run on smart contracts instead of banks. and stablecoinsStablecoin A token designed to hold a steady value, usually one US dollar..

What it isn’t

Cryptocurrency isn’t anonymous by default. Most blockchains are public, so every transaction can be seen, even if names aren’t attached. It isn’t insured like a bank deposit either. And it isn’t one thing: there are thousands of coins and tokens, built for very different purposes and carrying very different risks.

The risks, plainly

Prices can swing wildly (volatilityVolatility How much and how quickly a price moves up and down.). If you lose your keys, there’s usually no “forgot password” button. And the space attracts scams. Our phishingPhishing Tricking someone into giving up passwords, keys or approvals by pretending to be a trusted party. guide covers the most common ones.

Key idea: a cryptocurrency is a shared ledger plus a set of rules plus keys that prove ownership. Almost everything else builds on those three pieces.