What is cryptocurrency?

Cryptocurrency is digital money that no bank or government issues or controls. A network of computers keeps a shared record of who owns what. This lesson explains what that means and why it matters.

Most money is already digital

Most of the money you use is a number in a bank's database. When you pay by card, your bank lowers your number and raises the shop's. You trust the bank to keep that record honestly and to let you use your money.

What makes cryptocurrency different

A cryptocurrency also keeps a record of balances, but no single company holds it. Independent computers around the world each keep a copy and check every transaction against the same rules. That shared record is called a blockchain, and Lesson 3 shows how it works.

Three things follow from this design:

• No central issuer. New coins are created by the network's rules, not by a central bank's decision.
• You can hold it yourself. Ownership is proved with a secret key, not an account at a company. Whoever has the key controls the coins.
• Payments are hard to reverse. Once the network confirms a payment, no helpdesk can undo it.

What the word crypto means

The name comes from cryptography, the maths of secure communication. Cryptography is used to prove that you own your coins and to make past records tamper-evident. It does not make payments secret. On Bitcoin and most other blockchains, every transaction is public, tied to an address instead of a name.

What people use it for

People use cryptocurrency to send money across borders, to hold savings outside the banking system and to speculate on price. Bitcoin launched in 2009 and was the first. Millions of other coins and tokens have been created since, and consumer regulators warn that scams are common.

The trade-off

More control means more responsibility. Keep three risks in mind from the start:

• Prices can move sharply within a single day.
• If you lose your secret key, nobody can recover your coins for you.
• Protections you get from a bank, such as deposit insurance and card chargebacks, mostly do not apply. The rules differ by country.