Cryptocurrency
Cryptocurrency (or crypto) is a digital asset designed to work as a medium of exchange using cryptography to secure transactions, control the creation of additional units, and verify the transfer of assets.[1][2]
Overview
Cryptocurrency is a digital payment system that does not rely on banks to verify transactions. It’s a peer-to-peer system that can enable anyone anywhere to send and receive payments. Payments made using cryptocurrencies do not exist as actual physical coins that can be transported and exchanged; rather, they only exist as digital entries to an online database that detail specific transactions. A public ledger keeps track of all cryptocurrency transactions that involve funds transfers. Cryptocurrency is stored in digital wallets.[5]
Bitcoin, created in 2009, was the first decentralized cryptocurrency and remains the most widely traded and covered cryptocurrency.
As of September 2017, over a thousand cryptocurrency specifications existed; most are similar to and derived from the first fully implemented decentralized cryptocurrency, Bitcoin. Within cryptocurrency systems, the safety, integrity, and balance of ledgers are maintained by a community of mutually distrustful parties referred to as miners: members of the general public using their computers to help validate and timestamp transactions adding them to the ledger in accordance with a particular timestamping scheme. Miners have a financial incentive to maintain the security of a cryptocurrency ledger.[3]
As of December 2023, there are over 119 countries and 4 British Overseas Territories(BOT) worldwide where Bitcoin and cryptocurrencies are legalized and recognized by law. Some of the most popular cryptocurrencies include Bitcoin, Ethereum, Tether, USD Coin, Binance Coin, and Ripple.[3][4][7][14]
By early 2024, CoinGecko estimated that roughly 2.5 million crypto tokens had been issued across different networks, including many tokens that are illiquid or short-lived.[21] According to CoinGecko’s 2025 annual industry report, total cryptocurrency market capitalization subsequently peaked at around $4.4 trillion in 2025 before ending 2025 at about $3.0 trillion.[23] Crypto.com estimated that the number of global cryptocurrency owners reached about 741 million as of end-2025.[24] Cryptos have today can be most simply broken down into three categories:[6]
- Bitcoin - the market leader and original cryptocurrency
- Altcoin - Alternatives to Bitcoin (not necessarily similar)
- Tokens - Cryptocurrencies using pre-existing blockchains
Architecture
Many cryptocurrencies are programmed to reduce the rate at which new units are created over time, often enforcing an ultimate cap on the total supply that can ever exist. This predictable issuance schedule is intended to limit inflation and contrast with fiat currencies, whose supply can expand at the discretion of central banks. Because users typically control their assets with private keys rather than holding balances at banks or other financial institutions, cryptocurrencies such as Bitcoin can also be more difficult for authorities to seize than funds in traditional financial accounts.[3]
Ledger and Digital Signature
A ledger is a computer file that records economic transactions including monetary balances. These ledger transactions are decentralized and are protected by digital signatures. Each cryptocurrency transaction has its own ID, which is followed by a public and private key ("digital signatures") that are unique to that transaction. To verify a transaction, all three criteria must match — Transaction ID, Private key, and Public key. The private key is a 256-bit binary code (over 1x1077 combinations), and it is impossible to guess the correct combination.
The ledger transaction also has a cryptographic hash function and hence encrypting and protecting the decentralized transaction ledger. The SHA 256 cryptographic hash function is used in cryptocurrency and is a one-way cryptographic hash function, which means it cannot be decoded backward.[12]
Blockchain
Blockchain technology is used to secure cryptocurrency transactions. Each time a transaction is completed, the record of that transaction is added to the blockchain's growing "chain of blocks." Following a transaction between two parties, the distributed ledger is verified across a peer-to-peer network using computational work known as "Proof of work." Each transaction has a cryptographic hash function that is linked to the next transaction block, forming a blockchain. The enhanced encryption enables the cryptocurrency network to be decentralized and operate effectively without the intervention of a regulatory body. Blockchain technology makes the network more secure and avoids bank regulatory costs.[12]
Nodes
Nodes are the computers that manage the blockchain network. They verify transactions, store a copy of the blockchain, and communicate with other nodes to synchronize the network. Nodes can be full nodes storing a full copy of the blockchain or lightweight nodes storing only a portion of the blockchain.[15]
Wallets
Wallets are used to store and manage cryptocurrencies. The wallet contains a private key to sign transactions and a public key to receive funds. There are two types of wallets - hot wallets & cold wallets.
- Hot wallets: Connected to the network and are suitable for frequent transactions.
- Cold wallets: Not connected to the internet and are safer for long-term storage.
Wallets are essential to cryptocurrency accessibility and usability. They allow users to send and receive funds easily and securely.[15]
Mining and Staking
Mining and staking are the processes through which new cryptocurrency units are created.
Mining on a blockchain is the process of validating transactions. Miners collect data on each transaction and place the information in a ‘block.’ They subsequently authenticate each transaction. Successful miners receive new cryptocurrency as a reward for their efforts. The incentive to contribute to the network's processing power reduces transaction fees. Miners use specialized machines such as FPGAs and ASICs in running complex hashing algorithms. Machines such as SHA-256 and scrypt have increased the rate of generating hashes that validate any transaction. Mining is used in Proof-of-Work systems like Bitcoin, where computers solve complex mathematical problems to verify transactions and create new monetary units.
Staking, on the other hand, is used in Proof-of-Stake systems like Ethereum 2.0, where users must hold a certain amount of cryptocurrency in order to participate in the network and earn rewards.[15]
Mining and staking are important for the creation and distribution of cryptocurrencies. They encourage users to participate in the network and contribute to its security.
Timestamping
Cryptocurrencies use various timestamping schemes to avoid the need for a trusted third party to timestamp transactions added to the blockchain ledger.
History
The Idea — 1998-2008
In 1998, Wei Dai published a description of "b-money", an anonymous, distributed electronic cash system. Shortly thereafter, Nick Szabo created "bit gold", an electronic currency system that, like later cryptocurrencies such as Bitcoin, required users to complete a proof-of-work function with solutions being cryptographically chained and published. A currency system based on a reusable proof of work was later created by Hal Finney, who built on the ideas of Dai and Szabo.[8]
In October 2008, a paper by Satoshi Nakamoto (a pseudonym) titled Bitcoin: A Peer-to-Peer Electronic Cash System outlined a system for creating a digital currency that did not require trust in any third party. Nakamoto's paper served as the catalyst for the emergence of cryptocurrencies.[8]
The Launch — 2009
The first decentralized cryptocurrency, Bitcoin, was created in 2009 by pseudonymous developer Satoshi Nakamoto. It used SHA-256, a cryptographic hash function, as its proof-of-work scheme. The first Bitcoin transaction took place between Nakamoto and Hal Finney on 12th January 2009. It was not until February 2010 that someone realized how valuable this new technology could be when one person paid 10,000 Bitcoins for two pizzas delivered by Papa John’s, an early real-world purchase that later became a landmark example of bitcoin’s use as a medium of exchange.[9]
Further Development — 2010-2024
In April 2011, Namecoin was created as an attempt at forming a decentralized domain name system, which would make internet censorship very difficult. Soon after, in October 2011, Litecoin was released. It was the first successful cryptocurrency to use scrypt as its hash function instead of SHA-256. Another notable cryptocurrency, Peercoin was the first to use a proof-of-work/proof-of-stake hybrid. IOTA was the first cryptocurrency not based on a blockchain and instead used The Tangle.
In 2012, following the success of Bitcoin, many other cryptocurrencies known as altcoins have been launched. Some of these are clones or forks of Bitcoin, while others are new cryptos that were created from scratch. They include Litecoin (2011), Ripple (2012), Ethereum (2015), Dogecoin (2013), and EOS (2018).
On August 6, 2014, the UK announced its Treasury had been commissioned to do a study of cryptocurrencies, and what role, if any, they can play in the UK economy. The study was also to report on whether regulation should be considered.[9]
Spot Bitcoin and Ether exchange-traded funds (ETFs) in the latter half of 2023 was likely a major driver of the industry. BlackRock’s proposed spot Bitcoin ETF appearing on the DTCC website and Grayscale’s court win versus the SEC regarding the proposed conversion of the Grayscale Bitcoin Trust (GBTC) into an ETF.[16]
Ethereum Shapella hard fork was the protocol’s first major upgrade in 2023 since transitioning to a Proof of Stake (PoS) system. It was considered a significant change to the network with the implementation of EIP-4895, which enabled validator withdrawals of staked ETH from the Beacon Chain.[16] In May 2024, the U.S. Securities and Exchange Commission approved exchange applications to list spot ether exchange-traded funds (ETFs), which was seen as another key milestone in bringing crypto-linked products into mainstream financial markets.[19]
Layer-2 (L2) rollups witnessed notable development in 2023 with multiple chains and tech stacks launched. Optimistic rollups still led the L2 market, with Arbitrum and Optimism dominating around 80% of market share in TVL. Additionally, the implementation of zkEVMs boosted the growth of ZK rollups. zkEVMs combine the benefits of zero-knowledge proofs and the Ethereum Virtual Machine (EVM).[16]
Interest in meme coins saw a resurgence in 2023, fueled by various factors, including increased mainstream awareness of cryptocurrencies and high-profile endorsements.[16]
The Dencun upgrade, also known as the Deneb-Cancun upgrade, went live on March 13, 2024, and is a series of network upgrades for Ethereum. The upgrade aims to improve the network's scalability, security, and efficiency, and includes nine improvements.[17]
Following Dencun, Ethereum’s roadmap continued through further upgrades. On May 7, 2025, the Prague-Electra (“Pectra”) upgrade went live, doubling blob capacity for rollups, introducing EIP-7702 to enable temporary smart-contract-like behavior on externally owned accounts, and improving staking operations.[27] On December 3, 2025, the Osaka-Fulu (“Fusaka”) upgrade introduced PeerDAS data-availability sampling, additional blob-scaling changes, and gas-limit increases to support higher transaction throughput.[28] The next major Glamsterdam upgrade, targeted for 2026, is planned to add enshrined proposer-builder separation (ePBS), block-level access lists, and other protocol changes aimed at parallelizing execution and safely raising throughput.[29][30]
The Boom
In late 2017, cryptocurrencies began to see unprecedented growth. The total market cap for all cryptocurrencies reached $820 billion in January 2018 before plummeting later that month. After the 2018 crash, the crypto market went through further periods of rapid growth as well as major crashes and prolonged downturns, including in 2021–2022.[11] Many startups took advantage of the cryptocurrency boom to raise money via initial coin offerings (ICO). In 2017 and 2018, more than 800 ICOs raised roughly $20 billion in funding. The ICO space was then plagued by outright frauds and scams, and the value of many of these ICO tokens collapsed within a year.[10]
During the 2020–2021 bull market, both Bitcoin and Ethereum reached record price levels before experiencing steep declines in the subsequent market downturns.[11]
The crypto market set new highs again in 2025, with total cryptocurrency market capitalization briefly reaching around $4.4 trillion before a sharp correction in the fourth quarter left it at about $3.0 trillion as of end-2025; this period was accompanied by record trading volumes and rapid expansion of the stablecoin sector.[23][25]
As of the end of May 2024, crypto exchange-traded funds (ETFs) and exchange-traded products (ETPs) listed globally had gathered a record US$44.50 billion in net inflows year-to-date, with assets of about US$82.27 billion.[20] These inflows into regulated, exchange-traded crypto investment products highlight growing institutional and retail interest in gaining exposure to digital assets through compliant, securities-like vehicles.[20]
Legality
In 2021, El Salvador became the first-ever country to accept Bitcoin as a national currency.[13]
In March 2021, it was announced by Swiss Lugano's city director, Pietro Poretti, and its mayor, Michele Foletti that Bitcoin and the stablecoin Tether will soon be adopted as Lugano's "de-facto" legal tender. The "de-facto" element of this announcement is very important, as it means the city will be adopting Bitcoin regardless of whether Switzerland's national government accepts it or not.[13]
In September 2021, Panamanian Congressman Gabriel Silva released a bill intended to provide "legal, regulatory, and fiscal certainty to the use, holding and issuance of digital value and crypto assets in the Republic of Panama". Silva is known to be enthusiastic about cryptocurrency, and has made multiple tweets regarding the bill and stated that it will hopefully "create jobs, attract investment and bring transparency" within Panama.[13]
In 2023, the US court made decisions marking victories for the crypto industry, such as the nuanced ruling on Ripple’s XRP and the approval of the first Bitcoin Spot ETFs in January 2024. These developments reflect the complex and evolving nature of the U.S. crypto regulation.[18]
In July 2025, the United States enacted the GENIUS Act, its first comprehensive federal law governing payment stablecoins, requiring issuers to fully back tokens with high-quality liquid assets and to operate under bank-like supervision by federal or state regulators.[26] This framework broadly complements the European Union’s Markets in Crypto-Assets (MiCA) regime, which fully took effect for stablecoins at the end of 2024.
Risks and Criticism
Cryptocurrencies have been criticized for high price volatility, with sharp boom-and-bust cycles that can lead to large and rapid losses for speculative investors.[4][11] Regulatory uncertainty is another source of risk, as governments around the world continue to adjust rules on trading, taxation, and the legal status of digital assets, sometimes leading to sudden restrictions or enforcement actions.[13][18]
Security concerns include exchange hacks, protocol vulnerabilities, and the risk that users who lose their private keys can permanently lose access to their funds.[4][22] The sector has also seen significant fraud, such as abusive or deceptive initial coin offerings and Ponzi-style investment schemes, which have resulted in substantial losses for participants.[10][11] Environmental impact is a further criticism of proof-of-work mining, which requires large amounts of electricity and has raised concerns about carbon emissions.[22] Major market crashes, such as the 2018 downturn and the 2022 collapse of several prominent projects and exchanges, have highlighted these risks and fueled ongoing debates about the resilience and oversight of the crypto ecosystem.[11]
