Cryptocurrency is a type ofcurrency which usesdigitalfiles asmoney. Often, people create these files using the same ways ascryptography (the science of hiding information). Cryptocurrency users can useDigital signatures to keep the transactions safe, and to let other people check that thetransactions are real.[1][2][3] The creators of the first cryptocurrencies made them to be free ofgovernment-given currencies.
No single person controls cryptocurrencies. Instead they aredecentralized and controlled by many people.[4] This is different from 'centralized'electronic money andcentral banks, which a small group of people control.[5] The control of each cryptocurrency works through adistributed ledger (a list of transactions shared by everyone), usually ablockchain.[6] This lets everyone know all of the financial transactions that happen.[7]
Bitcoin, first released asopen-source software in 2009, is famous because it was the first decentralized cryptocurrency.[8] Since then, people have created more than 4,000 cryptocurrencies (sometimes calledaltcoins, oralternative coins).[9]
In many cases, it is not possible to exchange cryptocurrencies for real currencies such as theUS dollar. It is only possible to convert them to other cryptocurrencies. People can also use them to buy things. But some cryptocurrencies can be converted to real currencies. Those cryptocurrencies usually have highvolatility, (their price changes very often). Using them is very risky.[10] They are also a target forPump-and-Dump-Attacks.[11] They act like a big distributed economic system: because they are not issued or controlled bycentral banks, their value is difficult to influence. For this reason, they cannot really take the place of astable currency.[12]
People often use cryptocurrencies to dospeculation. That makes building a system of more or less stableexchange rates very difficult.[13] Another problem is theinequality of distribution. A small number of people have most of the cryptocurrency. About 1.000 people hold half of the total amount of bitcoins in the world. So if any of these people start using the Bitcoin that they own, they will change the exchange rate. It also means that these people have a great influence on the value of the currency. They can change its value easily.[14] The currency itself only tells you who owns it.Exchange rates of cryptocurrencies are established outside the system.Traders andbrokers set the exchange rate. This is not a guarantee that they trade cryptocurrency at the value that they suggest. The unit of cryptocurrency doesn't have value by itself.
In contrast to cryptocurrencies,central banks control "real" currencies such as the US dollar,Japanese yen,euro, or Chineserenminbi. Certain economic phenomena such asinflation ordeflation may change the value (and exchange rate) of a currency. The people who own units of the currency have no direct influence on its value.[source?]
According toJan Lansky, a cryptocurrency is a system that meets six conditions:[15]
The system does not require a central authority, distributed achieve consensus on its state[sic].
The system keeps an overview of cryptocurrency units and theirownership.
The system defines if new cryptocurrency units can be created. If new cryptocurrency units can be created, the system defines how to create new units, and how to determine the ownership of these new units.
Ownership of cryptocurrency units can be proved exclusivelycryptographically.
The owner of a unit of cryptocurrency can transfer this unit. For this transfer to be successful, the current owner must prove the ownership.
If two different instructions for changing the ownership of the same cryptographic units are entered at the same time, the system performs at most one of them.
Cryptocurrency mixing is a service wheretainted bitcoins can become unmarked bitcoins. Bitcoin mixing, also called Bitcoin tumbling or Bitcoin blending, is the process of using a service to make your Bitcoin purchases and transactionsuntraceable. Instantly mixing Bitcoin is the only way to hide bitcoin exchanges and make them impossible to track. This protects againstcriminals,hackers, and activities prohibited by the law where people use bitcoin. It also protects againstlaw enforcement. The huge amount of bitcoins on mixing services come from mining pools around the world.[17]
Crypto mining is the process of using specializedhardware andsoftware to verify transactions on ablockchain network. The process involves solving complexmathematical equations to validate transactions and add them to the blockchain. Miners are rewarded for their efforts with cryptocurrency, usually in the form of the coin that they are mining. There are three main types of crypto mining:Proof of Work (PoW),Proof of Stake (PoS) andProof of Authority (PoA)
Proof of Work is the most widely used consensus mechanism in the crypto space. It is used by Bitcoin and many other cryptocurrencies. In PoW, miners have to solve complex mathematical equations to validate transactions and add them to the blockchain. The miner who solves the equation first is rewarded with cryptocurrency.
Proof of Stake is a newer consensus mechanism that is becoming increasingly popular. In PoS, instead of solving complex equations, miners are chosen to validate transactions based on the amount of cryptocurrency they hold. This is known as ‘staking’. The more cryptocurrency a miner holds, the more likely they are to be chosen to validate transactions.
Proof of Authority (PoA) is a consensus algorithm for private or consortium chains. It uses a set of trustednodes, or validators, to secure the network. These nodes are pre-selected by the network administrator and are responsible for validating transactions and adding them to the blockchain.[18]
As of August 2014, theTreasury of the UK had (ordered or)commissioned a study to be made, about cryptocurrencies and if they were to have any part in the UK economy.[22] Its last report, was published in 2018;[23] Anopinion was given, regardingcryptoassets andstablecoins in January 2021.[24] (A stablecoin, is "an attempt [... at making] a cryptocurrencytoken with astable price", according to media; Furthermore, stability can come from "pegging the token to ... gold orfiat" currency, or a similar kind of asset.)[25]
In September 2025, a courtcase started ina North European country; Five of its people havecriminal charges (in that case); TheysupposedlyscammedNorwegian kroner 960 million, from [people outside the country, that were] foreigners; The case sometimes gets called, "one of the largest scams in" that country; The trial is supposed to last until December.[26]
↑Schueffel, Patrick (2017).The Concise Fintech Compendium. Fribourg: School of Management Fribourg/Switzerland. Archived fromthe original on 2017-10-24. Retrieved2018-06-24.
↑Jerry Brito and Andrea Castillo (2013)."Bitcoin: A Primer for Policymakers"(PDF).Mercatus Center. George Mason University.Archived(PDF) from the original on 21 September 2013. Retrieved22 October 2013.
