What is cryptocurrency?

This article is part of
Guide to Cryptocurrencies

What is cryptocurrency?

Money has taken different forms since time began.

Over thousands of years it has evolved from shells and stones to more presently, notes and coins.

And up until the mid-late 20th century money was backed by gold.

However, many central banks have relinquished much of the gold they once held in reserve and we live in a world of ‘fiat’ money, which is one where the money derives its value from government regulations or laws. 

Its value is affected by supply and demand, and the confidence in the economy of the issuing government, rather than the physical material the money is made of or convertible into. 

The laws and regulations that support fiat money also give the coins and notes in a particular currency ‘legal tender’ status. Although this has limited practical implications, it is a feature that is unique to notes and coins and is important because it adds to the confidence in fiat money. 

Payment systems have also evolved. Consumers are using notes and coins less and less and are instead using credit or debit cards and mobile payment apps.

So we are now living in an era of the digital currency.

Cryptocurrency, a type of digital currency has been used as a catch-all synonym for what is actually a broader term, namely cryptoassets. 

When cryptocurrencies were created, they were developed to facilitate peer-to-peer transactions, independently of banks. 

They also have coins, but they are digital rather than physical coins. You cannot withdraw a cryptocurrency. You can only transfer a coin, or fraction of a coin, to another party.

The only evidence of a cryptocurrency, and its ownership, is the record of the cryptocurrency transactions on the blockchain technology. 

That record is a public record (or ledger) that exists in a distributed and open cryptocurrency blockchain. 


Simon Peters, analyst at Etoro

Simon Peters, analyst at cryptocurrency trading firm Etoro 

Simon Peters, analyst at cryptocurrency trading firm Etoro saiys: "Cryptocurrencies, for example Bitcoin, Litecoin, Monero, are coins designed to fulfil the traditional role of real-world currencies but in the digital space. 

“Put simply, a cryptocurrency is a store of value and a way to transfer that value among people who use the currency. However, it doesn’t do much more than that. Think of it like fiat money, you can save by depositing it in your bank account as a store of your wealth and you can pay people for goods and services, but you can’t perform an actual function with it.”

So how do you invest in a cryptocurrency?