What Is Cryptocurrency?

How it differs from the money in your bank account

Dollars in a checking account are an entry in your bank's private database. The bank can freeze the account, reverse a fraudulent charge, or restore access after you prove who you are. That safety net exists because a company is in charge.

A cryptocurrency balance is an entry on a public ledger controlled by whoever holds the corresponding private key. There is no company in the middle, which removes the middleman and the safety net at the same time.

• Settlement is usually final: a confirmed transfer cannot be clawed back.
• Access depends on a key, not an identity; lose the key and nobody can restore it.
• The ledger is public, so anyone can inspect balances and transfers by address.
• The network runs continuously, including weekends and holidays.

What gives a cryptocurrency a price

A price is simply what buyers and sellers agree on at a given moment on the venues where an asset trades. Nothing in the software sets or guarantees a value, and no cryptocurrency is backed by a promise to pay you a fixed amount, with the partial exception of stablecoins, which attempt to track a currency such as the US dollar.

Because supply schedules are usually fixed in code while demand changes constantly, prices can move sharply in both directions. Treat any figure you see, including on our own market pages, as a snapshot of a market rather than a forecast.

Coins, tokens and networks

A blockchain network such as Bitcoin or Ethereum has a native asset used to pay transaction fees. Many other assets are tokens issued on top of an existing network, which is why the same token can exist on several networks and why picking the wrong one when sending funds causes problems.

The distinction matters in practice: sending a token over the wrong network is one of the most common ways beginners lose access to funds.

What beginners most often get wrong

• Assuming an exchange account is a wallet. On an exchange, the company holds the keys on your behalf.
• Believing transfers can be cancelled. Once confirmed, they are final.
• Confusing market capitalization with money invested. They are not the same figure.
• Trusting support staff who contact you first. Legitimate support never asks for a recovery phrase.
• Judging an asset by price alone rather than by supply, usage and the network it runs on.

A sensible first hour

1. Read how wallets work before creating one, so you understand what you are responsible for.
2. Learn what a recovery phrase is and how it must be stored.
3. Understand network fees and confirmations before making a first transfer.
4. Send a small test amount before any larger transfer.
5. Learn the common scam patterns before you ever need to recognize one under pressure.

Sources

• Bitcoin: A Peer-to-Peer Electronic Cash System (original white paper)
• IRS — Digital assets