Key Takeaways
- Cryptocurrency is digital money that runs on blockchains instead of being issued or controlled by banks.
- Bitcoin was the first; today there are thousands of cryptocurrencies with different purposes.
- You buy crypto on exchanges and hold it in wallets secured by private keys.
- Crypto is highly volatile and carries real risks, so start small and learn the basics first.
Cryptocurrency has gone from an internet experiment to a multi-trillion-dollar market held by hundreds of millions of people. If you're curious but not sure where to begin, this guide explains what crypto is, how it works and what to know before you buy any.
What is cryptocurrency?
A cryptocurrency is a digital asset that uses cryptography to secure transactions and runs on a decentralized network, usually a blockchain. Instead of a bank keeping track of who owns what, a network of computers around the world maintains a shared, public record. Anyone can send crypto to anyone else, any time, without asking permission.
How does cryptocurrency work?
- Blockchain: a public ledger that records every transaction and is maintained by many independent computers.
- Wallets and keys: you control your crypto with a private key, typically backed up as a seed phrase. Read what is a crypto wallet.
- Consensus: networks use systems like proof of work (mining) or proof of stake (staking) so participants agree on one version of the ledger.
- Tokens and coins: a coin is native to its own blockchain (like BTC on Bitcoin), while tokens are built on top of an existing blockchain (like many tokens on Ethereum).
A brief history
Bitcoin launched in 2009 as the first working cryptocurrency. Ethereum followed in 2015, adding programmable smart contracts. Since then, the industry has expanded to include stablecoins, decentralized finance, NFTs and tokenized traditional assets, along with regulated products such as spot Bitcoin ETFs.
Main types of cryptocurrency
| Type | What it does | Examples |
|---|---|---|
| Store of value | Scarce digital money | Bitcoin |
| Smart contract platforms | Run apps and other tokens | Ethereum, Solana |
| Stablecoins | Track a currency like the dollar | USDT, USDC |
| DeFi tokens | Govern or power financial apps | Lending and exchange tokens |
| Exchange tokens | Linked to a crypto exchange | BNB |
| Memecoins | Community and internet-culture tokens, highly speculative | Dogecoin |
Learn more about stablecoins, DeFi and how to compare coins using market cap.
What is cryptocurrency used for?
- Investing and long-term saving
- Sending money across borders quickly
- Holding dollar-pegged stablecoins in countries with unstable currencies
- Lending, borrowing and trading through DeFi
- Owning digital items such as collectibles and in-game assets
Benefits and risks
Potential benefits: global, 24/7 access; no need for a bank account; transparent records; fixed or predictable supply for some assets; and the ability to hold assets yourself.
Risks: extreme price volatility; irreversible transactions; scams and hacks; the responsibility of managing keys; evolving regulation; and the fact that many tokens have little real value and fail. Read how to spot crypto scams and what is a bear market.
How to get started with crypto
- Learn the basics, starting with this guide and our crypto glossary.
- Choose a reputable, regulated crypto exchange.
- Start with a small amount you can afford to lose. Follow our how to buy Bitcoin guide.
- Consider investing gradually with dollar-cost averaging.
- Move long-term holdings to a secure wallet and back up your seed phrase.
- Keep records for taxes and track your holdings with our portfolio tracker.
Frequently asked questions
Is cryptocurrency real money?
Crypto can be bought, sold and used for payments, and some countries recognize it as legal property or currency. However, most governments don't treat it as legal tender, and its value can change dramatically.
Is cryptocurrency legal?
Owning and trading crypto is legal in most major economies, including the US, UK and EU, though rules vary and some countries restrict or ban it.
How do cryptocurrencies get their value?
Primarily from supply and demand, driven by factors such as scarcity, usefulness, adoption, network security and speculation.
How many cryptocurrencies are there?
There are many thousands, but a small number account for most of the market's total value.
This guide is for educational purposes only and is not financial advice.
This content is for educational purposes only and is not financial advice. Cryptocurrency investments are volatile and risky. Some links may be affiliate links — see our disclosure.