What is cryptocurrency?

Summary:

• Cryptocurrency is a type of digital money that exists only online.

• It operates on blockchain technology, which makes it secure, transparent, and decentralised.

• Bitcoin was the first cryptocurrency, but there are now thousands of others, like Ethereum, Solana, and XRP.

• People use cryptocurrencies for payments, investing, and access to new digital economies.

• Unlike traditional money, cryptocurrency isn’t controlled by a government or bank.

What is Cryptocurrency?

You’ve very likely heard of cryptocurrency and you know that its something to do with Bitcoin and the price goes up and down and has been very high as of recent - but if you don’t know what it actually is, how it works, why the price goes up and down and why people are buying it  and the world is going crazy about it - you’re in the right place. We’re about to break it down for you in simple terms.

Cryptocurrency is a type of digital or virtual money. Unlike cash or coins that you can hold in your hand, cryptocurrency exists only online. Think of it as "internet money" that you can use for all kinds of transactions, from buying goods and services to making investments. You don’t have to buy a whole Bitcoin, you can buy a fraction - as little as £1 worth on some crypto exchanges!

How is Cryptocurrency Different From Regular Money?

Traditional money, like dollars, euros, or pounds, is controlled by governments and central banks. These institutions decide how much money is in circulation, set interest rates, and manage inflation.

Cryptocurrency, on the other hand, is decentralised which means that no single person, bank, or government controls it. Instead, it operates on a network of many different computers (called nodes) around the world. This makes it more open, transparent, and accessible to anyone with an internet connection.

What Makes Cryptocurrency 'Crypto'?

The word "crypto" in "cryptocurrency" comes from cryptography - a fancy word for the art of creating secure codes. Cryptography is what makes cryptocurrency secure and nearly impossible to hack. 

When you send or receive cryptocurrency, your transaction is encrypted, meaning only the sender and receiver can access the information. This encryption ensures that:

• Your transaction is private.

• Your funds can’t be stolen while being sent.

• No one can alter or fake the transaction once it’s on the blockchain.
  

The Role of Blockchain Technology

Cryptocurrency runs on something called blockchain technology. Think of blockchain as a giant online ledger that records every transaction ever made. A ledger records financial transactions. 

Each transaction made on a blockchain is grouped into a "block," and each block is linked to the one before it, forming a chain of blocks - hence the name blockchain. This system makes it almost impossible to change or delete past transactions. 

Every time you send or receive cryptocurrency, a new transaction is added to the blockchain. Since the ledger is public and shared across thousands of computers, it’s nearly impossible for anyone to tamper with it. 

How Do Cryptocurrency Transactions Work?

When you send cryptocurrency to someone, here’s what happens:

1. You create a transaction: You input the recipient's wallet address and the amount you want to send.

2. The transaction is verified: Computers (called nodes) on the blockchain check if you have enough funds to send.

3. It gets recorded: The transaction is grouped with others to form a block.

4. The block is added to the blockchain: Once verified, the block is added to the chain, and your transaction is complete.
   

Unlike traditional payments, there’s no bank to process it, it’s all done automatically by the network. It costs some crypto to make a transaction, this is called a ‘gas fee’ so you need to make sure you have enough crypto to cover the fee as well as the transaction amount. Different blockchains incur different fees - for example, Ethereum is known to be quite pricey for transactions whereas transactions on the Solana blockchain are cheaper and often faster.

Bitcoin: The Original Cryptocurrency

Bitcoin is the first cryptocurrency to gain mass interest - there actually were cryptocurrencies created before Bitcoin but none took off. 

Bitcoin was created in 2008 by an unknown person or persons called Satoshi Nakamoto, as a way to send money without banks, governments, or middlemen. It’s often called "digital gold" because it’s scarce - only 21 million bitcoins will ever exist, it’s valuable. 

Ethereum: More Than Just Money

While Bitcoin is mostly seen as digital money, Ethereum (ETH) is something more. It’s like a digital supercomputer that can run "smart contracts"  self-executing agreements written in code. 

This means Ethereum can power decentralised apps (dApps), games, and even NFTs (non-fungible tokens). Think of Ethereum as the backbone of the DeFi (decentralised finance) movement.  Ethereum is a blockchain and is the second largest cryptocurrency. 

Other Popular Cryptocurrencies

Beyond Bitcoin and Ethereum, there are thousands of other cryptocurrencies - all cryptocurrencies which are not Bitcoin, are called altcoins (alternative coins). Here are a few you might hear about:

• Solana (SOL): Known for its fast transactions and low fees.

• Cardano (ADA): Focused on security and sustainability.

• XRP: Used for fast cross-border payments.
  

Each of these coins has its own purpose, features, and value - there are over 30,000 different cryptocurrencies with more being created everyday. 

Remember - always do your research before investing in any cryptocurrency!

What Can You Do With Cryptocurrency?

People often wonder what the whole point of cryptocurrency is and what they can use it for - there are a number of things;

1. Investments and Trading

Many people buy crypto as an investment asset, in the hope that its value will increase over time. Similar to stocks, people "buy low and sell high" to make a profit. If we go by the price history of Bitcoin, this has shown to be a smart investment choice for those that got in early. 

2. Payments and Transfers

You can also use cryptocurrency to pay for things like:

• Online shopping

• Travel (like flights and hotels)

• Donations to charities
  

Since crypto isn’t tied to a country, you can send money to anyone, anywhere in the world, in minutes. This is unlike the traditional monetary system where payments, especially those abroad, can take a while to process. Cryptocurrency also allows people to circumvent currency restrictions on sending money abroad - for example, China only allow its citizens to send up to $50k abroad - crypto offers a way around this. This is also why some countries have been against crypto as they no longer have as much control over its people and their finances. 

3. Access to New Digital Worlds

Crypto gives you access to Web3, the new version of the internet where you can own your data, participate in decentralised apps (dApps), and earn rewards for your activity. Over the part five years or so, the web3 space has grown and there is a thriving industry where you can not just participate but also help build and grow - the first step is understanding crypto and using it yourself. 

What Makes Cryptocurrency Prices Go Up and Down?

Crypto prices are volatile, meaning they can change dramatically in a short time. There are a number of different reasons why; 

• Supply and Demand: The more people who want to buy, the higher the price. If people start selling, prices fall.

• News and Media: A positive tweet from Elon Musk can send prices soaring, while a government ban can make them drop.

• Investor Sentiment: When people feel optimistic (greed), they buy more, driving prices up. When they feel scared (fear), they sell, causing prices to fall.
  

This "fear and greed" cycle is why crypto prices are unpredictable. The crypto markets also mirror the traditional stock market and when political and financial news break, they can also cause the crypto markets to crash. Recently in 2025, Trump announced 100% Tariffs on Chinese imports - this caused all markets including the crypto markets to crash. Typically the markets recover within a few days to a few weeks.  

Now you know what cryptocurrency is - it might take a while for all of this to make sense, it’s quite a lot to take in. The best way to help it all to sink in, is by buying a little bit of crypto, say £5 worth, for yourself.