What Is Cryptocurrency? A Simple Beginner's Guide
A plain-English introduction to cryptocurrency: what it is, how it works, and why people buy it. No technical knowledge required.
Cryptocurrency is digital money that exists only on the internet. Unlike the pounds or dollars in your bank account, it is not issued or controlled by any government or central bank. Instead, it runs on decentralised networks maintained by computers all over the world.
Why does cryptocurrency exist?
The first cryptocurrency, Bitcoin, was created in 2009 by an anonymous person or group using the pseudonym Satoshi Nakamoto. The goal was to create a form of money that:
- Could be sent anywhere in the world without going through a bank
- Could not be censored or frozen by any government
- Had a fixed, predictable supply that could not be inflated away
Since then, thousands of different cryptocurrencies have been created, each with slightly different goals and technology.
How does it work?
Every cryptocurrency transaction is recorded on a public ledger called a blockchain. Think of it like a spreadsheet that everyone can see and no one can delete from.
When you send cryptocurrency to someone, a network of computers (called nodes) checks that you actually own what you are sending, and then adds the transaction to the blockchain. This process happens without any bank or intermediary in the middle.
What gives it value?
Cryptocurrency has value for similar reasons to anything else: people believe it is useful or scarce, and are willing to pay for it.
Bitcoin, for example, has a maximum supply of 21 million coins. No more will ever be created. This scarcity, combined with growing global demand, is one reason many people hold it as a store of value.
Other cryptocurrencies have value because they power useful applications. Ether (the token of the Ethereum network) is used to pay for computing power on a platform that runs decentralised applications used by millions of people worldwide.
Is it safe?
Cryptocurrency is volatile. Prices can rise and fall by 20%, 50%, or more in a matter of days. It is also irreversible: if you send cryptocurrency to the wrong address, or lose your private key (the password to your wallet), there is no bank to call and no way to recover your funds.
That said, the underlying technology is robust. The Bitcoin network, for example, has run without interruption for over 15 years.
What should you do next?
If you are curious about getting started, a good next step is to learn how blockchain actually works, and then read our guide to setting up a Bitcoin wallet before you buy anything.
Remember: never invest more than you can afford to lose, and do your own research before putting money into any cryptocurrency.