A cryptocurrency is digital currency or virtual currency. Virtual currency is a type of unregulated digital currency that is only available in electronic form. Many cryptocurrencies are decentralized networks are based on blockchain technology. A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation.

Understanding cryptocurrencies Cryptocurrencies are systems that allow for secure payments online which are denominated in terms of virtual “tokens,” which are represented by ledger entries internal to the system. “Crypto” refers to the various encryption algorithms and cryptographic techniques that safeguard these entries, such as elliptical curve encryption, public-private key pairs, and hashing functions.

Types of cryptocurrency

The first blockchain-based cryptocurrency was Bitcoin, which still remains the most popular and most valuable. Today, there are thousands of alternate cryptocurrencies with various functions and specifications. Some of these are clones or forks of Bitcoin, while others are new currencies that were built from scratch.

Bitcoin was launched in 2009 by an individual or group known by the pseudonym “Satoshi Nakamoto.” As of March 2021, there were over 18.6 million bitcoins in circulation with a total market cap of around $927 billion.

Some of the competing cryptocurrencies spawned by Bitcoin’s success, known as “altcoins,” include Litecoin, Peercoin, and Namecoin, as well as Ethereum, Cardano, and EOS. Today, the aggregate value of all the cryptocurrencies in existence is around $1.5 trillion—Bitcoin currently represents more than 60% of the total value.

Criticism of cryptocurrency

Since market prices for cryptocurrencies are based on supply and demand, the rate at which a cryptocurrency can be exchanged for another currency can fluctuate widely, since the design of many cryptocurrencies ensures a high degree of scarcity.

Bitcoin has experienced some rapid surges and collapses in value, climbing as high as $19,000 per Bitcoin in Dec. of 2017 before dropping to around $7,000 in the following months. Cryptocurrencies are thus considered by some economists to be a short-lived fad or speculative bubble.

There is concern that cryptocurrencies like Bitcoin are not rooted in any material goods. Some research, however, has identified that the cost of producing a Bitcoin, which requires an increasingly large amount of energy, is directly related to its market price.

Cryptocurrency blockchains are highly secure, but other aspects of a cryptocurrency ecosystem, including exchanges and wallets, are not immune to the threat of hacking. In Bitcoin’s 10-year history, several online exchanges have been the subject of hacking and theft, sometimes with millions of dollars worth of “coins” stolen.

Nonetheless, many observers see potential advantages in cryptocurrencies, like the possibility of preserving value against inflation and facilitating exchange while being easier to transport and divide than precious metals and existing outside the influence of central banks and governments.