What are cryptocurrencies?

Cryptocurrencies are digital or virtual currencies that utilize cryptography for security, making them difficult to counterfeit or double-spend. They primarily operate on decentralized networks based on blockchain technology—a distributed ledger that records all transactions across a network of computers. This decentralization means that cryptocurrencies are generally not issued by any central authority, which offers a level of immunity from government interference or manipulation^[1][3].

Bitcoin, introduced in 2009, is the first and most well-known cryptocurrency. It operates through peer-to-peer transactions, which means that transactions occur directly between users without intermediary banks^[2][5]. In essence, every cryptocurrency transaction is recorded on a blockchain, ensuring the integrity and security of the transaction data^[1][2].

Although cryptocurrencies were initially envisioned as a medium of exchange similar to fiat currencies, they are now mostly treated as investment vehicles due to their price volatility and potential for appreciation^[3][5]. They can be bought and sold on exchanges, or obtained through mining, which involves solving complex mathematical problems to validate and record transactions on the blockchain. In this process, miners can earn new cryptocurrency as a reward for their efforts^[2][5].

While there is growing interest in using cryptocurrencies for everyday transactions, their adoption as a common payment method remains limited, with many retailers still not accepting them directly as payment^[3][4]. As a result, cryptocurrencies are often viewed as speculative investments rather than functional currencies^[4][5].