A cryptocurrency is a digital asset whose ownership is recorded on a shared public ledger, called a blockchain, rather than by a bank. Cryptography secures each transfer: only the holder of the right private key can move the coins. A network of computers checks every transaction against fixed rules, so no single company or central bank approves payments. Bitcoin was the first. Its design was published on 31 October 2008, and its first block was mined on 3 January 2009.
How cryptocurrency works
The ledger: a chain of blocks
The Bitcoin white paper describes "a purely peer-to-peer version of electronic cash" that "would allow online payments to be sent directly from one party to another" without going through a financial institution. The network groups transactions into blocks. Each block carries a cryptographic hash of the block before it, which links them into a chain. Changing an old transaction would mean redoing the work for that block and every block after it. That is why confirmed history is very hard to rewrite.
Blockchain is often called distributed ledger technology (DLT). Bitcoin's chain is public: anyone can run a node, download the full history and check it.
Keys and wallets
A wallet does not hold coins. It holds keys. A public key gives you an address that others can send funds to. The private key signs transactions that spend those funds. Anyone who has the private key controls the coins, and a lost key usually means the funds are lost. Bitcoin's own FAQ warns that "Bitcoin transactions are irreversible: once confirmed, they can only be refunded by the person receiving the funds."
Consensus: who adds the next block
Networks need a rule for deciding who adds the next block. There are two main approaches.
- Proof of work (Bitcoin). Miners run hardware that searches for a hash value meeting a difficulty target. The first miner to find one adds the block. By convention, the block's first transaction is a special one that creates new coins for that miner. In Bitcoin this is called the generation transaction. Read more: What is crypto mining?
- Proof of stake (Ethereum since 2022). Validators lock up the network's coin as collateral instead of spending electricity. On Ethereum, a validator deposits 32 ETH. If a validator acts dishonestly, for example by proposing two blocks for the same slot, part or all of that stake can be destroyed ("slashed").
Supply rules
Each network's software fixes how new coins are issued. Bitcoin's supply is capped at 21 million coins, and the block reward halves every 210,000 blocks. The fourth halving came at block 840,000 on 20 April 2024 and cut the reward from 6.25 to 3.125 BTC per block.
The main types of cryptocurrency
Bitcoin (BTC)
Bitcoin is the first and best-known cryptocurrency. It was designed as electronic cash and uses proof of work. Its genesis block has a timestamp of 3 January 2009, 18:15:05 UTC.
Ethereum (ETH)
Ethereum is a blockchain for running programs as well as moving value. These programs are called smart contracts. Ethereum.org describes them as computer programs stored on the blockchain that follow "if this then that" logic. They power lending protocols, decentralised exchanges and other DeFi applications. On 15 September 2022 Ethereum switched from proof of work to proof of stake in an upgrade called The Merge. Ethereum.org estimates this cut the network's energy use by 99.95%.
Stablecoins (USDC, USDT)
A stablecoin is a token designed to hold a steady value against a reference asset, usually the US dollar.
- USD Coin (USDC) is issued by Circle. Circle says USDC is backed 100% by "highly liquid cash and cash-equivalent assets" and can be redeemed 1:1 for US dollars. Direct redemption through Circle is open only to institutions, and Circle publishes monthly reserve attestations.
- Tether (USDT) runs on other networks rather than its own chain. Tether lists Ethereum, Tron, Solana, TON, Avalanche and several others as supported protocols. Its original Bitcoin-based Omni Layer version is now listed as deprecated.
In the United States, the GENIUS Act became law on 18 July 2025. It sets federal rules for payment stablecoins, including 100% reserve backing with liquid assets such as US dollars or short-term Treasuries, and monthly public disclosure of what the reserves hold.
Altcoins
Every cryptocurrency other than Bitcoin is commonly called an altcoin. Thousands exist, and many have little trading activity or no working product.
The main coin types side by side
How do Bitcoin, Ethereum and the two big stablecoins differ in purpose, in how they are secured and in their key dates?
| Cryptocurrency | What it is designed for | How it is secured or backed | Supply or value rule | Key date | Source |
|---|---|---|---|---|---|
| Bitcoin (BTC) | Electronic cash sent directly between people | Proof of work: miners search for a hash that meets a difficulty target | Capped at 21 million coins; block reward halves every 210,000 blocks | First block mined 3 January 2009 | |
| Ethereum (ETH) | Running programs (smart contracts) as well as moving value | Proof of stake: validators deposit 32 ETH, which can be slashed | Not covered in this article | The Merge to proof of stake, 15 September 2022 | |
| USD Coin (USDC) | Holding a steady value against the US dollar | Issuer says it is backed 100% by cash and cash-equivalent assets | Redeemable 1:1 for US dollars; direct redemption for institutions only | US GENIUS Act for payment stablecoins became law 18 July 2025 | |
| Tether (USDT) | Holding a steady value against the US dollar | Runs on other networks such as Ethereum, Tron, Solana, TON and Avalanche, not its own chain | Original Bitcoin-based Omni Layer version is listed as deprecated | US GENIUS Act for payment stablecoins became law 18 July 2025 |
This table only restates what the article says about four coins: it does not cover the thousands of altcoins, prices, market capitalisation or whether any coin suits you, and rules differ by country.
What market capitalisation means
Market capitalisation is the number of coins in circulation multiplied by the current price. It shows how large a network is relative to others. It does not show how easy a coin is to sell, and it can move sharply in a single day.
Is cryptocurrency legal, and how is it taxed?
The rules depend on where you live. A few examples:
- European Union. The Markets in Crypto-Assets Regulation (MiCA) has applied in full since 30 December 2024. Member states may let existing providers keep operating under a transition period, so some MiCA client protections may not apply fully until 1 July 2026.
- United Kingdom. Crypto firms must register with the FCA under anti-money-laundering rules. The FCA tells consumers who buy cryptoassets that they "should be prepared to lose all your money", and says compensation from the Financial Services Compensation Scheme is "highly unlikely".
- United States. The IRS has treated virtual currency as property for federal income tax purposes since Notice 2014-21. Selling it, swapping it or spending it can create a taxable capital gain or loss.
Check your own country's regulator and tax authority before you buy, sell or convert crypto.
Risks to understand first
- Volatility. Bitcoin's own FAQ says its price "is still very volatile". The FCA says cryptoassets "tend to be very volatile".
- No reversals. A payment sent to the wrong address, or taken by a scammer, usually cannot be recovered.
- Key loss. If you hold your own keys, nobody can reset them for you.
- Provider failure and scams. The FCA names sudden market moves, firm failures, poor separation of client funds and cyberattacks as ways to lose money. It also warns that offers that sound too good to be true probably are.
Limitations: this is a general explainer, not financial, legal or tax advice. Rules and figures change, so check the official sources below.
