Cryptocurrency
Digital asset using blockchain technology for secure, decentralized transactions.
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Cryptocurrency is a digital asset secured by distributed ledger technology, commonly called a blockchain. Ownership of each coin is recorded in a computerized database that relies on a consensus mechanism—most often proof of work or proof of stake—to validate transactions, control the creation of new coins, and verify transfers of ownership. Although the term "cryptocurrency" is now used for many fungible blockchain tokens, these assets are not considered traditional currencies. Different jurisdictions classify them variously as commodities, securities, or currencies, and in practice they are treated as a separate asset class.
History
The concept dates to 1983, when American cryptographer David Chaum proposed ecash, a cryptographic electronic money. He implemented it in 1995 through Digicash, an early electronic payment system that required user software to withdraw notes from a bank and assign encrypted keys before sending them, making transactions untraceable by third parties. In 1996, the National Security Agency published a paper, How to Make a Mint: The Cryptography of Anonymous Electronic Cash, describing a cryptocurrency system; it first appeared on an MIT mailing list in October 1996 and later in The American Law Review in April 1997. In 1998, Wei Dai outlined "b-money," an anonymous, distributed electronic cash system, and soon after Nick Szabo proposed bit gold, where users generated money by completing proof-of-work functions whose solutions were cryptographically chained and published.
Bitcoin was launched in January 2009 by the pseudonymous Satoshi Nakamoto, using SHA-256 for its proof-of-work scheme. Namecoin, an attempt at a decentralized DNS, appeared in April 2011. Litecoin, released in October 2011, used scrypt instead of SHA-256.
Peercoin, created in August 2012, combined proof-of-work and proof-of-stake. Cryptocurrency has experienced several boom-and-bust cycles, with notable crashes in 2011, 2013–2014/15, 2017–2018, and 2021–2023. In August 2014, the UK Treasury commissioned a study on cryptocurrencies and their potential role in the UK economy, including whether regulation was needed. The final report was published in 2018, and a consultation on cryptoassets and stablecoins followed in January 2021.
Quick Facts
- First conceived
- 1983 (David Chaum's ecash)
- First implementation
- 2009 (Bitcoin by Satoshi Nakamoto)
- Consensus mechanisms
- Proof of work, proof of stake
- Notable early altcoins
- Namecoin (2011)
- Litecoin (2011)
- Peercoin (2012)
- Largest market crackdown
- China declared all cryptocurrency transactions illegal (September 2021)
Facts from the source article.
Lore & Background
The concept of cryptographic electronic money dates to 1983, when American cryptographer David Chaum conceived of ecash. He implemented it in 1995 through Digicash, an early form of cryptographic electronic payments that required user software to withdraw notes and designate encrypted keys. In 1996, the National Security Agency published a paper describing a cryptocurrency system. In 1998, Wei Dai described 'b-money,' and Nick Szabo described bit gold, both early digital currency proposals using proof-of-work functions.
Bitcoin was created in January 2009 by pseudonymous developer Satoshi Nakamoto, using SHA-256 in its proof-of-work scheme. Subsequent altcoins included Namecoin (April 2011), Litecoin (October 2011, using scrypt), and Peercoin (August 2012, using a hybrid of proof-of-work and proof-of-stake). Cryptocurrency has undergone several periods of growth and retraction, including bubbles and market crashes in 2011, 2013–2014/15, 2017–2018, and 2021–2023.
In September 2022, Ethereum transitioned from proof-of-work to proof-of-stake in an upgrade called 'the Merge,' which the Ethereum Founder said would cut energy use and carbon-dioxide emissions by 99.9%. In November 2022, FTX Trading Ltd., a cryptocurrency exchange valued at $18 billion, filed for bankruptcy, prompting financial industry executives to say regulators must step in to protect crypto investors.
Reader's Guide
Cryptocurrency represents a significant technological and financial innovation, introducing decentralized digital assets secured by blockchain technology. Its history began with theoretical work by cryptographers in the 1980s and 1990s, culminating in Bitcoin's launch in 2009. Since then, thousands of altcoins have emerged, including Ethereum with smart contract functionality and stablecoins designed to maintain stable purchasing power, though some stablecoins have crashed. Memecoins, originating from internet memes, are known for extreme volatility and prolific scams.
Governments have responded differently: El Salvador accepted bitcoin as legal tender in 2021, while China declared all cryptocurrency transactions illegal the same year. The UK commissioned a study on cryptocurrency's role in its economy, publishing a final report in 2018 and issuing a consultation in 2021. The collapse of FTX in 2022 highlighted risks in the ecosystem, with technology analyst Avivah Litan commenting that 'everything...needs to improve dramatically in terms of user experience, controls, safety, customer service.' A 2024 Pew Research Center survey found that 63% of U.S. adults have little to no confidence in the reliability and safety of cryptocurrency investments and trading, while 17% had directly interacted with cryptocurrency, unchanged from 2021.
Frequently Asked Questions
Who is Cryptocurrency?
Cryptocurrency is a category of digital assets that use distributed ledger technology to record ownership and validate transfers without a central authority. It is not a traditional fiat currency, though a handful of governments have begun treating specific coins as legal tender.
What is Cryptocurrency known for?
At its core, Cryptocurrency relies on consensus mechanisms—primarily proof of work or proof of stake—to verify transactions, regulate the issuance of new units, and confirm changes in ownership across a decentralized network. This design removes the need for a single trusted intermediary.
When did Cryptocurrency first appear?
The earliest conceptual groundwork dates back to 1983 with David Chaum's ecash proposal, but the first working implementation launched in 2009 when the pseudonymous developer Satoshi Nakamoto introduced Bitcoin. Early alternative coins such as Namecoin and Litecoin followed in 2011, with Peercoin arriving in 2012.
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Sources
Compiled from Wikipedia and the sources listed below. Text from Wikipedia is available under CC BY-SA 4.0; this entry is adapted from it.
- Wikipedia: Cryptocurrency (CC BY-SA 4.0).
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