Technology
How does a cryptocurrency work?
A cryptocurrency is digital money secured by cryptography and recorded on a blockchain instead of a bank. Transactions are verified by a distributed network rather than a central authority, letting people send value directly to each other online.
See it in motion.
Watch a 2-minute animated lesson that shows exactly how a cryptocurrency works.
Step by step
- 1It's digital money with no central bank or government issuer.
- 2Transactions are recorded on a public blockchain ledger.
- 3Cryptography secures it and proves ownership.
- 4A distributed network verifies and agrees on transactions.
- 5Values can be highly volatile.
Frequently asked questions
- How is cryptocurrency different from regular money?
- It's purely digital, issued and verified by a network rather than a central bank, and recorded on a public blockchain instead of in bank ledgers.
- How are cryptocurrency transactions verified?
- A distributed network of computers checks and agrees on them using cryptography, rather than a single trusted authority.
- Why are cryptocurrencies so volatile?
- Prices are driven largely by speculation and sentiment with no central stabilizer, so they can swing sharply.