Glossary
Cryptocurrency
A digital asset recorded on a decentralized blockchain ledger and secured by cryptography, such as Bitcoin or Ether.
A cryptocurrency is a digital asset whose ownership is tracked on a shared public ledger, a Blockchain, rather than by a bank or government. Transfers are authorized with cryptographic keys and confirmed by a network of computers following open rules. Bitcoin, launched in January 2009, was the first; thousands of others have followed, including Ether on the Ethereum network and dollar-pegged stablecoins.
How it works
Each holder controls a wallet address and a private key. Sending coins means signing a transaction with that key and broadcasting it; the network bundles transactions into blocks and agrees on their order through a consensus method such as proof of work (Bitcoin) or proof of stake (Ethereum). Once confirmed, transactions are very hard to reverse, and a lost key usually means lost coins.
How people invest in it
Crypto trades around the clock, every day, on crypto exchanges and through some brokerage apps. Since January 2024, US investors can also buy spot bitcoin ETFs, which hold the coins on the fund's behalf and trade in ordinary brokerage accounts during market hours.
What to watch for
- Supply rules differ by coin. Bitcoin's protocol caps supply at 21 million coins; many tokens have no such limit.
- Protections are thinner. Coins held on an exchange are generally not covered by SIPC the way securities at a US broker are, and exchanges have failed.
- Regulation is still evolving in the US and abroad, so rules on custody, taxes and which tokens are securities can change. The IRS treats crypto as property, so selling or spending it can trigger a Capital gain.