What is cryptocurrency?

In a few years, cryptocurrencies have evolved from digital novelties to trillion-dollar technologies capable of disrupting the global financial system. Bitcoin and hundreds of other cryptocurrencies are increasingly being used as investments, with everything from software to real estate to illegal drugs being bought with them.

According to proponents, cryptocurrencies are a democratizing force, taking power over the creation and control of money away from central banks and Wall Street. Critics, however, argue that the new technology is unregulated and enables criminal groups, terrorist organizations and rogue states. Cryptocurrency mining, which consumes a lot of electricity, also harms the environment, they argue.

Financial regulators are now trying to respond to all the processes related to cryptocurrencies. Regulations vary widely around the world, with some governments adopting cryptocurrencies and others prohibiting or restricting their use. Central banks around the world, including the U.S. Federal Reserve, Russia, and China are considering introducing their own digital currencies to compete with the cryptocurrency boom.

  • The most popular cryptocurrencies by market capitalisation are Bitcoin, Ethereum, Bitcoin Cash and Litecoin. Other well-known cryptocurrencies include Tezos, EOS and ZCash, BNB. Some of them are similar to bitcoin. Others are based on other technologies or have new features that allow them to do more than just transfer value.
  • Cryptocurrencies allow value to be transferred online without intermediaries such as a bank or payment processor, allowing value to be transferred globally, almost instantaneously, around the clock and for a low fee.
  • Cryptocurrencies are generally not issued or controlled by a government or other central authority. They are operated by peer-to-peer networks of computers running free and open source software. Generally, anyone can participate in them.
  • If a bank or government is not involved, how is cryptocurrency secure? It is secure because all transactions are verified by a technology called blockchain.
  • A cryptocurrency blockchain is like a bank balance sheet or ledger. Each currency has its own blockchain, which is a continuous, constantly cross-checked record of every transaction ever made using that currency.
  • Unlike a bank ledger, the cryptocurrency blockchain is distributed across participants in the entire digital currency network.
  • No single company, country or third party controls it; and everyone can participate. Blockchain is a breakthrough technology made possible only recently by decades of computer science and mathematical innovation.

How long have cryptocurrencies existed and who invented them

In the early 1990s, a group of programmers and cryptographers were discussing via email ways to protect privacy in the digital space. Borrowing the term “cyberpunk,” they called themselves cyberpunks. One famous representative is the Briton Adam Back. He developed the first proof-of-work method on which cryptocurrencies are based. Simply put, the sender computer proves that it took a certain amount of computational effort for the outgoing message. The proof-of-work method was originally intended to prevent spam.

The anonymous bitcoin inventor Satoshi Nakamoto is also an active member of the Cypherpunk movement. However, this name is a pseudonym, and his identity is unknown to this day. Due to the proof-of-work method, it is suspected that Adam Beck is hiding behind the pseudonym. Others are convinced that Satoshi Nakamoto is not one person, but an entire group.

On November 1, 2008, Satoshi introduced the idea of a cryptocurrency in The Cryptography Mailing List. He named it bitcoin. The first transaction using Bitcoin was made only two months later, on January 12, 2009. Since 2011, the inventor has increasingly stepped aside, leaving the further development of his idea to others. Anyone interested in the detailed history of Bitcoin can learn more on this interactive timeline.

bitcoin technically works

How does bitcoin technically work?

The most important technical basis for cryptocurrencies is blockchain. This “blockchain” is based on three concepts. The first is an open ledger. Every transaction in the blockchain is openly visible to every participant in the network. Invalid transactions are rejected as such within a short time due to this multi-eye principle. For example, if someone wants to transfer more bitcoins than they have, the transaction will not take place.

To prevent manipulation of this open ledger, the second concept decentralizes it. The information is stored not only on a single computer, but on an entire network of devices. Each person can keep a copy of the public ledger. This complete copy of the blockchain is called a complete node.

But how do you ensure that everyone in the network has an identical copy of the ledger? That’s where the mainer’s come to the rescue. They keep the network up to date and monitor it. To validate a transaction, they must first verify that it is valid, i.e. whether the sender has enough money. Secondly, the miner must figure out the key code that allows them to enter the transaction into the ledger. This is where the proof-of-work method comes into play. This is because the solution requires a certain amount of processing power. Once the code is found, the transfer is entered into the cashbook of the miner. This code, also called the hash value, is then sent to all the full nodes in the network. In this way, each copy of the blockchain remains identical. The first miner to validate the transaction in this way receives a reward in the form of bitcoins.

What are cryptocurrencies?

Named for their use of cryptographic principles to mine virtual coins, cryptocurrencies are typically exchanged in decentralized computer networks between people with virtual wallets. These transactions are publicly recorded in distributed, tamper-proof ledgers known as blockchain. This open-source system prevents duplicate coins and eliminates the need for a central authority, such as a bank, to validate transactions. Bitcoin, created in 2009 by the alias Satoshi Nakamoto, is by far the most famous cryptocurrency, with a total value at times exceeding $1 trillion. However, many other cryptocurrencies have emerged in recent years, including Ethereum, the second most popular, which operate on the same general principles.

Cryptocurrency users transfer funds between digital wallet addresses. These transactions are then recorded in “blocks” and validated on the network. No real names or physical addresses are recorded in the blockchain, only transfers between digital wallets, which provides users with a degree of anonymity. Some cryptocurrencies, such as Monero, claim to provide additional privacy. However, if the wallet owner’s identity becomes known, their transactions can be traced.

Bitcoin “miners” earn coins by validating transactions on the network. This process requires them to solve mathematical problems using computers to guess and verify trillions of possible solutions, which is known as “proof-of-work. Many cryptocurrencies use this method, but some use a confirmation mechanism known as “share proof” instead. In the case of Bitcoin, a block of transactions is added to the chain every ten minutes, at which point a new Bitcoin is credited. (The total Bitcoin supply is limited to twenty-one million coins, but not all cryptocurrencies have such a limit.

The prices of bitcoin and many other cryptocurrencies vary depending on global supply and demand. However, the value of some cryptocurrencies is fixed because they are backed by other assets, allowing them to be called “stable coins. For example, the value of popular stable coins Tether and USD Coin are supposedly pegged to $1 per coin, although authorities say this is not always the case.

Why are they popular?

Cryptocurrencies – bitcoin in particular – have skyrocketed in value in recent years. In 2021, the price of bitcoin exceeded $60,000 for the first time. Different currencies have different appeal, but the popularity of cryptocurrencies is largely due to their decentralized nature: They can be transferred relatively quickly and anonymously, even across borders, without the involvement of a bank, which may block the transaction or charge a fee. For example, dissidents in authoritarian countries have raised funds in bitcoin to circumvent state controls. Some experts say that digital assets are first and foremost tools for investment.

The price of bitcoin and other cryptocurrencies fluctuates wildly, and some experts say this limits their usefulness as a means of transacting. (Most buyers and sellers don’t want to accept payment in something whose value can fluctuate dramatically from day to day.) Nevertheless, some businesses accept Bitcoin. Many investors view bitcoin as a speculative asset that can be held for a long time rather than making payments, and it often evokes comparisons to gold. Some view bitcoin as a hedge against inflation because its supply is permanently fixed, unlike fiat currencies, which central banks can expand indefinitely. However, some experts question this argument. The value of other cryptocurrencies is harder to explain: Dogecoin, for example, was created as a joke, but its price has risen dramatically, thanks in part to the support of some prominent investors and entrepreneurs.

Bitcoin has become popular among citizens in countries with historically weak currencies, including several Latin American and African countries. El Salvador made some noise in 2021 by becoming the first country to make bitcoin legal tender (residents can pay taxes and debts with it), although the move has drawn protests. Some politicians in other parts of the region have expressed support for the idea.

Stable coins, meanwhile, have the potential to rival fiat currencies as the dominant form of payment, experts say. Their value is relatively stable, and they can be sent instantly with no transaction fees associated with credit cards or international money transfer services such as Western Union. In addition, because stable coins can be used by anyone with a smartphone, they represent an opportunity to bring millions of people without traditional bank accounts into the financial system. “Stable coins are very promising as a form of low-cost, high-speed, inclusive payment technology,” says CFR’s Brent McIntosh.

mining farm

What is cryptocurrency mining

Cryptocurrency mining is the process by which recent cryptocurrency transactions are verified and new blocks are added to the blockchain.

Check transactions

The mining computers select pending transactions from the pool and check whether the sender has enough credits to complete the transaction. This involves comparing the relevant details of the transaction against the transaction history stored in the blockchain. A second check confirms that the sender authorized the transfer of funds by entering the private key.

Creation of new blocks

Mining machines assemble valid transactions into new blocks and attempt to create a cryptographic link to the previous block by finding a solution to a complex algorithm. If the machine succeeds in generating a link, it adds the block to its version of the blockchain file and makes it available to the entire network.

What affects the price of cryptocurrencies?

Cryptocurrency markets move according to supply and demand. However, because they are decentralized, they are often not affected by economic and political events that typically affect traditional currency. There is a lot of uncertainty surrounding cryptocurrencies, but what is certain is that the following factors have a significant impact on their prices:

  • Offer: The total number of coins and the price at which they are issued are destroyed or lost.
  • Market capitalization: the value of all existing coins as well as users’ perception of price dynamics.
  • Press: Representation of the market and presence of the topic in the media.
  • Integration: the extent to which a cryptocurrency can be easily integrated into existing infrastructure, such as e-commerce payment systems.
  • Key events: Key events such as regulatory updates, security breaches, and economic setbacks.

How does cryptocurrency trading work?

At IG, you can trade cryptocurrencies through a CFD trading account. CFDs are financial derivatives that allow you to speculate on the falling or rising prices of your chosen cryptocurrency. Prices are quoted in regular currencies – such as the US dollar. You do not take physical possession of the cryptocurrency in question.

CFDs are leveraged products, which means that you can only open a position for a fraction of the full value of the trade. While leverage allows you to increase your profits many times over, it can also lead to large losses if the market turns against you.

Why are they popular

The transferability of Cryptocurrency makes transactions with people on the other side of the planet as seamless as paying cash at the local grocery store.

Privacy When you pay with cryptocurrency, you don’t have to provide unnecessary personal information to the merchant. This means that your financial information is protected from being shared with third parties, such as banks, payment services, advertisers and credit rating agencies. And because no sensitive information should be shared online, the risk that your financial information will be compromised or your identity stolen is very low.


Almost all cryptocurrencies, including Bitcoin, Ethereum, Tezos and Bitcoin Cash, are secured using blockchain technology that is constantly verified and verified by a huge amount of computing power.

The network on which bitcoin runs has never been hacked. And the fundamental ideas behind cryptocurrencies help make them secure: the systems have no permissions, and the underlying software is open source, meaning that countless computer scientists and cryptographers have been able to study all aspects of networks and their security.


Because your cryptocurrency assets are not tied to a financial institution or government, they are available to you no matter where you are in the world or what happens to any of the major intermediaries in the global financial system.


Without exception, all transactions in Bitcoin, Ethereum, Tezos and Bitcoin Cash networks are published publicly. This means that there is no opportunity to manipulate transactions, change the money supply, or adjust the rules in the middle of the game.


Unlike credit card payments, cryptocurrency payments cannot be reversed. For merchants, this significantly reduces the likelihood of being scammed. For customers, it could potentially make trading cheaper by eliminating one of the main arguments of credit card companies for high payment processing fees.

What is “DeFi”?

Cryptocurrencies and blockchain have led to a new constellation of ‘decentralized finance’ or DeFi businesses and projects. Essentially a cryptocurrency version of Wall Street, DeFi aims to offer people access to financial services – loans, credit and trading – without the need for legacy institutions such as banks and brokerages, which often charge high fees and other charges. Instead, smart contracts automatically execute transactions if certain conditions are met. DeFi is growing rapidly in popularity, with investors pouring tens of billions of dollars into the sector.

Most of DeFi’s applications are built on the Ethereum blockchain. Blockchain technology, because of its utility for transaction tracking, has a number of potential applications outside of cryptocurrency, such as facilitating real estate transactions and international trade, experts say.

bitcoin cryptocurrency

What is Stablecoin?

USD Coin, USDT, BUSD are examples of cryptocurrencies called stackcoins. They can be viewed as cryptodollars – they are designed to minimize volatility and maximize utility. Stablecoins offer some of the best attributes of cryptocurrency (seamless global transactions, security and privacy) with the stability of fiat currency valuations.

Stable coins do this by pegging their value to an external factor, usually a fiat currency such as the US dollar, or a commodity such as gold.

  • As a result, their valuation is less likely to change dramatically from day to day. This stability may increase their usefulness for day-to-day use as money, as both buyers and sellers can be assured that the value of their transaction will remain relatively constant over an extended period of time.
  • They can also serve as a reliable and stable way to save money, just like a traditional savings account.

Benefits of Bitcoin

The most important advantage of bitcoin is its independence from financial institutions. Transactions are made directly between the buyer and the seller. Today, someone who wants to make an international transfer using a bank needs to stock up on heat, not infrequently, to issue a card in the currency you want to transfer and pay a huge fee on the transfer. The bank account may also have a limit. Bitcoin knows no such limits: anyone who wants to sell their entire cryptocurrency can do so in a matter of minutes.

The generation of new bitcoins is based on a complex algorithm. It is done in such a way that there will never be more than 21 million bitcoins. Proponents of cybercurrency see this as an advantage over classic currencies. After all, central banks can decide how much money to print. According to proponents, the price of bitcoin should stabilize once all 21 million bitcoins are in circulation.

Thanks to the public blockchain, Bitcoin is transparent. This publicity makes the cryptocurrency very secure at the same time. No one can manipulate all full nodes at the same time. Despite this open accounting, bitcoin owners remain pseudonymous. This is because the assets are not managed in their own name, but with an identity code. Bitcoin can also be used globally; it does not need to be exchanged for other currencies first.

What problems do cryptocurrencies pose

Cryptocurrencies have also created a new set of challenges for governments. The anonymity and mobility of cryptocurrencies make them attractive to unscrupulous actors, such as criminal groups, terrorist organizations and rogue states. There is also uncertainty about the regulation of new financial technologies. In addition, cryptocurrency mining can require huge amounts of electricity, raising concerns about its environmental impact. Meanwhile, the rise of DeFi and cryptocurrencies has raised questions about consumer protection, market volatility and the ability of central banks to conduct monetary policy.

Illegal activities

In recent years, cybercriminals have increasingly carried out malware attacks to infiltrate and disable computer networks and then demand payment for recovery, often in cryptocurrency. Drug cartels and money launderers are also “increasingly using virtual currencies” in their operations, according to the latest annual assessment by the US Drug Enforcement Agency (DEA). Authorities in the U.S. and Europe have shut down a number of so-called darknet marketplaces – sites where anonymous individuals can use cryptocurrency to buy and sell illegal goods and services, primarily drugs.

Terrorism and the evasion of sanctions

The primacy of the U.S. dollar has provided the United States with unparalleled opportunities to impose crippling economic sanctions. However, sanctioned states, including Iran and North Korea, are increasingly using cryptocurrency to circumvent U.S. sanctions. Meanwhile, terrorist groups such as the self-proclaimed Islamic State, al-Qaida and the military wing of the Palestinian organization Hamas are also trading in cryptocurrency.

Environmental damage

Bitcoin mining is an extremely energy-intensive process, with the network currently consuming more electricity than many countries. This has raised concerns about the contribution of cryptocurrencies to climate change. Proponents of cryptocurrencies argue that this problem can be solved with renewable energy sources; for example, the president of El Salvador has pledged to use volcanic energy to mine bitcoin. Environmental concerns have reportedly prompted Ethereum to switch to a proof-of-stake model that consumes less energy.

Unregulated finances

The rapid growth of cryptocurrencies and DeFi businesses means that billions of dollars in transactions are occurring in a relatively unregulated sector, raising concerns about fraud, tax evasion and cybersecurity, as well as broader financial stability. If cryptocurrencies become the dominant form of global payments, they could limit the ability of central banks, especially in smaller countries, to determine monetary policy through control of the money supply.

What are governments doing about it?

Many governments were initially reticent about cryptocurrencies, but their rapid ascent and development, combined with the rise of DeFi, has forced regulators to begin developing regulations for the emerging sector, a process that could take years. Regulations vary widely around the world, with some governments embracing cryptocurrencies and others banning them entirely. According to experts, the challenge for regulators is to develop rules that limit traditional financial risks without stifling innovation.

In the United States, policymakers have said they intend to regulate cryptocurrencies and the emerging DeFi sector. However, cryptocurrencies do not fit into the existing regulatory framework, creating uncertainty that lawmakers may have to resolve. SEC Chairman Gary Gensler called the cryptocurrency sector the “Wild West” and called on Congress to give the SEC more authority. Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen called for increased regulation of stable coins.

To curb illegal activity, authorities have targeted exchanges that allow users to convert cryptocurrencies into U.S. dollars and other national currencies. Under pressure from regulators, major exchanges, including Coinbase, Binance and Gemini, are complying with “know your customer” and other anti-money laundering requirements. Meanwhile, law enforcement and intelligence agencies have learned to use blockchain’s ability to track most cryptocurrencies to analyze and track criminal activity. For example, a portion of the ransom paid to Colonial Pipeline hackers was later recovered by the FBI. In September 2021, the Treasury Department announced a crackdown on the use of cryptocurrencies in ransomware attacks, imposing the first sanctions on cryptocurrency exchanges.

China, which accounts for most of the world’s bitcoin mining, has taken aggressive measures to combat cryptocurrencies. In September 2021, Chinese authorities announced a sweeping ban on all cryptocurrency transactions and mining, which prompted a sharp drop in the price of some cryptocurrencies immediately thereafter. Several other countries, including Bolivia, Nigeria and Russia, have also taken measures to restrict the use of cryptocurrencies, and others are considering restrictions. However, most governments have so far taken a relatively limited approach.

Where can I buy bitcoins?

As of 2018, 12 percent in Switzerland invest in bitcoins, and even more invest in cryptocurrencies.* How to buy cryptocurrency?

The easiest thing to do is to switch to one of the digital exchanges. There are national and international exchanges for each cryptocurrency. Dort definiert man, für wiele Franken man beispielsweise Bitcoins kaufen möchte und bezahlt mit der Kreditkarte. Doch nicht jede Börse ist seriös, weshalb man sich vor dem Kauf gut informieren sollte.

The most famous exchange is Coinbase. It is based in the U.S. and operates in 32 countries. Here a person can work with bitcoin, ether and Litecoin. Those who want to have a European exchange can register on bitcoin. de. Die Bitcoin Suisse AG is based in the Swiss Republic and is a mitglide of Vereins zur Qualitätssicherung von Finanzdienstleistungen (VQF). In addition, the Börse Bity exchange has its head office in Switzerland.

What is the country’s central bank digital currency

In an effort to assert sovereignty, many central banks, including the U.S. Federal Reserve, China, are considering introducing their own digital money, known as central bank digital currency (CBDC). According to proponents, CBDC promises the speed and other benefits of cryptocurrency without the associated risks. Dozens of countries – altogether representing more than 90 percent of the global economy – are exploring CBDC opportunities. China is moving quickly: in late 2019, it piloted the digital yuan, which is now used for billions of dollars worth of transactions. In the US, there is reportedly disagreement among Fed officials over the need for a digital dollar.

Experts say interest in CBDC increased in 2019 when Facebook announced its own digital currency called Libra, potentially offering a new payment option for its more than two billion users. (The company has since scaled back the project, renaming it Diem.) Another motivating factor is China: The digital yuan could give Beijing even more control over the country’s economy and citizens, and threaten the US dollar’s status as the main international reserve currency, experts say.

One way to implement CBDCs would be for citizens to open accounts directly with the central bank. This would give governments powerful new ways to manage the economy – for example, stimulus payments and other benefits could accrue directly to people, and the central bank’s seal would make CBDCs a safe digital asset. But their implementation could also create new problems, say CFR’s McIntosh and other experts, as centralizing a vast amount of authority, data and risk within a single bank could compromise privacy and cybersecurity.

Some experts say that CBDC’s potential ability to exclude commercial banks as intermediaries carries risks, since these banks perform a critical economic role by creating and distributing credit (i.e., originating loans). If people choose to lend directly to the Fed, this would require the central bank to either facilitate consumer lending, which it may not be able to do, or find new ways to provide credit. For these reasons, some experts believe that private, regulated digital currencies are preferable to CBDCs.


What is cryptocurrency?

Cryptocurrency is a digital or virtual currency that uses cryptography for security. It operates independently of a central bank or government. Cryptocurrency transactions are recorded on a public ledger called a blockchain.

How does cryptocurrency work?

Cryptocurrency works on a decentralized network, meaning it is not controlled by any central authority. Transactions are verified by a network of users, called “miners,” who use powerful computer processors to solve complex mathematical problems. Once a transaction is verified, it is recorded on a public ledger called a blockchain. This ledger is a chain of blocks that contains all the transactions that have occurred on the network.

What are the most popular cryptocurrencies?

The most popular cryptocurrencies are Bitcoin, Ethereum, and Litecoin. These are known as “big cap” cryptocurrencies as they have the largest market capitalization. However, there are thousands of other cryptocurrencies, called “altcoins,” that are also in circulation.

How do I buy and sell cryptocurrency?

Cryptocurrency can be bought and sold on cryptocurrency exchanges, which are platforms that allow you to buy, sell, and trade different cryptocurrencies. You can purchase cryptocurrency using fiat money or other cryptocurrencies. You can also sell your cryptocurrency for fiat money or other cryptocurrencies.

Is cryptocurrency legal?

The legality of cryptocurrency varies from country to country. Some countries have banned cryptocurrency, while others have implemented regulations to protect investors. It’s important to research the regulations and laws in your country before buying or selling cryptocurrency.

What are the risks of investing in cryptocurrency?

Investing in cryptocurrency can be risky as the value of the currency can be highly volatile. Additionally, the lack of regulation and oversight means that there is a higher risk of fraud or hacking. It’s important to thoroughly research any cryptocurrency before investing and understand the potential risks.

How secure is cryptocurrency?

Cryptocurrency is based on blockchain technology, which is considered secure as it uses complex cryptography to protect the data. However, cryptocurrency exchanges and wallets can be vulnerable to hacking and fraud. It’s important to use secure passwords, two-factor authentication, and store your cryptocurrency in a hardware wallet to protect it from theft.

What is a cryptocurrency wallet?

A cryptocurrency wallet is a digital wallet that allows you to store, send and receive cryptocurrencies. These wallets are secured by a private key, a unique string of characters that allows you to access your funds. There are different types of wallets like software, hardware and paper wallets, each one with its own level of security and accessibility.

What is mining?

Mining is the process of verifying transactions on a blockchain network and adding them to the public ledger. Miners use specialized computer hardware to perform complex mathematical calculations, and in return, they are rewarded with a certain amount of the cryptocurrency they are mining.

What is a fork?

A fork is a change in a cryptocurrency’s protocol that creates a new version of the blockchain. There are two types of forks: soft forks and hard forks. Soft forks are backwards-compatible changes, while hard forks create a new blockchain that is not compatible with the old one. This can lead to two different versions of the cryptocurrency, one that follows the old protocol, and one that follows the new one.

What is a smart contract?

A smart contract is a self-executing contract with the terms of the agreement written into lines of code. Smart contracts are often used in blockchain-based platforms, like Ethereum, to automate and verify the execution of a contract without the need for a middleman.

How does cryptocurrency affect the economy?

Cryptocurrency can have a significant impact on the economy as it operates independently of traditional financial institutions and governments. Cryptocurrency transactions can be fast, secure, and low-cost, which can have a positive impact on global commerce. However, the lack of regulation and oversight can also lead to increased financial fraud and money laundering.

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