What Is Cryptocurrency - Coinbase

11/16/21, 11:03 AM What is cryptocurrency?
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Learn Crypto Basics
What is cryptocurrency?
Bitcoin, Ethereum, and other crypto are revolutionizing how we invest, bank, and use
money. Read this beginner’s guide to learn more.
At its core, cryptocurrency is typically decentralized digital money designed

to be used over the internet. Bitcoin, which launched in 2008, was the first
cryptocurrency, and it remains by far the biggest, most influential, and best-
https://www.coinbase.com/learn/crypto-basics/what-is-cryptocurrency 1/20
11/16/21, 11:03 AM What is cryptocurrency? | Coinbase
known. In the decade since, Bitcoin and other cryptocurrencies like Ethereum
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have grown as digital alternatives to money issued by governments.
The most popular cryptocurrencies, by market capitalization, are Bitcoin,

Ethereum, Bitcoin Cash and Litecoin. Other well-known cryptocurrencies
include Tezos, EOS, and ZCash. Some are similar to Bitcoin. Others are based
on different technologies, or have new features that allow them to do more
than transfer value.
Crypto makes it possible to transfer value online without the need for a
middleman like a bank or payment processor, allowing value to transfer
globally, near-instantly, 24/7, for low fees.
Cryptocurrencies are usually not issued or controlled by any government
or other central authority. They’re managed by peer-to-peer networks of
computers running free, open-source software. Generally, anyone who wants
to participate is able to.
If a bank or government isn’t involved, how is crypto secure? It’s secure

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because all transactions are vetted by a technology called a blockchain.
A cryptocurrency blockchain is similar to a bank’s balance sheet or ledger.
Each currency has its own blockchain, which is an ongoing, constantly re-
verified record of every single transaction ever made using that currency.
Unlike a bank’s ledger, a crypto blockchain is distributed across
participants of the digital currency’s entire network
No company, country, or third party is in control of it; and anyone can
participate. A blockchain is a breakthrough technology only recently made
possible through decades of computer science and mathematical innovations.
Most importantly, cryptocurrencies allow individuals to take complete

control over their assets
Coinbase CEO Brian Armstrong's Vision for the Future of Cryptocurrency
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Key concepts
Transferability
Crypto makes transactions with people on the other side of the planet as seamless as
paying with cash at your local grocery store.
Privacy
When paying with cryptocurrency, you don’t need to provide unnecessary personal
information to the merchant. Which means your financial information is protected from
being shared with third parties like banks, payment services, advertisers, and credit-rating
agencies. And because no sensitive information needs to be sent over the internet, there is
very little risk of your financial information being compromised, or your identity being
stolen.
Security
Almost all cryptocurrencies, including Bitcoin, Ethereum, Tezos, and Bitcoin Cash are
secured using technology called a blockchain, which is constantly checked and verified by a
huge amount of computing power.
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Portability
Because your cryptocurrency holdings aren’t 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 global finance system’s major intermediaries.

Transparency
Every transaction on the Bitcoin, Ethereum, Tezos, and Bitcoin Cash networks is published
publicly, without exception. This means there's no room for manipulation of transactions,
changing the money supply, or adjusting the rules mid-game.

Irreversibility
Unlike a credit card payment, cryptocurrency payments can’t be reversed. For merchants,
this hugely reduces the likelihood of being defrauded. For customers, it has the potential
to make commerce cheaper by eliminating one of the major arguments credit card
companies make for their high processing fees.
Safety
The network powering Bitcoin has never been hacked. And the fundamental ideas behind
cryptocurrencies help make them safe: the systems are permissionless and the core
software is open-source, meaning countless computer scientists and cryptographers have
been able to examine all aspects of the networks and their security.
Why is cryptocurrency the future of

finance? Get started
Cryptocurrencies are the first alternative to the traditional banking system,

and have powerful advantages over previous payment methods and traditional
classes of assets. Think of them as Money 2.0. -- a new kind of cash that is
native to the internet, which gives it the potential to be the fastest, easiest,
cheapest, safest, and most universal way to exchange value that the world has
ever seen.
Cryptocurrencies can be used to buy goods or services or held as part of

an investment strategy, but they can’t be manipulated by any central
authority, simply because there isn’t one. No matter what happens to a
government, your cryptocurrency will remain secure.
Digital currencies provide equality of opportunity, regardless of where you

were born or where you live. As long as you have a smartphone or another
i dd i h
https://www.coinbase.com/learn/crypto-basics/what-is-cryptocurrency h l 6/20
internet-connected device, you have the same crypto access as everyone else.
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Cryptocurrencies create unique opportunities for expanding people’s

economic freedom around the world. Digital currencies’ essential
borderlessness facilitates free trade, even in countries with tight government
controls over citizens’ finances. In places where inflation is a key problem,
cryptocurrencies can provide an alternative to dysfunctional fiat currencies for
savings and payments.
As part of a broader investment strategy, crypto can be approached in a wide
variety of ways. One approach is to buy and hold something like bitcoin,
which has gone from virtually worthless in 2008 to thousands of dollars a
coin today. Another would be a more active strategy, buying and selling
cryptocurrencies that experience volatility.
One option for crypto-curious investors looking to minimize risk is USD
Coin, which is pegged 1:1 to the value of the U.S. dollar. It offers the benefits
of cr pto incl ding the abilit to transfer mone internationall q ickl and
of crypto, including the ability to transfer money internationally quickly and
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cheaply, with the stability of a traditional currency. Coinbase customers that
hold USDC earn rewards, making it an appealing alternative to a traditional
savings account.
Digital currencies provide equality of opportunity, regardless of where

you were born or where you live.
Why invest in cryptocurrency?
Online exchanges like Coinbase have made buying and selling cryptocurrencies
easy, secure, and rewarding.
It only takes a few minutes to create a secure account, and you can buy
cryptocurrency using your debit card or bank account.
You can buy as little (or as much) crypto as you want since you can buy
You can buy as little (or as much) crypto as you want, since you can buy
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fractional coins. For example, you can buy $25.00 worth of bitcoin.
Many digital currencies, including USD Coin and Tezos, offer holders rewards
just for having them.
On Coinbase, you can earn 1% APY on— that’s much higher than most
traditional savings accounts.
You can also earn up to 5% APY when you stake Tezos on Coinbase. Learn
more about Tezos staking rewards.
Unlike stocks or bonds, you can easily transfer your cryptocurrency to anyone
else or use it to pay for goods and services.
Millions of people hold bitcoin and other digital currencies as part of their
investment portfolios.
What is a stablecoin?
USD Coin is an example of a cryptocurrency called stablecoins You can think of

USD Coin is an example of a cryptocurrency called stablecoins. You can think of
these as crypto dollars—they’re designed to minimize volatility and

Get maximize
started
utility. Stablecoins offer some of the best attributes of cryptocurrency

(seamless global transactions, security, and privacy) with the valuation
stability of fiat currencies.
Stablecoins do this by pegging their value to an external factor, typically a

fiat currency like the U.S. dollar or a commodity like gold.
As a result, their valuations are less likely to shift dramatically from day to day.
That stability can increase their utility for everyday use as money, because
both buyers and merchants can be confident that the value of their
transaction will remain relatively consistent over a longer timeframe.
They can also work as a safe and stable way to save money, like a traditional
savings account.
Key question
What is the future of cryptocurrency?
Experts often talk about the ways crypto can provide solutions to the shortcomings of our
current financial system. High fees, identity theft, and extreme economic inequality are an
unfortunate part of our current financial system and they’re also things cryptocurrencies
have the potential to address. The technology that powers digital currencies also has wide-
ranging potential beyond the financial industry, from revolutionizing supply chains to
building the new, decentralized internet.
How does cryptocurrency work?

Bitcoin is the first and most well-known, but there are thousands Get
of types
started of
cryptocurrencies. Many, like Litecoin and Bitcoin Cash, share Bitcoin’s core
characteristics but explore new ways to process transactions. Others offer a
wider range of features. Ethereum, for example, can be used to run applications
and create contracts. All four, however, are based on an idea called the
blockchain, which is key to understanding how cryptocurrency works.
At its most basic, a blockchain is a list of transactions that anyone can view
and verify. The Bitcoin blockchain, for example, is a record of every time
someone sends or receives bitcoin. This list of transactions is fundamental
for most cryptocurrencies because it enables secure payments to be made
between people who don’t know each other without having to go through a
third-party verifier like a bank.
Blockchain technology is also exciting because it has many uses beyond
cryptocurrency. Blockchains are being used to explore medical research,
improve the sharing of healthcare records, streamline supply chains,
increase privacy on the internet, and so much more.
The principles behind both bitcoin and the Bitcoin blockchain first
appeared online in a white-paper published in late 2007 by a person or
group going by the name Satoshi Nakamoto.
The blockchain ledger is split across all the computers on the network, which
are constantly verifying that the blockchain is accurate.This means there is no
central vault, entity, or database that can be hacked, stolen, or
manipulated.
Key concept
Cryptocurrencies use a technology called public-private key cryptography to transfer

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coin ownership on a secure and distributed ledger. A private key is an ultra secure
password that never needs to be shared with anyone, with which you can send value on
the network. An associated public key can be freely and safely shared with others to receive
value on the network. From the public key, it is impossible for anyone to guess your private
key.
What is cryptocurrency mining?
Most cryptocurrencies are ‘mined’ via a decentralized (also known as peer-to-

peer) network of computers. But mining doesn’t just generate more bitcoin or
Ethereum - it’s also the mechanism that updates and secures the network by
constantly verifying the public blockchain ledger and adding new transactions.
Technically, anyone with a computer and an internet connection can

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become a miner. But before you get excited, it’s worth noting that mining is
not always profitable. Depending on which cryptocurrency you’re mining, how
fast your computer is, and the cost of electricity in your area, you may end up
spending more on mining than you earn back in cryptocurrency.
As a result, most crypto mining these days is done by companies that
specialize in it, or by large groups of individuals who all contribute their
computing power.
How does the network encourage miners to participate in maintaining
the blockchain? Again, taking Bitcoin as an example, the network holds a
lottery in which all the mining rigs around the world race to become the first
to solve a math problem, which also verifies and updates the blockchain with
new transactions. Each winner is awarded new bitcoin, which can then make
its way into the broader marketplace.
Key question
Where do cryptocurrencies get their value?

The economic value of cryptocurrency, like all goods and services, comes from supply and
demand.
Supply refers to how much is available—like how many bitcoin are available to buy at any
moment in time. Demand refers to people’s desire to own it—as in how many people want
to buy bitcoin and how strongly they want it. The value of a cryptocurrency will always be a
balance of both factors.
There are also other types of value. For example, there’s the value you get from using a
cryptocurrency. Many people enjoy spending or gifting crypto, meaning that it gives them
a sense of pride to support an exciting new financial system. Similarly, some people like to
shop with bitcoin because they like its low fees and want to encourage businesses to
shop with bitcoin because they like its low fees and want to encourage businesses to
accept it. Get started
How to buy bitcoin and other

cryptocurrency
The easiest way to acquire cryptocurrency is to purchase on an online exchange
like Coinbase.
On Coinbase, you can buy major cryptocurrencies like

Bitcoin (BTC), Litecoin (LTC), Ethereum (ETH), Bitcoin Cash (BCH), Ethereum
Classic (ETC). Or you can explore emerging coins like Stellar Lumens or EOS.
For some cryptocurrencies Coinbase offers opportunities to earn some for
free.)
One good approach is to ask yourself what you’re hoping to do with crypto
and choose the currency that will help you achieve your goals. For example, if
you want to buy a laptop with crypto, bitcoin might be a good option
because it is the most widely accepted cryptocurrency. On the other hand,
if you want to play a digital card game, then Ethereum is a popular choice.
Keep in mind that you do not need to buy a whole coin. On Coinbase, you
can buy portions of coins in increments as little as 2 dollars, euros, pounds, or
your local currency.
How do you store cryptocurrency?
Storing crypto is similar to storing cash, which means you need to protect it
from theft and loss There are many ways to store crypto both online and off
from theft and loss. There are many ways to store crypto both online and off,
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Coinbase customers can securely store, send, receive, and convert crypto

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by signing into their account on a computer, tablet, or phone.
Want to transfer money from your wallet to a bank account? The
Coinbase app makes it as easy as transferring funds from one bank to another.
(Much like conventional bank transfers or ATM withdrawals, exchanges like
Coinbase set a daily limit, and it might take from a few days to a week for the
transaction to be completed.
What can you do with cryptocurrency?
There’s a wide range of things you can do with cryptocurrency, and the list
grows with time. Here are a few ways to get started, from participating in
everyday activities to exploring new technological frontiers:
Shop: Over 8,000 global merchants accept cryptocurrency via Coinbase

Commerce.
Donate to causes: There are benefits to donating and accepting crypto, and
many nonprofit organizations accept bitcoin donations.
Gift it: Cryptocurrency makes a great gift for friends and family who are
interested in learning about new technology.
Tip someone: Authors, musicians, and other online content creators
sometimes leave Bitcoin addresses or QR codes at the end of their articles. If
you like their work, you can give a little crypto as a way of saying thanks.
Explore unique new combinations of money and technology: Orchid is a
VPN, which helps protect you when you’re online, and a digital currency at the
same time. Basically it’s broken down into two parts, the Orchid VPN app and
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the OXT cryptocurrency, and it all runs on the Ethereum network.

Intrigued? Read more here.
Travel the world: Because cryptocurrency isn’t tied to a specific country,
traveling with crypto can cut down on money exchange fees. There’s already a
small but thriving community of self-titled “crypto nomads” who primarily, or
in some cases exclusively, spend crypto when they travel.
Buy property in a virtual gaming world: Decentraland, which also runs on
the Ethereum blockchain, is the first virtual world entirely owned by its users.
Users can buy and sell land, avatar clothing, and all kinds of other stuff while
partying in virtual nightclubs or mingling in virtual art galleries.
Explore decentralized finance, or DeFi: A wide variety of new players are
aiming to recreate the entire global financial system, from mutual-fund-like
investments to loan-lending mechanisms and way beyond, without any central
authorities.
Buy Bitcoin in just a few minutes

Start with as little as $25 and pay with your bank account or debit card.
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11/16/21, 11:03 AM What is cryptocurrency?

Learn Crypto Basics

At its core, cryptocurrency is typically decentralized digital money designed

have grown as digital alternatives to money issued by governments.

The most popular cryptocurrencies, by market capitalization, are Bitcoin,

If a bank or government isn’t involved, how is crypto secure? It’s secure

Most importantly, cryptocurrencies allow individuals to take complete

Coinbase CEO Brian Armstrong's Vision for the Future of Cryptocurrency

paying with cash at your local grocery store.

Because your cryptocurrency holdings aren’t tied to a financial institution or government,

the global finance system’s major intermediaries.

changing the money supply, or adjusting the rules mid-game.

Why is cryptocurrency the future of

finance? Get started

Cryptocurrencies are the first alternative to the traditional banking system,

Cryptocurrencies can be used to buy goods or services or held as part of

Digital currencies provide equality of opportunity, regardless of where you

Cryptocurrencies create unique opportunities for expanding people’s

Digital currencies provide equality of opportunity, regardless of where

Why invest in cryptocurrency?

USD Coin is an example of a cryptocurrency called stablecoins You can think of

these as crypto dollars—they’re designed to minimize volatility and

utility. Stablecoins offer some of the best attributes of cryptocurrency

Stablecoins do this by pegging their value to an external factor, typically a

What is the future of cryptocurrency?

building the new, decentralized internet.

How does cryptocurrency work?

Cryptocurrencies use a technology called public-private key cryptography to transfer

What is cryptocurrency mining?

Most cryptocurrencies are ‘mined’ via a decentralized (also known as peer-to-

Technically, anyone with a computer and an internet connection can

Where do cryptocurrencies get their value?

How to buy bitcoin and other

On Coinbase, you can buy major cryptocurrencies like

How do you store cryptocurrency?

Coinbase customers can securely store, send, receive, and convert crypto

What can you do with cryptocurrency?

Shop: Over 8,000 global merchants accept cryptocurrency via Coinbase

the OXT cryptocurrency, and it all runs on the Ethereum network.

Buy Bitcoin in just a few minutes

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