Cryptocurrencies have surged in popularity in recent years due to the cultural prominence of Bitcoin and successive global crises driving investors away from stock markets towards more innovative techno-finance products. Some coins are even being touted as the next stage in the evolution of the global economy. Despite being such a regular news topic, the exact details of what cryptocurrencies are and how they work is not widely understood. If cryptocurrency is new to you or you just want to brush up, this article breaks down the key information into manageable chunks and explains the technical jargon associated with cryptocurrencies.
What is a cryptocurrency?
A cryptocurrency is a digital currency that can be used to buy or sell products and services online. It is designed to be secure and anonymous.
As most cryptocurrencies are decentralised, it means that they have no single overarching authority controlling them, unlike the centralised banking systems that control traditional currencies (such as USD or GBP). This enables many cryptocurrencies to exist independently from governments and financial institutions, which is a key part of their appeal.
Cryptocurrency transactions and balances are verified and recorded using a virtual global ledger, known as a blockchain. Each type of cryptocurrency has its own blockchain and each block in a blockchain contains details of balances and transactions to certify the legitimacy of sales and purchases. Once a transaction is added to the ledger it cannot be reversed. The blockchain is corroborated across a vast number of computers around the world, making it hard to manipulate or hack.
Blocks are added to the blockchain by 'miners'. When a miner manages to add a block to the blockchain, by solving an incredibly complex mathematical problem, they receive a reward in coins. On top of that, miners are paid a small fee (worth fractions of a Bitcoin, for example) for including transactions on the newly created block.
Cryptocurrency prices are not usually pinned to a physical asset (like gold, for example) so they have no intrinsic value. Their value is determined by supply and demand, making the price of most cryptocurrencies particularly temperamental, unpredictable, and largely at the mercy of public perception.
What are the different types of cryptocurrency?
Cryptocurrency can be broadly split into three sections. Although cryptocurrency does not start and end with Bitcoin, it does make up a large proportion of the cryptocurrency market, so we will start by explaining what a Bitcoin is before we delve into the other two.
Bitcoin
It would be quite hard not to have heard about Bitcoin by now. Bitcoin was the world's first cryptocurrency and is the most popular type of cryptocurrency. Despite initial apprehension, the world of finance is increasingly starting to view it as a legitimate alternative to traditional money.
Founded in 2009 under the name 'Satoshi Nakamoto' (later revealed to be a pseudonym for an unknown individual or group), Bitcoin has surged to the forefront of a technological revolution. Initially used as the primary payment service on the dark web, Bitcoin has hit the mainstream in recent years and increased demand has sent its value skyrocketing.
As of January 2026, a single Bitcoin is worth almost 90,000USD. Impressive as that is, it comes after a dramatic fall from a peak value of almost 125,000USD in October 2025, demonstrating how volatile Bitcoin can be.
Altcoins
Altcoins are essentially all the other cryptocurrencies that are not Bitcoin. Once Bitcoin was launched in 2009, it paved the way for thousands of alternatives, most of which operate in a similar way to Bitcoin itself. There are more than 15,000 altcoins in existence today.
Like Bitcoin, all altcoins are able to operate independently from banks and financial institutions on their own networks. Litecoin, for example, is a peer-to-peer currency and global payment system similar to Bitcoin, while Ethereum boasts the world’s first programmable blockchain and enables developers to build and deploy decentralised apps and smart contracts. In short, this means that the Ethereum blockchain, unlike other blockchains, can be used as a ledger for other assets, not just Ethereum coins (known as Ether), such as tokens.
The value of different altcoins can vary vastly, however. A single Ether is worth just over 3,000USD as of January 2026, but Litecoin is worth less than 70USD. Other altcoins include the popular Dogecoin, worth just over 0.12USD.
Where can I buy cryptocurrency?
Just like when you buy and sell shares, the easiest way to trade, buy or sell cryptocurrency is through a specialist platform. There are a number of companies that you can use to buy cryptocurrency, but each platform has its own unique attributes that can affect your trading experience.
You can find our top picks on our '5 best crypto exchanges in the UK for hassle-free trading' page, and you can read our independent reviews of big-name operators Coinbase, Gemini and Kraken for more information on their fees, security and features.
What are the advantages of cryptocurrency?
The popularity of cryptocurrency is based on a number of advantages that make it more attractive to some than traditional investments:
- Low fees - One of the reasons why cryptocurrency has proven so popular around the world is that there are very few, and generally low, fees associated with using it. However, fees do vary depending on the platform you use.
- Independence - Cryptocurrencies are not subject to an overarching authority such as a government or financial institution. In theory, this means that cryptocurrency can remain stable even in the face of political turmoil that might affect the value of traditional money. In reality, they tend to reflect investor risk sentiment in traditional assets such as equities.
- Ease - As awareness increases, there are more avenues than ever for you to use and spend cryptocurrency, most of which are linked to a mobile device so you can access, spend or trade your cryptocurrency wherever you are in the world.
- Security - Cryptocurrency's encryption methods are seen by some to make it safer than traditional investment or banking systems, mainly by protecting your personal information. The caveat to that is that exchanges have been hacked in the past and investors have had their crypto stolen.
What are the disadvantages of cryptocurrency?
Cryptocurrencies have a number of disadvantages that need to be considered carefully:
- High volatility - Most cryptocurrencies are extremely volatile. The value of traditional money such as USD or GBP often changes slightly day by day, but rarely enough to dramatically impact its utility as a payment option. Cryptocurrency value can plummet at very short notice and could leave you stranded with much less to your name than you had just a few days, or even hours, earlier.
- Potentially endless supply - Although most cryptocurrencies boast a limited supply of coins, which helps to keep their value as stable as possible, there is nothing to stop the launch of new cryptocurrencies which could tilt the supply-demand scales and cause the value of existing coins to fall due to sheer volume.
- Limited acceptance - While there are increasingly more ways to store, trade or sell cryptocurrency, there are still far fewer spending options than with traditional money. Until it catches up, you would find yourself struggling to use your cryptocurrency as a form of payment in day-to-day life.
- Unregulated - Some see cryptocurrency's independence from regulation to be a significant advantage, but it equally leaves your digital assets vulnerable to exploitation without the regulation or monitoring provided by traditional financial institutions such as the Financial Conduct Authority (FCA). The anonymity that cryptocurrency offers also means that it is increasingly used for illegal transactions.
- No financial protection - As buying and selling cryptocurrency is mostly unregulated, investors do not receive any financial protection from the Financial Services Compensation Scheme (FSCS) if something goes wrong.
- Storage security - Cryptocurrency cannot be physically carried around in your wallet and accessed simply by opening it like traditional money. Digital wallets require the use of a password, and should you forget what that is, the encryption used in cryptocurrency storage means it would be impossible to recover.
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