What are cryptocurrencies?

Cryptocurrencies are digital assets recorded on a blockchain, a shared, public ledger maintained by a distributed network of computers rather than a single company or government. The network uses cryptography to secure transactions and prove ownership. Each network’s individual consensus rules determine which transactions are valid. Because the ledger is maintained by many independent participants at once, no central party has to be trusted to keep the record honest.

Disclaimer: This guide is for educational purposes only. It is not financial advice, not a solicitation, and not for UK audiences. Cryptocurrencies are volatile, carry risk of total loss, and are not suitable for all users.

What makes something a cryptocurrency?

A cryptocurrency is an entry on a blockchain, a record that a particular account holds a particular asset balance, which can be transferred to another account according to rules the network enforces. What separates this from a number in a bank’s database is who maintains the record, and how it’s secured. A bank balance exists because the bank says it does, and they can change it. A cryptocurrency balance exists because thousands of independent computers around the world agree it does, any changes or transfers require following the network’s cryptographic rules that no single participant controls.

Three main properties define traditional cryptocurrencies. First, cryptocurrencies are digital and native to their network. They aren’t inherently a digital representation of a dollar sitting in a vault somewhere, but rather assets that exist as blockchain records. Second, the assets are secured by cryptography rather than by an institution’s promise. Third, they’re typically decentralized to some degree, meaning the ledger is maintained and validated by a distributed set of participants rather than one centralized authority. Not every asset marketed as a cryptocurrency has all 3 of these properties in equal measure, which is part of why the category is broad and why it helps to break it into types. For example, tokenized real-world assets like dollar-backed stablecoins, do represent a dollar held by a custodian.

The first cryptocurrency was bitcoin, introduced in a 2008 whitepaper by the pseudonymous Satoshi Nakamoto and launched in early 2009. Bitcoin solved a problem that had blocked earlier attempts at digital money: how to prevent someone from spending the same digital asset twice without a central authority checking every transaction. The rest of cryptocurrency has been built on and around the ideas that made that possible.

How cryptocurrencies work

Understanding cryptocurrencies means understanding a few interlocking pieces: the blockchain that records balances, the cryptography that secures ownership, and the consensus mechanism that lets strangers agree on what’s true.

The blockchain ledger

A blockchain is a database structured as a chain of blocks. Each block contains a batch of transactions and a cryptographic reference to the block before it. That linking is what makes the history tamper-evident, since altering an old transaction would change its block, which would break the reference in every block that came after, and the rest of the network would reject the change. The ledger is replicated across many nodes, so there’s no single copy to attack or quietly edit. Anyone can generally inspect the full history, which is why blockchains are often described as transparent even when the identities behind accounts aren’t publicly known.

Cryptographic security and ownership

Ownership of a cryptocurrency is determined by who controls the Private Key of the wallet address it is held in. A Private Key is a secret piece of data that mathematically corresponds to a public address on the network. The public address is like an account number others can send funds to, and the Private Key is what authorizes spending from it. When someone sends a transaction, their wallet uses the Private Key to produce a digital signature that proves the transaction was authorized by the key’s holder, without ever revealing the key itself. This is the sense in which cryptocurrencies are secured by cryptography, control of the asset is control of the key.

That design carries a hard consequence, whoever holds the key controls the funds. In self-custody, where a user holds their own keys through a wallet like MetaMask, there’s no institution to call to reverse a transaction or recover a lost key. This is the trade-off at the heart of cryptocurrency, direct control over an asset paired with direct responsibility for securing it. A wallet’s Secret Recovery Phrase is the human-readable backup of those keys, and anyone who obtains it can access the funds.

How does a blockchain network agree?

For a distributed ledger to work, the network needs a way for participants who don’t trust each other to agree on which transactions are valid and in what order. This is the job of a consensus mechanism. Bitcoin uses proof of work, in which participants called miners expend computing power to compete for the right to add the next block, making it expensive to rewrite history. Ethereum, after its September 2022 transition known as the Merge, uses proof of stake, in which validators put up ETH as collateral and are rewarded for honest participation or penalized for dishonest behavior. Both approaches aim at the same goal, making it costly to cheat and cheap to follow the rules, through different means.

Why do cryptocurrencies have value?

One of the harder ideas for newcomers is why a purely digital asset would hold any value at all, given that digital things are usually trivial to copy. The reason is digital scarcity: the property that a cryptocurrency can't be duplicated or spent twice, enforced by the network rather than by a copyright or a company.

Before bitcoin, any digital file could be copied endlessly, which is fine for photos, but fatal for money. Bitcoin’s breakthrough was a system where the network collectively tracks every coin, so that spending it in one place automatically prevents spending it anywhere else. This solved what’s known as the double-spend problem without a central referee. On top of that, many cryptocurrencies enforce a capped or predictable supply. For example, Bitcoin’s protocol limits total issuance to 21 million coins, a figure written into its rules and not adjustable at will. This combination, provable scarcity plus verifiable ownership, is what lets a string of data function as an asset people are willing to hold and exchange.

Scarcity alone doesn’t create value, though. A token’s price reflects what people are collectively willing to pay for it, which depends on demand, expectations, utility, and sentiment, all of which can shift sharply. Digital scarcity explains why a cryptocurrency can hold value. It doesn’t guarantee that any particular one will, and prices are famously volatile.

The main types of cryptocurrencies

The main categories of tokens are payment tokens, native tokens, stablecoins, governance tokens, and memecoins, though many assets are used for more than one purpose and appear multiple times in the table below.

Payment tokens

Payment coins are the original cryptocurrency category, primarily designed to store and transfer value, functioning as digital money. Bitcoin is the archetype: its main purpose is to be a scarce, censorship-resistant asset that can be sent between parties without an intermediary, bank, or third-party. Litecoin and Bitcoin Cash are additional examples oriented toward payments. These assets tend to have relatively simple functionality by design, prioritizing security, predictability, and decentralization over the ability to run complex applications. See Bitcoin versus Ethereum for a deeper comparison of the two networks.

Native tokens

The second major category of cryptocurrencies is native tokens of smart contract platforms, blockchains that can run programmable code, not just record payments. Ethereum introduced this idea at scale, since its network can execute smart contracts, programs that run exactly as written and automatically enforce their terms. ETH, Ethereum’s native token, is used to pay the network fees required to run these programs. This programmability is what makes decentralized applications possible, and lending protocols, exchanges, games, and the tokens described below often live on these platforms. Other smart contract platforms include Solana, Avalanche, and others, each with different trade-offs around speed, cost, and decentralization. The companion guide on smart contracts covers how this programmability actually works, and the guide on Ethereum layer 2 networks explains how additional networks extend Ethereum with cheaper, faster transactions.

Stablecoins

Stablecoins are cryptocurrencies designed to hold a steady value, usually pegged to a fiat currency like the US dollar. They exist because the volatility that makes payment coins and platform tokens risky to hold also makes them awkward for everyday payments, saving, or moving money between exchanges. A stablecoin aims to keep one token worth roughly one dollar, typically by holding reserves of dollars and dollar-equivalent assets (as with USDC), or through onchain collateral and protocol mechanics (as with DAI and USDS). Stablecoins have become one of the largest categories of cryptocurrency by total value, with a combined market capitalization of over $300 billion as of August 2026. They come with their own risks, since a peg can break and the quality and transparency of reserves varies. See what is a stablecoin for more on how these assets work.

Governance tokens

Governance tokens give holders a say in how a decentralized protocol is run. Many DeFi applications are governed by their communities rather than a company, and a governance token is the instrument for that, since holders can typically vote on proposals such as changing fees, adjusting parameters, or allocating a protocol’s treasury. Examples include tokens associated with major decentralized exchanges and lending protocols. Owning a governance token is closer to holding a voting share in how a piece of software evolves than to holding money, and the value of these tokens depends heavily on the success and activity of the protocol they govern. As with any token, a governance token can be volatile and its voting rights don’t guarantee any financial return.

Memecoins

Also known as social tokens, Memecoins are cryptocurrencies that originate from an internet meme, joke, or online community rather than from a specific technical use case. Dogecoin, launched in 2013 as a parody of bitcoin, was the first social token, and later examples like Shiba Inu and Pepe follow the same pattern. What sets memecoins apart from the other categories is that their value is driven almost entirely by community, attention, and sentiment rather than by utility, cash flows, or a protocol. Many have high volume or uncapped supplies and little functionality beyond being traded, and a coin's price can swing dramatically on social media momentum alone. This makes memecoins among the most volatile and speculative assets in crypto: a few have produced outsized returns over short periods, while a great many others have lost most or all of their value just as quickly. Because they trade so heavily on hype, memecoins are also a common vehicle for pump-and-dump schemes and scams, so they warrant particular caution.

Other popular crypto types

Beyond these five, several other groupings come up often. Utility tokens grant access to a specific product or service within a network. And a broad, loosely defined group often called "altcoins" simply refers to any cryptocurrency other than bitcoin.

Tokenized real-world assets (RWAs) are a fast-growing category of crypto tokens that represent an offchain asset on blockchain networks, such as stocks, ETFs, US Treasury bills or commodities. RWA holders get economic exposure to the underlying asset rather than direct legal ownership of it, and the token can be held and transferred like any other. Excluding stablecoins, tokenized RWAs are worth over $31 billion as of August 2026, spanning tokenized US Treasuries, private credit, and commodities. Availability and eligibility vary by jurisdiction, explore the tokenized RWA market by categories. MetaMask also lets users buy and sell tokenized stocks, commodities, and funds directly from your self-custodial wallet. 

What are cryptocurrencies used for?

The practical uses of cryptocurrencies follow from their types. Payment coins and stablecoins are used to send and receive value, including across borders, often faster and with fewer intermediaries than traditional rails. Smart contract platform tokens power decentralized finance (DeFi), where lending, borrowing, trading, and earning yield happen through code rather than through banks or brokerages. Some people hold cryptocurrencies as a speculative or long-term investment, betting on adoption or scarcity. Others use them for specific onchain activities, such as participating in governance, accessing applications, or collecting digital assets.

A wallet is the tool that ties these uses together. A self-custodial wallet like MetaMask stores the keys that prove ownership and lets a user hold cryptocurrencies, send and receive them, and connect to decentralized applications directly, without an intermediary holding the assets on their behalf. Interacting with most DeFi applications or onchain services requires a wallet of this kind, which is why setting one up is usually the first practical step after acquiring any cryptocurrency.