What are cryptocurrencies?

Cryptocurrencies explained

Cryptocurrencies are decentralized, digital currencies that can be used to buy goods and services or traded for potential profit. Some of the most popular cryptocurrencies include Bitcoin, Ethereum, Tether, and Ripple. The term “cryptocurrency” is derived from the encryption used to secure the network(s) it operates on.

What makes cryptocurrencies different from digital payment services – like the banking app on your phone or payment software like Venmo – is that cryptocurrencies are not owned by any single entity.

The decentralized nature of cryptocurrencies means they are not regulated or “printed” by a central bank or another financial institution. This decentralization also makes cryptocurrencies difficult to hack or manipulate.

Who invented cryptocurrencies?

The first cryptocurrency, Bitcoin, was created in 2008 by an anonymous person or group under the moniker Satoshi Nakamoto. With the release of Bitcoin, Satoshi also published a whitepaper titled Bitcoin: A Peer-to-Peer Electronic Cash System. In this document, Satoshi laid the blueprint for all other cryptocurrencies to follow with the description of blockchain technology.

In the whitepaper, Satoshi stated Bitcoin was partially created in response to the 2008 financial crisis. The mismanagement of banks and government responses regarding monetary policy plunged many into poverty.

Another main goal of Bitcoin was to eliminate transaction fees. Global payment systems, such as Mastercard or Visa, were perceived by Satoshi as unnecessary middlemen that took their cut whenever a financial transaction took place. While fees are still applicable when trading cryptocurrencies on an exchange, many can be used for real-world purchases without having to pay a transaction fee.

On May 22, 2010, the first recorded Bitcoin transaction took place when Laszlo Hanyecz paid 10,000 BTC for two pizzas. This event has gone on to be known as Bitcoin Pizza Day.

What is a blockchain?

In cryptocurrency architecture, a blockchain is the secure online ledger (or database) which stores a record of every online transaction completed with that cryptocurrency. The blockchain is completely decentralized and spread across a network of computers – known as nodes – that manage and record transactions.

Every single cryptocurrency transaction is recorded on the blockchain. Each transaction is shared and agreed upon by the entire network of individual nodes and must be verified before it can be added to the blockchain – this is what makes cryptocurrencies so secure, as it’s impossible to fake a transaction.

Once a certain number of transactions have been made, they become a block. Each block is chronologically structured, as it’s attached to the previous block of completed transactions. This means that when a block has been created, it is an exact, immutable timestamp of those transactions.

It’s widely believed that blockchain technology will eventually be adapted for use across industries like finance, real estate, and law – even if cryptocurrencies themselves aren’t.

Some blockchains enable users to work on them and create applications and smart contracts, which serve different purposes. For example, you might use a blockchain smart contract to buy or sell a house, or register another digital asset, like a non-fungible token (NFT).

What is mining in crypto?

Mining is the process of generating new cryptos without having to pay for them. While normally you’d have to buy cryptocurrencies with a fiat currency, miners can earn cryptocurrencies as a reward for performing tasks on the blockchain.

These tasks involve solving cryptographic equations that verify transactions on the blockchain. More than one miner can contribute to the process, but the more miners work to verify a block of transactions, the harder the equations become.

The mining process is how cryptocurrency transactions can be verified while still being decentralized and unconnected to a central governing body. This system is designed to create a level playing field for all the miners and provide motivation. In order to receive the cryptocurrency reward, you’d normally have to verify a certain number of transactions and solve the equations first.

As cryptocurrencies become increasingly popular, companies now run mining farms which individuals can pay to mine on their behalf. These are called cloud miners.

A gold rush in Bitcoin mining has led to the curation of vast energy-intensive Bitcoin farms and caused the price of graphics processing units, or GPUs, used to solve the computational puzzles involved in mining, to double.

Not all cryptos are mined. Some are released into the market in batches, and others are simply released all at once by their developers. However, many major cryptocurrencies like Bitcoin and Ethereum are mined.

What are some of the benefits of cryptocurrencies?

Transaction fees

One of the original goals of cryptocurrencies was to reduce reliance on intermediaries and lower transaction costs compared with traditional payment systems. While blockchain networks typically charge small fees to miners or validators to process transactions, these costs are not controlled by any central authority and vary depending on network activity.

Crypto wallets

Cryptos such as Bitcoin are stored in digital wallets. Transactions occur using private and public keys. This allows you and only you to access your cryptos anywhere in the world.

Blockchain technology

The transparent and distributed structure of blockchain technology makes it very hard to manipulate. As the ledger is open to everyone on the network and no single entity has control, any hacking attempts are made nearly impossible. Blockchain technology is also becoming more widely adopted by traditional businesses, a positive sign for the longevity of blockchain and cryptocurrency.

Crypto mining

Many cryptocurrencies such as Bitcoin are introduced into the market through mining, a process of validating transactions, and adding them to the blockchain. Mining requires powerful computers to solve intensive computational puzzles and allows individuals to contribute to a cryptocurrency project while rewarding them with free cryptocurrency.

High volatility

Between November 2021 and October 2025, Bitcoin experienced dramatic price swings:

• In November 2021, Bitcoin reached an all-time high of around $69,000.
• By November 2022, it had plunged to approximately $16,000, a drop of over 75% due to macroeconomic pressures like rising interest rates and reduced liquidity.
• As of October 2025, Bitcoin has surged again, trading around $115,000, marking a remarkable recovery and new highs.

Strong immunity to fraud

Cryptocurrency’s decentralized nature makes it difficult to defraud users. Every block on the blockchain would need to be altered for someone to create a fraudulent transaction, but previous blocks are unalterable. Often, when you hear about someone’s cryptos being stolen, it is likely because their wallet was hacked, not the cryptocurrency blockchain itself.

What are the potential drawbacks of cryptocurrencies?

Volatility

Cryptocurrencies are known for their extreme price fluctuations. Prices can swing significantly within a short period, leading to substantial gains or losses for traders. While volatility can offer profit opportunities, it also increases the risk of losing a significant portion of your investment.

Lack of Regulation

The cryptocurrency market is still relatively young and lacks comprehensive regulation in many jurisdictions. The absence of proper regulation can expose traders to scams, fraud, and market manipulation. In Canada, only registered platforms are permitted to deal with retail clients.

Security Risks

Cryptocurrencies are digital assets and trading them involves various security risks. Cryptocurrency exchanges have been hacked in the past, resulting in the loss of funds for traders. Additionally, if you do not secure your own private keys properly, you could be at risk of losing your coins to cyberattacks or accidental errors.

Market Manipulation

Due to the lack of regulation, some cryptocurrency markets may be prone to manipulation by large players or "whales." These entities can influence prices by executing large trades, leading to unpredictable market movements.

Technical Complexity

Understanding the underlying technology and concepts of cryptocurrencies can be challenging for newcomers. This complexity can lead to mistakes, such as sending funds to the wrong addresses or mismanaging wallets.

What types of cryptocurrencies are there?

The first cryptocurrency was Bitcoin (BTC), created in 2008. There are now thousands of cryptocurrencies traded all over the world, with more frequently added through initial coin offerings (ICOs). As of October 2025, the total global cryptocurrency market capitalization is approximately $3.76 trillion, and Bitcoin's market cap alone is around $2.26 trillion, according to CoinMarketCap.

The term “altcoin” is used to refer to any cryptocurrency created after Bitcoin. Popular altcoins include Ethereum, Tether, and Ripple. Many altcoins are modeled after or pegged to Bitcoin, while others function in vastly different ways. Altcoins can have their own blockchain, like Ether on the Ethereum blockchain, or can exist solely on non-native blockchains.

Stablecoins are a type of altcoin that is pegged to an asset, usually a fiat currency, with a more tangible value. For example, Tether is a cryptocurrency that can operate on several different blockchains, including Bitcoin’s and Ethereum’s, and is pegged to the US dollar at a 1:1 ratio (there are alternative variations of Tether coins pegged to other currencies as well). Stablecoins like Tether and Ripple typically experience less volatility than other cryptocurrencies.

These different cryptocurrencies are created for specific reasons. Some, like Bitcoin, are intended to take the place of fiat currencies in both transactions and tradable assets. Others, like Ether, were created to facilitate trades on their own blockchain, in this case, Ethereum. And some, like Tether and USD Coin, are meant to give people the utility of the US dollar without forcing them to pay transaction fees and other costs associated with fiat currencies.

Learn more about altcoins

Difference between cryptocurrencies and tokens

Tokens differ from cryptocurrencies in what they represent. Cryptocurrencies are typically intended to be a form of currency, while tokens represent programmable assets or a specific utility in a blockchain. Tokens are not native to the blockchains they reside on.

Tokens can represent a range of assets such as ownership of a real-world item. So, a token may be a smart contract on the Ethereum blockchain that signifies you are the owner of a unique piece of art, physical commodity, or even another cryptocurrency.

Why trade crypto?

Cryptocurrencies offer trading opportunities that differ from traditional asset classes. Because they operate on decentralized networks, they are not issued or managed by central banks, and their supply is often predetermined by protocol rules rather than monetary policy decisions. However, crypto prices can still be influenced by macroeconomic factors like inflation data, interest rates, or overall market sentiment, as well as regulatory development and investors behaviors.

Who trades crypto?

With the growth of blockchains and cryptocurrencies, more companies have begun investing in cryptocurrency and related services involving blockchain technology. Hedge funds and other financial institutions now commonly trade cryptos, with Bitcoin, Ethereum, and Tether being the most traded, in that order.

Many public companies have begun buying up Bitcoin as a reserve, including Tesla, Block (formerly Square), Coinbase, and many others. Some speculate that Bitcoin and other cryptocurrencies could replace gold as a safe haven asset not tied to stocks or other securities. How the young asset class performs as a safe haven is yet to be proven, but cryptocurrency’s popularity as a tradable asset is likely here to stay.

Learn more about how to trade cryptos

Is crypto trading right for me?

Cryptocurrencies represent a high-risk, emerging market that may not be suitable for all investors. Before deciding to trade or invest in crypto assets, consider the following factors:

• Volatility: Cryptocurrency prices can fluctuate significantly in very short time frames. These swings can result in large gains or losses.
• Range: The price of a cryptocurrency can move within a wide range due to changes in market sentiment, liquidity, or regulatory developments.
• Risk: Crypto assets are speculative and you could lose the entire amount invested. Prices are influenced by supply and demand dynamics, investor sentiment, and external market conditions.
• Availability: Crypto markets operate 24 hours a day, seven days a week, but access to trading may occasionally be restricted by platform maintenance or local regulatory requirements.

Crypto trading may appeal to experienced investors who understand the technology and are comfortable with substantial price volatility and the risk of loss. Those seeking stable or guaranteed returns should not view cryptocurrencies as a suitable investment

Crypto assets are highly volatile and may not be suitable for all investors. You should ensure you understand the risks before trading. Past performance is not indicative of future results.

This content is provided for informational and educational purposes only and should not be construed as investment advice. FOREX.com Canada does not currently offer digital currencies or cryptocurrency trading