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Note · Bitcoin and crypto

What is cryptocurrency? Digital money without a bank

A cryptocurrency is digital money recorded on a shared public ledger instead of at a bank, owned by whoever holds the secret key that can spend it.

By Graphite

An AI model, Claude Opus 5.5, wrote it for Graphite from the sources at its end.

· 6 min read

This note and the comments marked the Graphite mark are Graphite’s: an AI model, Claude Opus 5.5, wrote them on 4 November 2026, following Graphite’s own instructions, from the sources at the note’s end, and checked them against those sources. Check them as you would anyone’s.

This note and its comments are written by an AI model.

Contents · 6 sections

A cryptocurrency is digital money that is recorded on a shared public ledger, usually a blockchain, instead of in a bank's books. No bank or government keeps the record: thousands of computers keep copies and check each other. You own cryptocurrency by holding a secret key that can sign for it, which is where the "crypto", from cryptography, comes in. Bitcoin, launched in 2009, was the first.

In short

  • With bank money, the bank keeps the ledger; with cryptocurrency, a network of strangers keeps it together, and the rules are written in software.
  • Cryptocurrencies differ a lot: Bitcoin, platforms that run programs, stablecoins tied to the dollar, and meme coins have little in common beyond the ledger.
  • Payments can't be reversed and holdings usually aren't insured, so mistakes, theft and scams are hard to undo.

How is cryptocurrency different from money in a bank?

The difference is who keeps the record. The dollars in a checking account are an entry in the bank's database; when you pay someone, the bank changes two entries. If the bank makes a mistake, a regulator and a deposit insurer stand behind it. With a cryptocurrency, the ledger is public and kept by a network of computers, called nodes, that follow the same rules. A payment is valid if it is signed with the right key and the coins haven't been spent. Nobody can approve or refuse it on other grounds.

Cash Money in a bank Cryptocurrency
Who keeps the record No one: you hold the note The bank A network of computers, in public
Who can freeze or reverse a payment No one The bank, courts, regulators Usually no one, unless it sits on an exchange
Insured if the holder fails No Yes, up to limits, in most countries Usually not
Works without permission Yes, in person No: you need an account Yes, online, anywhere
How much exists Set by a central bank Grows as banks lend Set by each coin's software

Ownership means control of a key, not a name on an account. A crypto wallet stores those keys. Lose them and the coins can't be recovered; give them away and the coins are gone. The math behind the keys is public key cryptography, the same idea that secures websites.

How does a cryptocurrency work?

Most work like Bitcoin, which set the pattern in a 2008 paper by the pseudonymous Satoshi Nakamoto. Payments are broadcast to the network, checked by every node, and grouped into blocks. Each block points to the one before it, forming a blockchain that is very hard to change after the fact.

The networks need a way to agree on which block comes next without anyone in charge. Bitcoin uses proof of work, in which computers compete to solve a puzzle and the winner is paid in new coins. Ethereum and most newer networks use proof of stake, in which participants lock up coins as a deposit and lose some if they cheat. The trade-offs are set out in proof of work vs proof of stake.

What kinds of cryptocurrency are there?

There are thousands, but most fall into a few kinds. Sorting a coin into one of them says more about it than its name does.

Kind What it is for Example
Original coins Digital money with a fixed or predictable supply Bitcoin
Smart-contract platforms Running programs on a blockchain; the coin pays for computing [[what-is-ethereum
Stablecoins Holding a steady value, usually one U.S. dollar, backed by reserves Tether, USD Coin
Meme coins Jokes and online communities; value rests on attention [[what-is-dogecoin
Tokens on other chains Access to an app, a vote in a project, or a claim on something else Many

Stablecoins are the kind most used for payments, because their price is meant to stay put. In July 2025 the United States passed its first federal law for dollar stablecoins, the GENIUS Act, which the President signed on 18 July 2025. Regulators still had to write many of its rules after that.

What is cryptocurrency used for?

People use it to move money across borders without a bank, to hold savings outside a currency they don't trust, to use apps built on blockchains, and above all to invest or speculate on prices. Businesses and banks use stablecoins to move dollars quickly between platforms. Criminals use it too, for ransom payments and scams, though the public ledger also lets investigators trace many payments.

Rules differ by country and keep changing. The European Union's Markets in Crypto-Assets Regulation, known as MiCA, entered into force in June 2023 and applied in full from 30 December 2024, requiring firms that issue or trade crypto to be licensed. In the United States, rules come from several agencies and new laws, and are still being settled.

What are the risks?

Prices swing far more than any major currency's, and many coins have fallen close to zero. Beyond price, three risks catch people most often.

The first is that payments can't be undone. The U.S. Federal Trade Commission warns that crypto payments don't carry the legal protections of card payments, that they typically can't be reversed, and that crypto held in accounts isn't insured by a government. The second is losing keys or trusting the wrong company to hold them: when an exchange fails, customers can lose everything they kept there. The third is fraud. In 2025, the FBI's Internet Crime Complaint Center received 181,565 complaints involving cryptocurrency, with reported losses of about $11.4 billion, according to its 2025 annual report. Fake investment platforms, often pushed by a friendly stranger online in what is called a pig butchering scam, made up $7.2 billion of that, the largest source of fraud losses the FBI recorded that year.

A few signs mark a scam almost every time:

  • Someone asks you to pay in crypto. The FTC's rule of thumb is that only scammers demand it.
  • Returns are guaranteed. No honest investment promises fixed, high returns.
  • A new online contact steers you to a platform. Especially after weeks of friendly chat.
  • You must pay a fee to withdraw your money. That fee is the next stage of the scam.

Still argued

Whether cryptocurrency is useful money or mostly speculation is argued. Supporters point to payments without banks, savings beyond the reach of failing currencies, and stablecoins that move dollars faster than banks do. Critics point to price swings, energy use, fraud and the small share of everyday purchases made with it. This note explains how cryptocurrency works; it isn't financial advice.

Check yourself

  • Without looking back: who keeps the record of a bank payment, and who keeps it for a crypto payment?
  • Why does owning cryptocurrency come down to holding a key?
  • What makes a stablecoin different from Bitcoin, and why does that matter for payments?

Sources

Published by Graphite on , set the way Graphite publishes a note.

This note and the comments marked the Graphite mark are Graphite’s: an AI model, Claude Opus 5.5, wrote them on 4 November 2026, following Graphite’s own instructions, from the sources at the note’s end, and checked them against those sources. Check them as you would anyone’s.

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Graphite

An AI model, Claude Opus 5.5, wrote it for Graphite from the sources at its end.

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