Cryptocurrency is a form of digital money designed to function as an exchange medium. In the past ten years, cryptocurrency has gained significant popularity, particularly. Bitcoin turning into the most extensively monitored substitute for traditional money. Generally, cryptocurrencies are purely digital and lack a tangible format—the image displayed here represents merely an artist's depiction of what digital currency might look like.
Many individuals are attracted to cryptocurrency primarily because it can operate independently of a central bank, thus addressing concerns related to privacy and illicit activities. Additionally, it draws interest due to its capacity to maintain value without being eroded by inflation caused by monetary policies aimed at printing more money. Furthermore, counterfeiting is extremely challenging with this digital currency thanks to the secure blockchain technology used for managing transactions.
Cryptocurrencies have become increasingly popular in the investing sphere because of the substantial value increase experienced by certain digital coins since their inception. The year 2022 witnessed notable drops in cryptocurrencies when the Federal Reserve increased interest rates, with speculative assets being affected disproportionately. Bitcoin and Ethereum , two of the most popular currencies dropped by over 70 percent from their peak values in 2022, only to rebound in 2023 and surge dramatically in 2024. Bitcoin’s value first surpassed $100,000. .
Below is an explanation of what cryptocurrency entails, how it functions, and the major risks associated with it.
How cryptocurrency works
Cryptocurrencies are generated, recorded, and maintained using a system known as a distributed ledger like blockchain In a distributed ledger, the flow of the digital currency is managed by computers within a decentralized network to maintain the accuracy of financial records and track the ownership of cryptocurrencies. Imagine this as an endlessly expanding record of every transaction in the system, which is continuously checked by anyone with access to view it.
This distributed system is common among numerous cryptocurrencies, avoiding a central governing body. This characteristic contributes to the allure of currencies like Bitcoin — it removes government bodies and central banking institutions from the monetary framework, thereby minimizing their involvement and political manipulation.
For this reason, certain cryptocurrencies have a capped supply of currency units. For instance, with Bitcoin, the framework is designed such that a maximum of 21 million bitcoins will ever be created.
However, how precisely does cryptocurrency originate? A significant method is via a process known as mining , using an analogy from the era when money was backed by precious metals like gold or silver. In this scenario, powerful computers referred to as "miners" carry out complex computations and facilitate transaction confirmations on the ledger. As their reward for these efforts, they receive units of the cryptocurrency, or fractions thereof. This process demands substantial computational resources and frequently considerable amounts of electrical energy.
Holders of the currency might keep it stored in a cryptocurrency wallet , a computer application that enables users to use or get the digital currency. For conducting transactions, individuals require a "key," which permits them to record entries in the shared ledger, documenting the movement of funds. Although this key might be linked to an individual, their identity isn’t directly connected with the transaction at hand.
One reason why many people find cryptocurrency appealing is because it allows for relatively anonymous usage.
There is essentially no cap on the number of cryptocurrencies that can be developed. This variety is truly remarkable, with countless new currencies emerging over recent years, particularly following Bitcoin’s rise to widespread recognition around 2017. Among these, some of the most well-known digital coins encompass Bitcoin, Dogecoin, Ethereum, Tether and XRP.
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Top 10 Biggest Cryptocurrencies List
The scale of a cryptocurrency relies on two elements: the total number of coins in circulation and their respective prices. By multiplying these two values, one can determine the overall worth of the currency. market capitalization , or the combined worth of all these coins. Therefore, when experts discuss the biggest cryptocurrencies, they're talking about this overall valuation rather than the cost of a single coin.
Below are the leading cryptocurrencies: And their estimated market capitalization, based on data from CoinMarketCap, around mid-February 2025. Keep in mind that due to the unpredictable nature of cryptocurrencies, these figures might change significantly over very brief intervals.
- Bitcoin – $1.9 trillion
- Ethereum – $330 billion
- XRP – $159 billion
- Tether – $142 billion
- Solana – $98 billion
- BNB – $94 billion
- USDC – $56 billion
- Dogecoin – $40 billion
- Cardano – $28 billion
- TRON – $20 billion
What purposes does cryptocurrency serve?
Cryptocurrencies serve numerous purposes, yet their specific use hinges upon their intended design. Although people often associate cryptocurrencies with financial transactions, they're better understood as digital assets granting access to certain activities—much like tokens in an amusement center where purchasing these tokens lets you participate in various games.
Bitcoin aims to facilitate monetary transactions, thereby allowing it to operate as a form of currency. However, even though it has this capability, only a small number of merchants truly accept it as such, and surprisingly, it operates at a slower pace than many other payment systems.
Similarly, the cryptocurrency Ethereum permits users to develop "smart contracts," which are agreements that automatically execute when their conditions are fulfilled. The crypto token known as the Internet Computer enables individuals to build applications, websites, and various online services. These digital assets differ from traditional cryptocurrencies. Dogecoin , which was designed essentially to mock the absurdity surrounding Bitcoin.
Although these digital currencies might possess genuine practical applications (or they might not), their primary function often lies in speculative activities. Traders oscillate the values of these tokens up and down, aiming to capitalize on profits from participants engaged in buying and selling these assets.
Even though the coins might allow a user to execute a specific function, numerous purchasers are solely focused on reselling them for financial gain. To many people, this is actually the primary purpose of cryptocurrencies.
Is it possible to exchange cryptocurrency for cash?
Cryptocurrencies can be readily exchanged for standard currencies like dollars or euros. If you hold the currency itself, You can swap it through an exchange for fiat money. Or into another form of digital currency. Usually, you'll incur a substantial charge for both incoming and outgoing transfers, though.
However, you might also possess cryptocurrency via a payment platform like PayPal. CashApp , and you might effortlessly exchange it for cash. Additionally, you could potentially utilize a Bitcoin ATM to access dollars.
Individuals holding cryptocurrencies through Bitcoin futures have the ability to easily liquidate their holdings whenever the markets are operational, although it would be wise to conduct thorough research first. the top brokers for cryptocurrencies if you’re trading regularly.
However, if you require immediate access to your funds, you must accept the price the market provides at that moment, which could be significantly lower than what you originally invested. Cryptocurrency volatility surpasses that of other high-risk investments. Additionally, significant transaction fees are typically associated with entering and exiting these markets. you will encounter tax consequences as a result of this action .
Biggest risks of cryptocurrency
Even though supporters present compelling narratives regarding cryptocurrencies like Bitcoin, these digital assets come with significant risks when structured this way today. This does not imply that one cannot profit from reselling them for more than their purchase cost. Nevertheless, several disadvantages render Bitcoin and similar currencies nearly ineffective as proper monetary systems or mediums of trade.
Bitcoin and other cryptocurrencies face genuine critics, among them some of the globe's leading investors like the multibillionaire Warren Buffett. Buffett has referred to Bitcoin as "likely rat poison squared." while his long-time business partner Charlie Munger has stated that cryptocurrency trading is 'simply madness.' Buffett said In 2022, he stated that he wouldn't purchase all the Bitcoin in existence for $25 because, unlike stocks, real estate, and farmland, it does not generate any value for its holders.
Several major hazards associated with cryptocurrencies encompass the subsequent problems.
Extracting the currency is costly and environmentally damaging.
A major drawback of cryptocurrencies is that they are "mined" using computer systems. This mining process incurs costs since it demands considerable energy consumption to generate coins. Miners invest in and cover these energy expenses for their equipment, but this activity simultaneously leads to notable environmental contamination and waste production.
If Bitcoin were a country, it would consume more energy than Poland (with a population of 36.8 million) by the end of 2024, based on data from the Cambridge Bitcoin Electricity Consumption Index. Regarding greenhouse gas emissions, it would rank 61st globally.
This extensive usage has sparked criticism from individuals who view cryptocurrencies as an unnecessary drain on energy resources during a critical environmental crisis.
The supply of certain cryptocurrencies is set to be limited.
Supporters of Bitcoin highlight the limited supply of coins as advantageous, arguing that this ensures the currency won’t lose value due to actions from central banks. Nevertheless, by capping the overall quantity of the currency, cryptocurrencies could operate similarly to the gold standard, which might subject economies to severe deflationary pressures if widely adopted.
During economic booms, when funds circulate abundantly without issues surfacing, everything seems fine. However, during difficult periods, both individuals and companies tend to save cash as protection from volatility and potential unemployment. This act of saving can hinder the circulation of currency within the economy, possibly triggering a harmful cycle of decreasing prices known as deflation. In extreme cases, people refrain from making purchases under the assumption that items will cost less later on, which could push the economy towards collapse.
This issue is precisely why contemporary nations have shifted from the gold standard to fiat currency. Unshackled from the gold standard, Central banks can boost the circulation of money within the economy during difficult periods. even if individuals and companies stockpile it, causing the economy to avoid grinding to a halt.
An unstable currency is impractical.
The restricted supply of coins, along with speculative frenzy and an engaging narrative, has led to significant fluctuations in the prices of Bitcoin and other cryptocurrencies. This volatility might not pose an issue for traders, yet it renders these digital assets impractical as everyday money. For a medium of exchange to hold value, people must trust that it will maintain its purchasing power over time.
Picture visiting an eatery where your dish could cost you $10 today yet bump up to $20 tomorrow. It would naturally make sense to limit spending to those cheaper days; however, this approach doesn't work well at scale for entire economic systems. Economies require a consistent means of exchange to ensure stability, allowing people to swap goods with clear knowledge of their worth.
To the degree that Bitcoin and other cryptos benefit traders—by being volatile—they become unsuitable as currencies.
Rules and entry to cryptocurrency may differ.
Government rules can impact cryptocurrencies, potentially damaging the future of certain digital coins, although they might also support these currencies based on how extensive the regulations turn out to be.
Government regulations have the potential to severely undermine the effectiveness of cryptocurrencies, particularly if they include complete or near-total prohibitions. Such a ban, as seen with China’s approach, can render a cryptocurrency practically worthless within that nation’s borders. This might also expose individuals to legal penalties, contingent upon local legislation.
Recently, the possibility of Donald Trump's re-election has arisen, along with the prospects of pro-crypto administration has caused crypto prices to soar, pushing Bitcoin to a recent all-time high of nearly $110,000.
Even with backing from the Trump administration, crypto regulation varies Across various government bodies and from one state to another, classification and definition of cryptocurrencies differ significantly. The Securities and Exchange Commission, the Commodity Futures Trading Commission, and the Internal Revenue Service each adopt distinct approaches when categorizing digital currencies.
Certain states, including New York, impose strict regulations on cryptocurrency firms. In contrast, other states like Wyoming are more welcoming towards cryptocurrencies and are even developing their specific frameworks. stablecoin while aiming to lure cryptocurrency-related enterprises.
Despite their differences, governmental regulations might contribute to establishing a fairer environment that is less prone to deception and misconduct. In such an arrangement, stakeholders within the marketplace could potentially cultivate increased confidence in the framework and possess well-defined legal avenues should anything untoward occur. This type of oversight aids in curbing the chaotic aspect of cryptocurrencies, rendering them safer for individuals aiming to utilize them with integrity.
Other drawbacks
Cryptocurrencies also come with several disadvantages, such as inadequate protection for digital wallets used to store funds, their involvement in illegal activities, and slower transaction speeds when contrasted with the swift processing times offered by conventional systems like those of Visa and MasterCard.
Furthermore, since the IRS has classified Bitcoin as an asset rather than a currency, each Bitcoin transaction carries the possibility of generate a reportable capital gain This means you have to include it in your tax return. If you use bitcoins valued higher than what you originally bought them for, you will be liable for taxes.
Bottom line
Although cryptocurrency does offer certain advantages, it comes with significant downsides that currently prevent it from being used effectively as a currency. Given its unpredictability and multiple risks, investors should likely adopt a careful strategy when dealing with cryptocurrencies. Should you wish to experiment with them simply to understand their workings, limit your investment amount and only use funds you wouldn't mind losing.
— Note: ’s Brian Baker and Logan Jacoby were involved in updating this tale.