Cryptocurrencies are digitally created and exchanged units of value that run on a blockchain platform. They are not backed by a central bank and, as such, lack many of the features of traditional money. For example, they are not widely accepted as a means of payment, and only a small fraction of cryptocurrency holders use their tokens regularly to make purchases. They also do not seem to be an effective store of value, as their prices are highly volatile.
Nevertheless, cryptocurrency markets are worth trillions of dollars and appear to be becoming increasingly popular. Cryptocurrency enthusiasts are drawn to the potential for these currencies to become a global medium of exchange, as well as to the possibility that they can serve as an alternative investment to stocks, bonds and real estate. However, the price volatility of most cryptocurrencies suggests that their true utility is as speculative investments with high risks of loss.
The most famous cryptocurrency is Bitcoin, which was first released in 2009 by the pseudonymous Satoshi Nakamoto. Ethereum, which launched in 2015, is the second most popular cryptocurrency and is a leading blockchain platform. Both currencies have seen rapid price rises and have been subject to extreme market fluctuations.
Some governments have embraced cryptocurrencies and their technology, while others have banned or limited their use. Regardless of their popularity, cryptocurrency systems raise a number of policy concerns, including concerns about the role of these markets in financial stability, tax evasion and fraud, consumer protection and cybersecurity, and the enormous energy consumption needed to mine these currencies.
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