Crypto Currencies

Overview 

Cryptocurrency involves digital assets which use a blockchain, a distributed and shared record kept across a network of computers rather than being held by a single central authority. Unlike the pound or the dollar, neither a government nor a central bank issues or controls the amount of a given cryptocurrency; instead, the rules are defined in open-source software and enforced by network participants. The decentralised nature is the most important feature of cryptocurrency and the main point that its supporters advance, viewing it as an alternative, non-political means of using money and investing.

Examples

Bitcoin was created in 2009 by Satoshi Nakamoto and is the first cryptocurrency, and currently the largest by a wide margin. In August 2026 its price was about $64,000, giving it a market capitalisation of around $1.3 trillion. The fact that its supply is strictly capped at 21 million coins is based on the 'digital gold' or store-of-value argument, a view which is supported by its supporters. 

Vitalik Buterin and a number of his colleagues launched Ethereum (ETH) in 2015, the year when smart contracts were first introduced; these are bits of code that work on the blockchain and thus allow decentralised applications, lending platforms and NFTs to function. Ethereum is currently the second most valuable cryptocurrency, its market capitalisation being approximately $233 billion. 

Stablecoins maintain their value since they are tied to a fiat currency, typically the US dollar; in a market worth about $300bn, they are mainly used as a means of transferring value between fiat and crypto trading rather than being held as speculative investments, the two that are at the top being Tether (USDT, with a value of around $183bn) and Circle's USD Coin (USDC, with a value of about $75bn).

How it works

In the case of Bitcoin, transactions are grouped together into 'blocks', which are then cryptographically connected to the previous block and only become confirmed when they have been accepted by the members of the network before being permanently added to the chain; Bitcoin employs a system known as proof-of-work (PoW), this involving 'miners' who compete with each other by solving very difficult puzzles using specialised hardware. 

The miner who succeeds in solving the puzzle is given the newly created coins as a reward; although this method is secure, it is also extremely energy intensive, whereas Ethereum took a different approach. In September 2022, as part of an upgrade referred to as 'the Merge', it switched to proof-of-stake (PoS). In this system, validators put their own ETH up as collateral in order to gain the right to verify transactions rather than using electricity for computation, and it is therefore thought that Ethereum's energy consumption has been reduced by 99.95%.

Institutional adoption

When the US regulatory authorities gave their approval to the first spot Bitcoin ETFs in January 2024, institutional investors became considerably more willing to take part in the cryptocurrency market since previously they had been able to obtain direct price exposure via a regular brokerage account rather than having to use a crypto exchange, and by mid-2026 the total value of the US spot Bitcoin ETFs had reached approximately $74 billion, even though the figure changed as Bitcoin's price fluctuated between $64,000 and its October 2025 all-time high of almost $126,000. Ethereum ETFs were launched in July 2024, and asset managers such as Fidelity, Grayscale and VanEck now provide competing products. 

Regulation

The regulatory framework is still fragmented and is under development. In the UK, from October 2023 it has become a requirement for companies to have been authorised or registered with the FCA if they want to promote qualifying cryptoassets to consumers; this means that they must provide mandatory risk warnings and give first-time investors a 24-hour 'cooling-off' period before allowing them to be exposed to a direct-offer promotion, and in the EU the Markets in Crypto-Assets Regulation (MiCA) came into force in December 2024; notably, Tether had not secured MiCA authorisation for USDT, as a result of which the token was delisted from a number of EU-based exchanges such as Coinbase and Kraken. 

Risks

The fact that institutions are nowadays displaying greater interest in crypto does not mean that the major risks have vanished. The industry is still very volatile, as illustrated by Bitcoin's drop from a high of $126,000 in October 2025 to about $64,000 by August 2026. Security and custody risks still persist; it is possible to completely lose crypto if it is held in a poorly secured wallet or on an exchange, and the failure of FTX in 2022 is an example of the risks associated with unregulated custodians. 

Because crypto is anonymous and has no borders, it has allowed illegal financial activities to take place; proof-of-work mining, especially that involving Bitcoin, consumes huge quantities of electricity and has thus attracted ongoing environmental criticism, even though Ethereum's switch to a proof-of-stake system has shown a much less energy-intensive alternative. In the end, it will be up to the development of regulation and institutional adoption whether or not crypto will become a mainstream store of value or continue to be a speculative, niche asset.