What is cryptocurrency?

Cryptocurrency is a type of digital asset that can be transferred electronically, with transactions validated using cryptographic methods. Bitcoin and Ether are examples. Balances and transactions are tracked through the relevant network’s blockchain records.

How is it different from money in a bank?

A bank balance and a crypto asset rely on different systems of recordkeeping and responsibility. In a wallet where you control the keys, a private key authorizes transactions. If you hold assets with a service provider, that provider may manage the keys instead.

The word “currency” does not mean that every crypto asset is legal tender everywhere or will retain its value. Cryptocurrency also differs from digital money issued by a central bank, a distinction covered in the RBA’s digital currencies explainer.

A short example

Suppose Alice sends Sam 0.001 BTC and pays the network fee on top. Once confirmed, Sam’s address receives 0.001 BTC. Spending it requires a new transaction signed with Sam’s key. The asset transferred is recorded on the Bitcoin network; it is not a bank deposit.

Sending bitcoin does not move a physical file between people. The sender signs a transaction, which the network verifies and records on the blockchain. Bitcoin’s explanation of how it works describes the relationship between that record and the key authorizing the transaction.

Cryptocurrency use cases are a separate question from this short definition: what an asset does depends on the network and application rules.

To move from the definition to a first transaction, the crypto purchase guide walks through account checks, order types and net costs.