Cryptocurrencies rely on a system of blockchain technology to mint virtual coins and record transactions. Launched in 2009 by the pseudonymous software engineer Satoshi Nakamoto, they are exchanged online between parties with digital wallets and can be used to buy a wide range of goods and services. Their popularity is fueled by a desire to avoid the friction of traditional banking and the fees of credit card payments, as well as by speculation that they represent the future of money. The volatile price of cryptocurrencies—as much as $1 trillion was wiped out in May alone—keeps investors, observers, and regulators on their toes.
The biggest cryptocurrency is Bitcoin, which has a market capitalization of more than $1 trillion. It is often traded against the dollar and other currencies. Other cryptocurrencies claim to be “stablecoins” that are pegged to the value of other assets, such as gold or dollars, but most have been knocked off their pegs during a recent bout of volatility.
In addition to being used as an investment, cryptocurrencies have also been linked to criminal activities such as ransomware attacks and the sale of illicit drugs and weapons. The ability to move large sums of money quickly and easily without a central authority also appeals to those seeking to evade sanctions and taxes. Regulators are now struggling to craft rules for this new and untested sector that can limit traditional financial risks while encouraging innovation. This is especially challenging given that cryptocurrencies can be created by anyone with access to a computer and an internet connection.