What cryptocurrency actually is
At its core, a cryptocurrency is digital money. Unlike pounds or dollars, it is not issued by a government and it is not held for you by a bank. It runs instead on something called a blockchain.
A blockchain is a shared digital ledger. The easiest way to picture it is as an enormous public spreadsheet, copied across thousands of computers around the world at the same time. Every transaction gets written into it, and once an entry has been added it cannot be quietly edited or removed. Everyone holding a copy would notice.
That single property, a record that is very difficult to alter and that nobody owns outright, is what the whole sector is built on. Everything else is a variation on the theme.
Worth remembering
There is no central authority in a system like this. That is the point, and it is also the catch. There is no bank to reverse a mistaken payment and no helpline to call if you lose access to your holdings.
Why people use it
The appeal usually comes down to three things.
Whether those advantages hold up in practice depends heavily on which network you use and what you are trying to do. They are real, but they are not universal.
What drives cryptocurrency prices
Prices in this market move sharply and often, which puts a lot of people off. It looks random from the outside. It is not, though the influences are unusually emotional compared with more established markets.
Fear and greed: reading market sentiment
The Fear and Greed Index is a tool that tries to measure the emotion driving the crypto market at any given moment. It runs on a scale from 0 to 100 and draws on factors including volatility, trading volume and social media activity.
It is not a prediction and it should never be treated as one. What it is useful for is noticing when your own thinking is being pulled along by the crowd.
Extreme fear Investors are highly cautious and selling, which often pushes prices lower. For those with a long time horizon, this is also where opportunities have historically appeared.
Fear Sentiment is still negative but less extreme. Investors are hesitant, and prices may continue to drift downwards or simply stagnate.
Greed Optimism is rising and more people are buying, which tends to push prices higher.
Extreme greed Euphoria sets in and prices can surge in ways that are hard to justify. Historically this has often been a sign that a correction is somewhere ahead.
Is cryptocurrency a scam?
It is a fair question, and the scepticism is not unreasonable. There are three good reasons people arrive at that conclusion.
- Fraudulent projects. Scams and poorly regulated coins have cost investors very large sums, and the sector has been slow to police itself.
- Volatility. Price swings of the size seen here are unusual in traditional markets and make the whole thing look unstable.
- Complexity. The jargon and unfamiliar concepts make it easy to misunderstand, and things people do not understand tend to attract suspicion.
All of that is true. It is also incomplete. Major companies including Visa, PayPal and Tesla have used digital assets in one form or another. Governments around the world are introducing regulation specifically to protect investors. And the underlying technology is being applied to genuinely practical problems, from cross-border payments to supply chain tracking.
The honest position is somewhere in the middle. There are scams in this sector, and there is also real engineering. Telling them apart is most of the work, which is why doing your own research matters more here than almost anywhere else.
Understanding market capitalisation
Market capitalisation measures the total value of a cryptocurrency rather than the price of a single unit. It is a far more useful number than the price on its own.
How the price goes up
A cryptocurrency's price rises when more people want to buy it than to sell it. That imbalance is usually driven by increased demand, positive news such as a partnership or regulatory clarity, scarcity where supply is capped, or simple optimism about the future. Prices are set on exchanges, where buyers and sellers meet.
How the market cap goes up
Market capitalisation can increase in two different ways, and they are worth separating.
- The price rises. If the price goes up while the circulating supply stays the same, the market cap grows with it. A coin priced at £1 with a supply of one million has a market cap of £1 million. If the price doubles to £2, the market cap becomes £2 million.
- The circulating supply rises. Some cryptocurrencies release new coins over time through mining or staking rewards. If that happens while the price holds steady or climbs, the market cap increases too.
What tends to drive both
Both price and market cap reflect investor confidence, but market cap gives a much better sense of how large and how significant a cryptocurrency actually is.
The types of cryptocurrency
Not everything called a cryptocurrency is trying to do the same job. Grouping them by purpose makes the market considerably easier to read.
Payment coins
Purpose. Designed to work as digital money and, in some cases, to replace traditional currency.
Examples. Bitcoin (BTC), Litecoin (LTC), XRP.
The value. Faster, cheaper and borderless payments.
Utility tokens
Purpose. Provide access to services or products within a particular blockchain ecosystem.
Examples. Ethereum (ETH), Chainlink (LINK).
The value. They are needed to use the platform, whether for paying transaction fees or running smart contracts.
Stablecoins
Purpose. Minimise volatility by being tied to a stable asset, usually the US dollar.
Examples. Tether (USDT), USD Coin (USDC).
The value. Useful for trading, payments and holding value without the swings.
Governance tokens
Purpose. Allow holders to take part in decisions about a project's direction.
Examples. Uniswap (UNI), Maker (MKR).
The value. They give users a say in updates, funding and priorities.
Meme coins
Purpose. Coins that begin as jokes and gain traction through communities and social media.
Examples. Dogecoin (DOGE), Shiba Inu (SHIB).
The value. Usually driven by attention rather than utility, which cuts both ways.
A note on the categories
These lines blur. A payment coin can develop utility, and a meme coin can grow a real ecosystem around it. Treat the categories as a starting point rather than a filing system.
The language of crypto
A good deal of the intimidation factor in this sector is vocabulary. Here is most of what you will run into, in plain terms.
Three projects I find interesting
These are the projects I follow most closely and hold personally. They are here because I find the ideas behind them worth understanding, not because I am recommending them. Please read the disclaimer at the foot of this page.
Payments at institutional scale
XRP is built to make international payments fast and cheap. Its partnerships with financial institutions and continued network development suggest it could play a meaningful role in cross-border settlement. The vision is straightforward: send money overseas in seconds without paying heavily for the privilege.
Financial inclusion
Stellar is designed to serve people in underbanked and unbanked regions, enabling secure, low-cost transactions for anyone, anywhere. If it works as intended, the effect on access to basic financial services in emerging markets could be significant.
Research-led and energy efficient
Cardano takes an unusually academic approach to blockchain development, with a strong emphasis on security, scalability and sustainability. As attention shifts towards the energy cost of these networks, that focus may matter more than it once did.
A word on meme coins
Meme coins are the part of this sector that most invites eye-rolling, and often deservedly. They are also a genuine phenomenon worth understanding, because they demonstrate how much of this market runs on attention rather than fundamentals.
Be clear-eyed about this category
Meme coin values depend almost entirely on sentiment. They can rise very quickly and fall just as fast, and there is rarely anything underneath to cushion the drop. Treat any money placed here as money you are prepared to lose in full.
Disclaimer
- This site is for informational purposes only.
- It is not intended as financial or investment advice, but simply as a perspective on a sector.
- The opinions expressed here are my own and do not reflect the views of my employers or the companies I am involved with.
- The content is not intended to be a substitute for professional advice. Always seek the advice of qualified professionals with any questions you may have regarding any information presented here.
- I make no representations as to the accuracy, completeness or validity of any information on this site, and will not be liable for any errors, omissions, or any losses, injuries or damages arising from its display or use.