The term cryptocurrency is a contraction of cryptographic currency. In March 2018, Merriam-Webster announced that they would include this term in their dictionary. Their definition is as follows:

cryptocurrency noun cryptocurrency krip-t-kr-n(t)-s , -k-rn(t)-s : any form of currency that only exists digitally, that usually has no central issuing or regulating authority but instead uses a decentralized system to record transactions and manage the issuance of new units, and that relies on cryptography to prevent counterfeiting and fraudulent transactions. First Known Use: 1990

This definition isnt bad, apart from:

To clarify, the stated decentralized system behind transaction-recording and issuance management is the blockchain.

As the name implies, cryptography is first and foremost in any cryptocurrency. Transactions are only recorded if they meet the network rules, which are defined in the code run by both relaying and mining nodes. Blocks are only included in the blockchain through some form of proof of work, which depends on a cryptographic process.

Similarly, new coins are only issued when miners or stakers(if using a proof-of-stake system) receive their block reward for generating a new, valid block. Therefore, the decentralized system is ultimately ruled by cryptography.

These objections may appear pedantic, but theyre important. As Merriam-Websters definition currently stands, mechanisms like SWIFT or PayPal might be considered cryptocurrencies. While unusually centralized and regulated, such payment mechanisms are also purely digital systems that depend on cryptography to prevent fraud and counterfeiting.

A more correct definition would read as follows:

cryptocurrency noun cryptocurrency krip-t-kr-n(t)-s , -k-rn(t)-s : anyform of currency that usually exists digitally, and that has no central issuing or regulating authority, but instead uses a decentralized, cryptographically secured system to record transactions, manage the issuance of new units, and prevent counterfeiting and fraudulent transactions. First Known Use: 1990

The word usually has been shifted to account for the existence of items like physical cryptocoins and key backups.

More importantly, this definition makes it clear that the security of cryptocurrencies relies entirely on cryptography, but never on centralization or regulation. In other words, the issuance and transaction record of true cryptocurrencies are unaffected by human decision-making.

For convenience, this term is often shortened to crypto. An example is the cryptocurrency-only exchange, Cryptopia.

And cryptocoin has the same meaning as the well-known cryptocurrency news site, CryptoCoinsNews.com.

If its clear from the context that the intended meaning is cryptocurrency, the shortened term coin can be used. This term is derived from the numerous clones of Bitcoin, which often display a unique prefix (such as Litecoin or Dogecoin). But the best example of this usage is the well-known listing site for market capitalization: CoinMarketCap.com.

Cryptocurrencies use blockchains to order transactions. Blockchains are the best (and perhaps only) way to maintain a consensus about the state of a record among a decentralized, trustless network. If a currency relies on a trust in the form of a centrally maintained and managed record, its simply not a cryptocurrency (which is why PayPal and SWIFT arent cryptocurrencies.)

Note: In order to have a trustless, permission-less, decentralized blockchain, you need three main ingredients:

So far, this article has focused on the crypto part of cryptocurrency, but the currency part is equally important. While blockchains are a natural fit for monetary systems, efforts are being made to apply them to other functions (such as timestamping and record-keeping). While such systems can be useful, they cant be considered cryptocurrencies if they serve no monetary function.

In addition to cryptography, computing and networking are essential to the function of cryptocurrencies. These currencies are software, but theyre dependent on computing and networking hardware. Further physical aspects may be involved in certain cryptocurrencies (such as RFID tags or the backing of precious metals).

Under our improved definition, numerous electronic-payment systems in existence fail to qualify as cryptocurrencies. One major example is Ripple (XRP), which is issued by a company that controls all transactions. While Ripple contains cryptographic elements, credit cards do as well.

According to our definition, ICO tokens also arent cryptocurrencies. A single smart contract is responsible for the issuance of ICO tokens, so this system cant be considered to be decentralized, even if its cryptographically secured.

Lightning Networks arent cryptocurrencies either. They lack their own blockchain, and rely on the chain of an underlying coin for initiation and settlement. If Bitcoins Lightning Network succeeds, it will emphasize the critical properties of cryptocurrencies: security, decentralization, and immutability. And itll shift their secondary characteristics (such as speed and scalability) to Lightning Networks and other layered solutions.

Permissioned blockchains are often proposed by corporations or (central) banks, since access to reading and writing about them are restricted to approved parties. Due to the restricted nature of their blockchains, they cant be considered true cryptocurrencies.

The term cryptocurrency was coined (pun intended) to describe Bitcoin, so its best to only apply it to systems that are fundamentally similar to Bitcoin. By stretching the definition to fit every entry on CoinMarketCap (or even the forthcoming state-controlled or bank-controlled coins), the term becomes far too generalized to be meaningful.

Our suggested terms for these not-quite-cryptocurrencies are token or digital asset.

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What is Cryptocurrency? A 2 Minute Beginner's Explanation