What is cryptocurrency? Here’s what you need to know about blockchain, coins and more – CNBC

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Someone in your life is talking about cryptocurrency maybe your partner or best friend. Or maybe youve seen it in the news or on social media. Either way, you want to understand this new technology that people are telling you to invest in.

Below, Select dives into what makes up a cryptocurrency, and what to look for before you invest.

At its most basic, a cryptocurrency is a digital asset that utilizes computer code and blockchain technology to operate somewhat on its own, without the need for a central party be that a person, company, central bank or government to manage the system.

A blockchain is a ledger which keeps track of cryptocurrency transactions. This ledger of transactions is maintained across computers that are linked across a distributed network. Transactions in cryptocurrency protocols are combined into blocks, and these blocks are then linked together in a historical record of everything thats happened on that blockchain.

Bitcoin, the first cryptocurrency created, was developed initially to act as a payment mechanism native to the online world. Faster, cheaper, censorship resistant and not beholden to any government or central banks whims.

Today, there are thousands of cryptocurrencies. These still act as payment mechanisms but have also been developed for other use cases, such as lending and borrowing or digital storage. And one of the broadest use cases for this technology is speculation, buying in the hopes that the price will go up and the holders can make a profit.

The vision behind cryptocurrency is one of a peer-to-peer electronic currency system that is not controlled by a central authority and therefore, is fast, cheap and invulnerable to censorship (for instance, PayPal blocking gun sales) and other forms of corruption or control.

While the definition is fluid, there are several features that typically make up a crypto asset:

In the crypto space, many terms are used interchangeably, which of course, makes the conversation confusing for newcomers. But broadly, there are three categories of crypto:

From its beginnings in 2009, the ecosystem surrounding cryptocurrency and blockchain technology has ballooned into a billion-dollar industry, while cryptocurrencies have a total market cap over $1 trillion.

The technology has led to some serious innovation, both internally and externally, pushing financial services providers and other industries to update their processes to better reflect peoples expectations for transacting and communicating online. For instance, the speed and low cost of cross-border crypto transactions has led many to begin re-evaluating the remittance industry and other payment networks, i.e. Western Union.

Being an open system, one of the goals of cryptocurrency is to expand access to financial service tools to many people who are barred from entering the traditional banking system. And the industry encourages self-sovereignty, the ability for individuals to maintain control over their data, be it identity information or their money.

Still, there are risks involved when getting involved with cryptocurrency and financial systems that aren't regulated by the government, including hacks and lost wallet passwords, where people get completely locked out of their accounts and/or lose their money. Remember: These accounts aren't FDIC insured.

Because cryptocurrency is outside of the control of government, it allows individuals and organizations to skirt laws, restrictions and regulatory oversight. Early in bitcoins history, it was used to send donations to WikiLeaks, after the U.S. government pressured the card networks, Visa and Mastercard, to cut off transactions to the organization. More recently, some Venezuelans have turned bolivars into bitcoin as a way to store value, since bolivars have been inflated to near worthlessness by the Venezuelan government.However, cryptocurrencies have also facilitated illicit activities like money laundering.

There are many ways to analyze crypto assets and projects, although there is no single silver bullet to finding the next big thing.Here are some things to consider while researching cryptocurrencies:

Remember cryptocurrencies and crypto tokens are a new category of investment, only a little more than a decade old. These digital assets are built with new, experimental technology, plus theres thin and constantly changing regulatory oversight on the industry. As such, crypto assets are seen as a riskier bet than more traditional assets, like stocks and bonds.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staffs alone, and have not been reviewed, approved or otherwise endorsed by any third party.

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What is cryptocurrency? Here's what you need to know about blockchain, coins and more - CNBC