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Invented in 2009, cryptocurrencies have grown from digital novelties to trillion-dollar technologies with the potential to disrupt the global financial system. They are based on blockchain technology, which allows for secure, low-cost transactions. Many people buy cryptocurrencies as investments, hoping that they will increase in value, and some even use them to purchase products and services.
In the United States, regulators are starting to craft rules for the new sector. But the rapid rise of cryptocurrencies and decentralized finance (DeFi) is complicating efforts to create rules that limit traditional financial risks without stifling innovation.
The popularity of cryptocurrencies stems from the fact that they can be transferred relatively quickly and anonymously, even across borders. They can also be used to circumvent state controls in authoritarian countries. For example, dissidents in Russia have raised funds on the bitcoin platform to avoid U.S. sanctions.
The speculative nature of cryptocurrencies has led to price volatility and has caused investors to lose money, as the bankruptcy of FTX and other crypto firms demonstrated in 2022. Moreover, the energy-intensive process of mining some cryptocurrencies can damage the environment; this has led to calls for more renewable energy and for Ethereum to shift to a proof of stake model that uses less power.