What a cryptocurrency is, if it isn’t money

Where does the idea come from?

There was a single idea: money that depends on no bank and no government. A system where the thing that says “this money is yours, and you spent it only once” is a mathematical rule anyone can check, instead of an institution you have to take at its word.

In computer science that problem had been open for twenty years. The paper doesn’t invent cryptography or peer-to-peer networks. It puts together pieces that already existed and solves the one that was missing: how to get thousands of strangers to agree on who’s right with no referee. The thousands of coins, onchain finance and the disasters too came later, and all of them trace back to it.

Why does almost nobody use it to pay?

There are a few exceptions, and they say something. El Salvador made it legal tender in 2021, alongside the dollar, with the stated aim of depending less on American monetary policy. It was a political choice more than a commercial one: few people used it for everyday shopping, and in early 2025, to close its deal with the International Monetary Fund, the country dropped the requirement to accept it.

As money bitcoin works badly. The price moves too much for prices to be marked in it, and the places that made it legal tender did so for political reasons. As a store of value it works like gold: it travels without a vault, it divides down to the eighth decimal, it sells at any hour, and it swings far more than gold.

The place bitcoin has actually taken looks like gold’s: something you hold because it keeps its value over time, rather than something you spend. Compared with gold it has three practical advantages: it travels without a vault, it divides down to the eighth decimal and it sells at any hour. It has one drawback: it swings far more.

What are the other thousands for?

The four uses of a token: paying the network’s fees, which you check by trying to operate without it; receiving a share of the revenue, which you check by following the onchain fees; getting better terms in a service, which you check by comparing the costs with and without; voting, which you check by looking at whether a vote ever changed anything.

The second is taking a cut of what the protocol collects, a bit like a dividend. The third is getting better terms inside a service, lower fees or reserved features, which is the supermarket loyalty card moved onto a blockchain. The fourth is voting on decisions, from risk parameters to how the treasury gets spent.

A token can have one of these, or more than one. What it can’t afford is to have none. Take all four away and only the price is left, and then what you’re buying is a bet that someone will come along after you willing to pay more. It’s a legitimate trade, but it’s a different trade.

Is the stated use always real?

Put bluntly: a token that exists only to use the site of whoever issued it is Netflix making you buy NetflixCoin to watch the shows.

Two minutes are enough to find out: picture the service without its token. If it works just as well, maybe better, the token is a toll, and whoever buys it is paying to use something they could use anyway.

The same test works on voting, which the enthusiasts describe as a kind of democracy. On paper it is. In practice whoever holds the most tokens wins, and the decisions are made by a handful of very large addresses. A voting right on its own has never given a token value. What gives it value is a mechanism written into the code, as our guide on value shows with the case of Uniswap.

Put bluntly: token voting is democratic in theory and proportional to how many tokens you hold in practice.

Why does a token’s price tell you nothing?

The figure that counts is the total, what the whole set is worth, and it always has to be read with two others: how many tokens already exist and how many are still to come. A project that looks small because little of it is in circulation, but still has eighty percent left to hand out, isn’t small. It’s just waiting.

That’s where the most common beginner’s mistake comes from: buying what’s “cheap” because it seems to have more room to rise. Room to rise depends on what the whole set is worth compared with what the protocol produces, and the price of one piece has nothing to do with it. It’s also the only question you can really answer, by checking the numbers.

What should you ask when a new coin turns up?

The second is who already holds it and when they’re allowed to sell. The unlock calendar is almost always public, and a date on which a large amount becomes sellable weighs more than any promise about the future. The third is where the money the project hands out comes from, if it hands out any: from the fees of the people using it, or from new coins printed for the purpose.

These are the same questions our guides on value and on liquidity ask at length, with the sums. Here they’re enough to avoid most of the damage, and the reason is simple: almost nobody asks them before buying.