Cryptocurrencies are digital tokens that allow people to make transactions between each other without the need for a central intermediary. The best-known of these is Bitcoin, created in 2009. Since its launch, cryptocurrencies have grown in popularity and value. Their total market value has climbed to more than $1 trillion. But despite this growth, there remain questions about whether cryptocurrencies could replace more traditional forms of payment and money such as national currencies and credit cards.
The volatility of cryptocurrency prices raises concerns about the role they might play in the financial system. They may be used to fund criminal activities, such as ransomware attacks that extort payment by shutting down networks. They may also be a vehicle for laundering money or buying illicit drugs. Regulators are grappling with how to regulate a largely unregulated sector, which could have serious implications for consumer protection and broader financial stability.
Some cryptocurrencies have become popular among people with speculative interests, believing that their prices will rise, as they have done in recent years. Others seek them as a hedge against inflation, because their supply is fixed, unlike that of national currencies, which can be expanded by central banks. Many governments are exploring the possibility of introducing their own digital currency, which they call a central bank digital coin or CBDC. Currently, eleven countries—all but one of them in Africa or Latin America—have launched pilot CBDCs, which are counted as part of the world’s official reserve assets.
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