Cryptocurrencies, once dismissed as digital gimmicks, have exploded in popularity, going from fringe interest of tech evangelists to trillion dollar technologies. But the growth of cryptocurrencies, and DeFi in general, has been accompanied by high levels of volatility and a lack of regulation, and some analysts fear it threatens traditional finance.
Founded on cryptography principles, cryptocurrencies are traded on decentralized computer networks between people with virtual wallets. The transactions are recorded on publicly distributed, tamper-proof ledgers known as blockchains. Bitcoin, launched in 2009 by the pseudonymous software engineer Satoshi Nakamoto, is the most prominent cryptocurrency and has a market capitalization of more than $1 trillion. Its appeal stems in part from the fact that it can be transferred quickly and anonymously, even across borders, without the need for a central authority to verify them or charge fees. It is also valued by some who believe it is a store of value that will rise in value, and a hedge against inflation, because its supply is fixed (in contrast to fiat currencies, which can be expanded by central banks).
The growth of the sector has prompted some governments to regulate it, though many have taken a hands-off approach. In the United States, however, lawmakers are beginning to craft regulations to limit risks such as fraud, tax evasion, cybersecurity, and financial stability. Investors, including high-profile investors like the Winklevoss twins, are increasingly drawn to stablecoins, which offer the liquidity of stocks but have less risky price movements.