The word “Crypto” refers to the range of encryption algorithms and cryptographic techniques that protect data, using methods such as elliptical curve encryption, public-private key pairing, and hashing functions.

Most cryptocurrencies are blockchain technology–based decentralized networks – i.e. distributed ledgers carried out by a disparate network of computers. One of the most distinguishing and defining features of cryptocurrencies is that they are not issued by any government or central authorities. This makes them, in theory, immune to government manipulation or interference. 
 
Fiat currencies or traditional money get their authority as means of transaction from the monetary authorities that release them. But cryptocurrencies are not backstopped by any public or private entities. This has been one of the major reasons why it has faced challenges in terms of claiming a legal status in different financial jurisdictions around the world, which effects the use of cryptocurrencies in everyday trading and transactions. 

In early 2021, the market capitalization almost tripled to an all-time high of $2.5 trillion, followed by a 40% fall in May. This was caused mainly by the rising concerns from traditional holders and escalating global regulatory scrutiny. Notwithstanding, the market capitalization of cryptocurrencies is on a continued rise.

A key factor for this is increasing investor interest in newer technologies, such as:

• 1. Stable coins:

  With growth to above $120 million last year, stable coins have seen 4x growth and the highest trading volumes as compared to all other cryptocurrencies. One of the primary reasons for this could be their high usability when it comes to spotting settlement and derivatives trades on exchanges.

• 2. Ethereum and blockchain-based ‘smart contract’:

  Although Bitcoin remains by far more popular cryptocurrency, its market share has dropped significantly in 2021, from more than 70% to less than 45%. Newest blockchains that use smart contracts have garnered interest in the market, with the aim of addressing the challenges of former blockchains by incorporating features that ensure scalability, interoperability, and sustainability. The most well-known is Ether, which in 2021 overtaken Bitcoin in terms of the trading volume.

• 3. Decentralized finance (DeFi):

  DeFi grew from $15 billion at the end of 2020 by about $110 billion in September 2021, given the rapid growth of decentralized exchanges that allow traders to exchange crypto assets without an intermediary and credit platforms that connect borrowers and lenders without the need for a credit risk assessment of the customer.

Paper money is going away.