What Cryptocurrency and Blockchain Are, and How They Actually Work

Cryptocurrency is often described simply as "digital money," but the technology underneath it, blockchain, is what makes that money work without a bank in the middle. IBM's blockchain explainer defines it as a shared, immutable digital ledger that records transactions across a distributed network of computers instead of a single central server, which is what makes tampering difficult.

What a blockchain is made of

According to IBM, each block in the chain holds transaction details — who sent what, to whom, and when — plus a timestamp. Every block also carries a cryptographic reference to the block before it, so altering an old entry would change that block's fingerprint and break the link to everything added afterward, alerting the rest of the network.

Ethereum's own developer documentation adds that some blockchains go further than recording payments: Ethereum describes itself as "a blockchain with a computer embedded in it," running small programs called smart contracts that execute automatically once their conditions are met, without a company or bank approving each step.

How transactions get approved: mining and consensus

No single company decides which transactions are valid. Instead, networks use a consensus mechanism — a rule that lets independent computers, called nodes, agree on the next block. IBM and Ethereum's documentation describe the two most common approaches.

Ethereum.org explains that under proof of stake, validators lock up ETH as collateral and run validator software; acting dishonestly can cost them that stake, which is meant to make honest participation the rational choice. The Cambridge Centre for Alternative Finance, which maintains the Bitcoin Electricity Consumption Index, builds its estimates by applying a 7-day moving average to network hashrate data to smooth out short-term swings.

Decentralized finance: banking without a bank

On top of blockchains, a sector called decentralized finance, or DeFi, has grown. The Federal Reserve Bank of Boston, in a 2022 risk-and-policy analysis, describes DeFi as a set of newly emerging financial products and services that run on decentralized, blockchain-based platforms, covering payments, lending and borrowing, trading, crowdfunding, and insurance — all without a bank as intermediary.

Instead of a counterparty, Boston Fed researchers note, DeFi users interact with smart contracts that pool other users' funds and apply pre-set rules automatically. The same analysis cautions that DeFi activity sits largely outside standard banking oversight, which the researchers say could pose financial-stability risks if the sector keeps growing.

How many people actually use it

A 2026 survey of 992 U.S. adults by Security.org found that 30% of American adults, or an estimated 70.4 million people, own cryptocurrency, up from 27% in 2024. Among owners surveyed, Bitcoin remained the most held asset at 74%, followed by Ethereum at 53%, Dogecoin at 25%, and Solana at 20%.

The same survey found 53% of owners reported net investment gains, 21% reported net losses, and 23% broke even. Looking ahead, 61% of current owners said they planned to buy more crypto in 2026, while only 6% of non-owners said they intended to buy any in the next twelve months; 59% of respondents overall said they lacked confidence in crypto security.

On market size, CoinGecko's Q2 2026 crypto industry report put the total global cryptocurrency market capitalization at $2.1 trillion at the end of that quarter, down 12.6% from $2.4 trillion at the end of Q1 2026 and roughly 52% below the market's October 2025 peak. Bitcoin held about 57.8% of that total market value, according to the same report.

• A blockchain is a shared ledger copied across many computers rather than stored on one server (IBM).
• Blocks are linked by cryptographic references, so editing an old record breaks the chain and is detectable (IBM).
• Proof of work (Bitcoin) and proof of stake (Ethereum) are two different ways networks agree on the next block (Ethereum.org).
• Smart contracts let financial products like lending or trading run automatically without a bank (Federal Reserve Bank of Boston).
• About 30% of U.S. adults reported owning cryptocurrency in 2026, per Security.org's survey.