How a cryptocurrency works
Bitcoin, the first, was set out in a paper titled "Bitcoin: A Peer-to-Peer Electronic Cash System", which defines an electronic coin as a chain of digital signatures. Ownership is the ability to sign with the private key of an address, and the network's nodes agree on the order of transactions so that no coin is spent twice.
New units are created by the protocol as a reward to the miners or validators who add blocks. No one redeems a cryptocurrency for anything: its price is whatever the market will pay, which is why it moves so much.
Coins, tokens and stablecoins
- Coin: the native asset of its own blockchain, such as bitcoin or ether, also used to pay the network's fees
- Token: issued by a smart contract on another network's blockchain
- Stablecoin: a token designed to hold the value of a currency, with an issuer and reserves
In MiCA's terms, a cryptocurrency without a peg falls in the third type: crypto-assets other than asset-referenced tokens and e-money tokens. Recital 22 says that a crypto-asset with no identifiable issuer falls outside MiCA's titles on issuing, while firms providing services in it are covered.
What cryptocurrency means for a payments product
Volatility makes an unpegged cryptocurrency awkward as a means of payment: the price can move between checkout and settlement. Products therefore convert at once into money or stablecoins, or use stablecoins from the start, and keep cryptocurrencies for trading and investment features.
Cryptocurrency, fiat currency or CBDC?
- Fiat currency
- Issued by a central bank or another monetary authority. A cryptocurrency has no issuer behind it.
- E-money
- A claim on a licensed issuer, redeemable at par in ordinary money.
- CBDC
- Central bank money in digital form: the official currency itself, not a rival to it.
Where a cryptocurrency shows up in a platform
Modules that do the work
- Custody & walletsWallets on every major chain, with MPC custody from leading providers or your own keys.
- Matching engineA low-latency order book for spot markets, with market makers and outside liquidity.
- LedgerThe double-entry book of record behind every balance, fee and transfer.
Platforms that need it
Where it is written
The laws and standards this page's facts come from.
- Regulation (EU) 2023/1114, MiCA, recitals 18 and 22 (EUR-Lex)
- Bitcoin: A Peer-to-Peer Electronic Cash System (bitcoin.org)
General information, not legal advice: what applies to you depends on your services and your market.