Beginner· Lesson 2 of 8· 6 min

What is a cryptocurrency?

Money is a ledger entry. A cryptocurrency is a ledger entry that moves on a signature instead of an institution's say-so, with a supply set by code. What that changes, what it doesn't, and how to read a price page without being fooled.

Money was already numbers

Most money is not notes and coins; it is balances in bank databases, moved by the banks on instruction. Your salary arrives as an edit to a row. A card payment is two banks agreeing to edit two rows. The system works because the banks are trusted to keep the rows honest and are regulated so that they mostly do. A cryptocurrency keeps the same idea — balances in a ledger — and replaces the trusted editor with the blockchain from the previous lesson.

Coins and tokens

Every blockchain has a native coin: BTC on Bitcoin, ETH on Ethereum, SOL on Solana. It pays the fees that keep the network running, and on proof-of-stake chains it is what validators lock up to take part. Chains with programs also carry tokens: balances tracked by a program rather than by the base protocol, created by anyone, for anything — a company's stablecoin, a game's currency, a memecoin, a share in a liquidity pool. On Solana every token follows one standard, which is why one wallet shows them all. SPL tokens explains how.

Where new coins come from

No one prints a cryptocurrency. The rule for issuing it is code every node enforces, and it varies. Bitcoin pays new coins to miners per block, halves the amount every four years, and stops at 21 million. Solana pays new SOL to stakers at a rate that started at 8% a year and falls toward 1.5%, with part of every fee burned against it. A stablecoin's supply is whatever the issuer has minted against its reserves.

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1. The block's transaction list. The first entry in every Bitcoin block is special.
2. “Newly generated coins”: no sender. This is the only way BTC comes into existence.
3. 3.14291835 BTC: the 3.125 BTC subsidy after the 2024 halving, plus that block's fees.

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1. Circulating SOL: what can be freely traded today.
2. Total SOL in existence, including locked and vesting allocations. The gap is future selling pressure.
3. How much is staked: locked up to secure the network and earn the inflation.

Where the value comes from

A cryptocurrency is worth what people will pay for it, like any currency or asset. What supports that willingness varies. A native coin has demand from use — every transaction needs it, every validator locks it — and a supply rule that cannot be changed by a committee. A stablecoin is worth its backing. A governance token is worth the cash flows or control it carries. A memecoin has none of these, only the expectation that someone else will pay more. Prices are volatile because the market is young, global, always open and thin relative to the claims made about it.

Reading a price page

• Price is the last trade. A token nobody has traded in a week still shows one.
• Market cap is that price times every circulating unit. Nobody could sell them all at it.
• FDV, fully diluted value, uses the total supply including locked tokens. A large gap between the two means most of the supply is still coming to market.
• Liquidity is how much money actually sits in the pools where the token trades. A
  0M market cap with $40,000 of liquidity is a number, not a market.
• Holders: how many wallets, and how concentrated. Ten wallets holding 80% can end the market in one afternoon. Token Inspector shows this for any Solana token.

Holding it: keys and custody

On-chain, ownership is the private key. Nothing else — not an email, not a name, not a receipt — moves coins. That leaves a choice. Keep the key yourself, in a wallet app or a hardware device, and no one can freeze, seize or lose your coins but you. Or keep coins on an exchange, which holds the key and shows you a balance in its own database; you have a claim on the exchange, convenient and reversible, and worth exactly as much as the exchange's solvency and honesty. Several large ones have failed with customer coins inside.

The rest of this level is about doing self-custody well: what a wallet is, what things cost, how to read an explorer and how to not get robbed.

Sending it

A transfer is a signed transaction: from your address, to theirs, this many units, plus a small fee to the network. Once confirmed it cannot be reversed, by you or anyone. There is no name attached to an address, so a wrong address is not a bounced payment but a lost one. Sending is global and settles in seconds on Solana, minutes to an hour on Bitcoin, at a cost that does not depend on the amount — the same fee for a dollar or a million.

What it does not change

• Volatility. Prices move 10% in a day routinely. Stablecoins exist precisely because that is unusable for payments.
• Scams. Irreversibility plus pseudonymity plus retail enthusiasm is the best environment fraud has ever had. Assume every unsolicited offer is one.
• Tax. Most jurisdictions tax gains on disposal, including swapping one token for another. Records are public, so keep your own.
• Regulation. Exchanges, stablecoin issuers and on-ramps are regulated businesses; the protocol underneath is not, and the two are increasingly hard to tell apart in practice.
• Responsibility. There is no one to call. Lose the key, sign the wrong thing, or trust the wrong site, and the outcome is final.

SOL, specifically

SOL is Solana's native coin. Every transaction pays a fee in it; every account on the chain holds a small deposit in it; validators and stakers lock it up to secure the network and earn the inflation. It is divisible into a billion lamports, and everything you will do on Solstack — creating a token, sending an airdrop, locking liquidity — is paid for in fractions of one. What is Solana? picks up from here.