Most cryptocurrencies like Bitcoin exist only online and are recorded in a public ledger called a blockchain. This is a type of shared database in which all users remain anonymous but can see the transactions that take place. When a transaction occurs, the value doesn’t move but is merely assigned to another owner. So, you cannot remove a cryptocurrency’s value from the network like taking coins from a piggybank.

To use a cryptocurrency, you need a digital wallet—but this is not a physical object. It is software (held on a computer, smartphone or USB device) that manages cryptocurrency transactions. You use this software to send or receive cryptocurrency. The transaction includes the amount of currency, its origin and destination, and any applicable fees. The digital wallet holds the passwords (called keys) needed to access the cryptocurrency.

Keys can be long and are sometimes backed up on multiple electronic devices. Some users also keep physical backups, such as a QR code or even a written note.

If you lose your key, access to the cryptocurrency associated with it is lost—not just for you but for the entire network. It’s like dropping a coin down a drain, you know the money is there, you just can’t get at it.

Is cryptocurrency secure?

Inside a cryptocurrency network, transactions are secure and anonymous. But cryptocurrencies have a weak spot: exchanges. Cryptocurrency exchanges are websites where traditional funds can be traded for online currencies and vice versa—and cryptocurrencies traded with each other. Where cryptocurrencies are changed for cash are some of the few places where they have been traced to criminal activity.