What is the difference between cryptocurrency and other assets?
The traditional financial system is built around intermediaries—banks, brokerages, stock or commodity exchanges and asset managers. Government and industry regulators police such firms to protect investors, promote fair and orderly markets, guard against financial bubbles and prevent crimes such as money laundering or tax evasion.
This oversight comes with trade-offs. Banks and brokerages are required to set aside money for potential losses and are supposed to know who their customers are; in exchange, their account holders are protected by government-backed insurance. Public companies must follow standardized accounting practices and disclose information about their finances and operations; in exchange, they gain access to tens of trillions of dollars of liquidity on stock and bond markets.
A key belief among cryptocurrency advocates is that technology can substitute for such intermediaries and eliminate the need for trust. Here is how that sort of arrangement plays out: Bitcoin enables any two people, anywhere in the world with an internet connection, to make a transfer of value in a few minutes without a middleman. Transactions are recorded on a database, called blockchain. It is publicly visible on networks of computers running separate copies of the same program. This should ensure that nobody on the network is counterfeiting the cryptocurrency or double-spending the same bitcoins.