Cryptocurrency—sometimes referred to as “bit-currency”—uses a blockchain to record financial transactions using a public ledger. Although this can be tied to a fiat currency like the US dollar or British pound, standalone cryptocurrencies like BitCoin and Ether have become a popular way to transfer money without using government backed authorities.

This can be confusing to many people, since they assume that money has to be backed by something physical like gold. But, in fact, The US dollar, and most governmental created currencies, have not been backed by anything other than the name of the government in several decades. This means that almost all currencies are based on trust in the institutions that created them.

With BitCoin and other cryptocurrencies, this trust is in the strength of the cryptography to keep the records safe and private, and their ability to be exchanged for more commonly accepted currencies like dollars and pounds.

However, as these currencies become increasingly popular, it is likely they will be accepted directly without the need to convert them to fiat currencies.