Crypto vs Bitcoin: What's the Difference?

Eric Balchunas, senior ETF analyst for Bloomberg Intelligence, has ranked among the most influential observers of the crypto space as he tracked the progress of spot bitcoin ETFs over the past few months.  

But Balchunas’ own mother doesn’t understand digital assets, Balchunas confessed in a Sunday post on the social networking platform X/Twitter.  

“I think of it as funny money in space. Is there some kind of mine? They need a show that explains it to me and my friends like we [are] in 2nd grade.” 

While etf.com has already explained the basics of crypto ETFs and how the different types of bitcoin ETFs work in a way that beginning investors can understand, we haven’t provided a guide for non-investors or people who don’t follow crypto news. That is, until now! 

Whether you’re explaining the digital currency and related ETFs to your mom or you’re an eager student wanting to know more about how crypto works and why investors are talking about bitcoin ETFs, here are some basics:  

What Is Crypto? A Simple Explanation 

“Crypto” is short for cryptocurrency. It’s called that because it uses encryption, a process that converts information or data into a code to prevent unauthorized access. Imagine crypto as digital money for the internet. Just like you have coins and bills for buying things in the real world, cryptocurrency is like having special digital coins that exist only on the computer.  

What makes it cool for some people is that it's not controlled by any single person or government. Instead, a lot of computers work together to keep track of who has how much of this digital money. So users do not have to operate through banks or payment platforms with the potential complications and delays that are part of their systems.  

The blockchain system uses special codes that allow investors to access their assets quickly and safely use them for transactions. Consumers can use cryptocurrency to buy things or trade with each other online, although its use remains far less widespread than fiat currency, debit or credit cards. The most famous cryptocurrency is bitcoin, but there are also others like Ethereum, Solana, Cardano and Dogecoin. 

Blockchain and Mining: How Does Crypto Work? 

Imagine a big, shared ledger everyone can potentially see—a digital record of who owns what. This shared ledger, called a blockchain, tracks cryptocurrencies. Think of it like a series of digital piggy banks controlled by individual investors or entities... 

Here's how crypto works: 

• Creating bitcoin (or other cryptocurrency): This is called mining. Miners use special computers to solve complex puzzles, and when they succeed, they receive rewards with newly created coins. It's like earning new piggy bank tokens by solving riddles. The current mining reward for bitcoin is 6.25 BTC. In an April event called the halving, the reward will fall to half that total. Bitcoin halvings occur every four years.  
• Sending bitcoin: Instead of handing over physical coins, you send the ownership information from your digital piggy bank to someone else's. It's like writing down who gets which token in the shared ledger. 
• Keeping it safe: Special codes act as your key to the piggy bank. These codes, called private keys, are crucial for keeping your coins safe. Don't lose them or you risk losing your cryptos forever as has sometimes happened. 
• No central bank: Unlike money printed by governments, cryptocurrency isn't controlled by any one person or institution. Everyone on the blockchain helps verify transactions, making it more secure and transparent. 

Here are some key things to remember about cryptocurrency: 

• Volatile: Its value can fluctuate wildly, like a roller coaster. 
• Risky: It's a relatively new technology and investing in it can be risky. 
• Decentralized: No single entity controls it, which gives it some advantages but also makes it less regulated. 

Cryptocurrency is a complex topic, and this is just a simplified explanation. But hopefully, it gives you a basic understanding of how it works and what it's all about! 

The History of Cryptocurrency 

Cryptocurrency's origins trace back to several ideas and developments over time, but the key turning point came in 2008 with the publication of a white paper titled, “Bitcoin: A Peer-to-Peer Electronic Cash System,” by the mysterious Satoshi Nakamoto. 

Here's a crypto timeline of key milestones: 

Pre-2008: Crypto Before Bitcoin 

• 1980s: David Chaum introduces "Blind Signatures," laying groundwork for anonymous digital transactions. 
• 1998: Wei Dai proposes "b-money," an anonymous, decentralized electronic currency system. 
• 2004: Nick Szabo develops "Bit Gold," a precursor to Bitcoin with a proof-of-work concept. 

2008-2011: Bitcoin White Paper and Exchange 

• Oct. 31, 2008: Satoshi Nakamoto publishes the bitcoin white paper, outlining a digital currency using a distributed ledger (blockchain) and secured by proof-of-work mining. 
• January 3, 2009: The first block of the Bitcoin blockchain is mined, marking the official launch of Bitcoin. Nakamoto’s system capped the number of bitcoin at 21 million, most of which have been released.  
• Early adopters begin mining and using Bitcoin, primarily for small online transactions. 
• The first Bitcoin exchange opens, facilitating trading between users. 
• Value begins to fluctuate significantly, showcasing Bitcoin's volatility. 

2012-present: Blockchain Grows, Bitcoin ETFs Emerge 

• More cryptocurrency projects emerge, offering different features and uses. 
• Blockchain technology gains wider attention and application beyond cryptocurrencies. 
• Regulatory concerns and debates arise around cryptocurrency use and potential risks. 
• Cryptocurrencies experience booms and busts, attracting both ardent supporters and skeptics. 
• Oct. 9, 2021: The first bitcoin ETF, the ProShares Bitcoin Strategy ETF (BITO), launched. BITO uses futures to track the BTC price. 
• Jan. 11, 2024: The first spot bitcoin ETFs launch, elevating the legitimacy of the digital currency. 

Crypto vs. Bitcoin: What’s the Difference? 

Cryptocurrency is a general term for digital or virtual currencies that use cryptography for security. Bitcoin, on the other hand, is a specific and pioneering cryptocurrency. In simpler terms, think of cryptocurrency as a category that includes various types of digital money, and bitcoin as the first and most well-known member of that category. It's like saying "fruit" when talking about a general category and "apple" when referring to a specific type of fruit. 

While bitcoin remains the most popular and valuable cryptocurrency, the landscape now encompasses a diverse array of projects with varied applications. The future of cryptocurrency remains uncertain, but its evolution from a niche concept to a global phenomenon with significant economic and technological implications is undeniable. 

Bottom Line on Investing in Crypto and Bitcoin ETFs 

Whether you just want to know more about how crypto works, or you’re interested in investing in digital currency or bitcoin ETFs, it’s important to understand and measure the potential benefits and risks. Bitcoin ETFs and other cryptocurrency investments promise high-flying potential returns fueled by innovation and decentralization, but buckle your seatbelts for wild price swings and a bumpy ride through a still-uncharted financial landscape. Remember, with great hype comes great risk—so invest cautiously, if at all. 

For more information on bitcoin ETFs, including how the new spot bitcoin ETFs work and the pros and cons of investing in them, see our educational article, The New Frontier of Spot Bitcoin ETFs.