We recently had the opportunity talk with Robert T. Stewart, PhD, who is an assistant professor of finance at Molloy University and the author of Adventures in Statistics, a book that brings data to life through real-world stories. Before entering academia, he worked in model risk and consumer credit. His research and teaching focus is on quantitative finance, model risk, and applied statistics.
Q: What exactly is cryptocurrency?
A: Three characteristics define cryptocurrency relative to the more familiar fiat currency or government-backed US dollar. First, cryptocurrency is decentralized meaning that no government, no central bank, no corporation, and not even any individual or group of individuals control cryptocurrency. Rather, computer algorithms using a technology called blockchain run cryptocurrencies. Second, cryptocurrencies have a fixed amount of currency or a predetermined supply rule. For example, Bitcoin is capped at 21 million coins, so no president or Federal Reserve Chairman or “king of the world” can ever change the fixed amount that is programmed into the algorithm. And third, owners of cryptocurrency are free to send Bitcoin or other cryptocurrencies to anyone in the world (peer-to-peer transfers) without use of a third party such as a bank or settlement house or clearinghouse. These three characteristics have all kinds of interesting and enigmatic implications for monetary policy, regulatory oversight, financial crimes, wealth inequality, and more. New technologies disrupt old ideas, and cryptocurrency may have as big an impact as the internet, or it could quietly follow the path of Betamax tapes. At this point, we just don’t know.
Q: How does it work?
A: Financial institutions such as banks and credit card companies maintain ledgers to keep track of your money. So, suppose you send your friend Jill $100 through Venmo from your JP Morgan Chase (Chase) checking account into Jill’s Bank of America (BoA) checking account. Both Chase and BoA will record these transactions on their respective ledgers, so all parties are privy to the transaction. Furthermore, Chase and BoA have all kinds of security practices in place to ensure that these types of transactions are legitimate and lawful including encryption codes, accounting audits, regulatory examinations, and secondary data centers spread across the globe in secret locations. By comparison, Bitcoin uses the blockchain.
The blockchain is the ledger for Bitcoin. Suppose instead of sending Jill $100, you want to send her 2 Bitcoin. To do this, you and Jill would both need Bitcoin addresses that you can think of like your email accounts except the only thing that can be held in these accounts is Bitcoin. When you sign up to get your Bitcoin address, you will receive a private key to your address, this is like your email password. The private key allows you to send Bitcoin to another Bitcoin address. To send the 2 Bitcoin to Jill, you simply set up a transaction on Bitcoin’s website saying that you want to send 2 Bitcoin from your address to Jill’s address. Then you “sign” or “stamp” the transaction using your private key, which authorizes the transfer. The private key creates a digital signature which is like a password for this transaction, a unique identifier for your transfer of 2 Bitcoins to Jill. This transaction, identified by its signature, will be available for the public to view on websites such as Blockchain.com. This process works a lot like email, but 2 Bitcoin are worth roughly $135,000 so you better have security measures in place comparable to what we see at Chase and BoA.
The blockchain is not just the ledger for Bitcoin, it’s also a verification and security process. All Bitcoins must be attached to a Bitcoin address, and all Bitcoin transactions have a signature. When Bitcoins change addresses like when you transfer your Bitcoin to Jill, that process must be verified to provide transparency, prevent fraud, and avoid double-counting. So, who does the verification? The answer is we have no clue whatsoever. And remember there is no Federal Reserve Board, no bank, nobody running anything at all. The algorithm runs by itself. This is decentralization. So, again, who does the verification?
Independent participants around the world called miners verify transactions. Instead of one institution verifying transactions, thousands of independent computers verify and agree on the ledger through a consensus process. The algorithm combines a bunch of transactions together — called a block — and allows anyone with internet access and a computer to verify these transactions. And when you verify these transactions, you get what amounts to a lottery ticket to win newly created Bitcoin and transaction fees as a reward. That’s how the unknown verifiers get paid. The process can go on forever. There is no management, no corporation, no person in charge. The Bitcoin website reports that the site is an “independent open-source project with contributors from around the world.” Nobody is in charge. This process replaces the role played by banks and clearing houses in traditional finance. Instead of a central authority maintaining the ledger, the system relies on distributed verification and cryptographic rules.
The process is more complicated than this simplified explanation, but that’s basically how cryptocurrencies work.
Q: When and why was it created?
A: Except in Hollywood, we rarely have eureka moments around innovations. Rather, the process is a slow, collaborative, and iterative process of trial and error. Cryptocurrency is no different. Computer scientists have been working on cryptography and digital-money ideas since the 1980s with failed attempts like eCash, Bit Gold, and B-Money along the way. The breakthrough came in 2009 when Satoshi Nakamoto launched Bitcoin, creating the first digital currency that could work without a bank or central authority running the ledger.
Americans take our financial system for granted because we have access to sound and reputable financial institutions backed by a reasonably stable currency. But many people around the world don’t have that luxury. A currency that cannot be manipulated by governments and is not controlled by any institution is not just interesting technology, for many people, it’s a necessity. People living in Venezuela, for example, would never ask why cryptocurrency was created. They’ve experienced extreme inflation and currency collapse. In environments like that, the appeal of something like Bitcoin, with its fixed supply capped at 21 million coins, is easy to understand.
Q: What types of transactions is crypto used for?
A: So far, cryptocurrencies don’t really look like currencies. You didn’t use Bitcoin to buy your morning cup of coffee today, and there’s little evidence that this will become the norm in the future. Cryptocurrencies look more like speculative assets, parallel to gold or real estate, rather than what economists refer to as a medium of exchange.
The numbers are uncertain, but economists speculate that 5-10% of Bitcoin transactions involve cross-border transfers allowing people to avoid taxes and red tape. In places where banking systems are unreliable or moving money internationally is difficult, cryptocurrencies may provide a necessary function with cross-border transfers. Cryptocurrency supporters hope to see this kind of usage go up, opening the door for everyday use of cryptocurrencies. But now, cryptocurrencies look more like assets than money.
Q: Is it affected by standard economic fluctuations?
A: Many factors drive cryptocurrency prices including economic fluctuations. But as with any new technology, the prospects for success of that technology itself matter more than the business cycle. When the automobile was first introduced, investors were much more
worried about whether cars would work safely and reliably than about changes in interest rates. Cryptocurrency is still in that stage. Questions about adoption, regulation, security, and long-term usefulness matter more than traditional macroeconomic forces. Technology risk dominates economic risk.
Q: Are crypto funds traceable?
A: Yes, crypto funds are traceable. All Bitcoins have an address, and the blockchain tracks the addresses for every Bitcoin as they get transferred to different addresses. The blockchain is public. Anyone can see the complete history of any Bitcoin. In that sense, Bitcoin is less anonymous than cash because the transaction record never disappears.
Q: Are there multiple types of cryptocurrency?
A: Yes, there are thousands of cryptocurrencies but most have negligible transactions and little value. The two exceptions are Bitcoin and Ethereum which dominate both market capitalization and network activity.
Q: Why has it been the chosen method for the fulfillment of ransom demands in the kidnapping case involving Savannah Gutherie's mom?
A: I can’t speak to the thinking of specific criminals, but cryptocurrency is sometimes used in ransom demands because it allows money to be transferred quickly without going through banks. In the early years of cryptocurrency, there was a perception that these payments were anonymous. That perception is largely incorrect today. Bitcoin transactions are recorded on a public blockchain, and funds can often be traced as they move between addresses. Law enforcement agencies now have significant experience investigating cryptocurrency transactions, and the FBI understands this technology very well. Criminals have limited options when demanding ransom payments, and cryptocurrency is sometimes chosen because it allows fast global transfers. But it is not nearly as anonymous as many people believe.
Q: Does the value fluctuate?
A: Bitcoin’s value has been highly volatile, providing evidence around the tremendous uncertainty associated with cryptocurrencies. Just in the last six months, Bitcoin reached
an all-time high of $125,000 in October 2025 before seeing nearly half its value disappear and hovered around $68,000 in mid-February 2026. Big gains and big losses have been the norm for Bitcoin. This should be no surprise for a product that could, in the next fifty years, revolutionize finance or cease to exist.
Q: How easy is it to open and use an account?
A: It’s easier than it used to be, and it’s getting easier every day. Investors now have several options. You can buy cryptocurrency directly through crypto exchanges or wallet apps like Coinbase. You can also get exposure through exchange-traded funds (ETFs) offered by firms like Fidelity Investments. Opening an account is just like opening a brokerage account: verify your identity, link a bank account, and make a purchase. The technology still requires some care, especially with passwords and private keys, but the process is becoming more user-friendly over time.
