The debacle at Christchurch cryptocurrency trader Cryptopia is an indication it's time for the silent majority who have tried to ignore the explosion of digital money to start paying attention.

While many of us impressed ourselves by getting our payWave flick down smoothly, a bunch of computer geniuses were creating their own money - with some of them making a fortune in the process.

At the end of 2017 cryptocurrencies were flying high but they fell hard during 2018, as investors try to work out what it all means.

On Monday, police were alerted to "an issue involving potential unauthorised activity" at Cryptopia after it lost what appears to be millions of dollars worth of currency in a security breach. Police announced on Tuesday they were putting together a dedicated investigation team as they tried to work out what had happened. The Financial Markets Authority has also been alerted.

READ MORE:

* Cryptopia: A wildly popular platform that veered from one crisis to the next

* Theft of cybercurrency from Cryptopia fits a pattern

* Cryptocurrency trader Cryptopia headquarters under police lockdown after millions suspected lost in breach

While they try to get their heads around the development, here's a (hopefully) straightforward explanation of what this baffling new industry, or movement, or ecosystem, or whatever you might want to call it is all about.

But first a warning, TV host John Oliver described cryptocurrency like this: "everything you don't understand about money combined with everything you don't understand about computers".

What is a cryptocurrency?

The IRD says: "In simplest terms, cryptocurrency is money that only exists digitally or virtually." Cryptocurrencies use cryptography - the process of converting text or numbers into an unbreakable code - and blockchain technology to regulate its generation and verify fund transfers.

Cryptocurrencies can be transferred between people without using an intermediary, such as a bank. Ways of buying them include using online exchanges, or by taking part in Initial Coin Offerings.

This is from a very useful Forbes article: "Cryptocurrency was designed to be decentralised, secure and unalterable. So every single transaction is encrypted. Once that encrypted transaction happens it's added to something called a 'block' until a fixed number of transactions has been recorded. That block then gets added to a chain -- the blockchain -- which is publicly available."

What is an Initial Coin Offering?

IRD says an ICO is used by start-ups to raise capital. In an ICO campaign, cryptocurrency is sold to early backers of a project in exchange for legal tender or other cryptocurrencies, such as bitcoin or ethereum.

Where do the cryptocurrencies come from?

This from Cambridge University's Cambridge Centre for Alternative Finance. "In the absence of a central authority, cryptocurrencies are created by a process called 'mining' - usually the performance of a large number of computations to solve a cryptographic puzzle."

Forbes again: ​Since the blocks of transactions are heavily encrypted, "they're sort of like complicated math puzzles that only powerful computer-capable hardware can solve". "The process of solving the math puzzles on these blocks and adding them to the public blockchain (think of it as a ledger) is roughly what mining is. Miners verify the transactions, ensure they aren't false, and keep the infrastructure humming along."

The miner's "fee" is payment in the block's coin, based on how much of that miner's hardware contributed to solving that puzzle. Voila! Coins are created.

Explain more about the blockchain?

Callaghan Innovation issued a big report about this stuff in December. It says blockchain is a type of distributed ledger.

Great, what's a distributed ledger?

Callaghan says: "A distributed ledger is a set of data replicated across many networked computers. Ideally, computers in the network are in different locations and spread across many countries. A distributed ledger uses protocols so changes are consistently replicated to each computer and the data converges to an agreed known state. A good metaphor is a spreadsheet with its data and validation rules replicated on many computers. When a cell is changed in one instance of the spreadsheet, the rules mean the change is made across all instances of that spreadsheet."

And back to blockchain:

" A blockchain ledger is immutable, which means data cannot be removed or changed once it is published."

What's Bitcoin then?

Callaghan again: "Bitcoin was the world's first blockchain. An anonymous person or group of people under the name of Satoshi Nakamoto launched bitcoin in 2008 with the intention of creating a peer-to-peer version of electronic cash." During the past decade the value of all bitcoins in the world had gone from zero to $US100 billion. "This rapid increase in value proves that people increasingly trust a distributed ledger and will assign intrinsic value to a cryptoasset."

Oh yes, it's cryptoasset now - keep up:

The Cambridge Centre for Alternative Finance made this point. In April 2017 it published something called its first Global Cryptocurrency Benchmarking Study. The last month it came out with what it called its 2nd Global Cryptoasset Benchmarking Study. Readers who noticed the subtle difference were acknowledged for their astuteness.

What are all these cryptoassets worth?

Cambridge said the aggregate market capitalisation of cryptoassets peaked above $US800 billion in early January 2018, before falling to hover around $200b.