Understanding Cryptocurrency: A Beginner’s Guide to the Basics

The term cryptocurrency is used in many different ways. You’ve probably heard of popular cryptocurrencies, such as Bitcoins, Litecoins, and Ethereum. Cryptocurrencies have become a popular alternative for online payments. You should know what Bitcoin is, how it works, and what risks you are taking before you convert your real money into BTC.

History of Cryptocurrency

During the caveman age, goods and services were exchanged between two or more individuals. For instance, someone might exchange seven apples for seven oranges. Bartering was not popular because of its flaws.

  • The requirements of both parties must be met. If you are willing to trade something, the other party has to also want it.
  • You have to decide what items you’re willing to exchange for others. Not all items can be divided. You cannot, for example, divide a living animal into smaller pieces.
  • Unlike modern money, which can be stored in a phone or wallet, the goods are not easily transportable.

The barter system could have been more successful, so the currency underwent several iterations. In 110 B.C., a new official currency was introduced; in A.D.1250, gold-plated Florins were introduced, and they became popular across Europe. From 1600 to 1900, paper currency became widely used and spread around the globe. The modern currency we know today was created in this way.

Modern currency includes coins, paper money, and digital wallets like Apple Pay, Amazon Pay and Paytm. The banks and governments control all of this, which means that credit cards and paper currency are regulated by a central authority.

What is cryptocurrency?

Cryptocurrency is digital money that can be used to make payments or invest. Cryptocurrencies are named after the cryptographic methods that allow people to trade, buy or sell them without a central authority such as a bank or government.

Ethereum allows developers to build automated applications within what is now known as Decentralized Financing and Tether, a stablecoin valued at U.S. dollars.


What is crypto mining?

Crypto miners are computer specialists who use specialized hardware to perform the complex mathematical cryptography needed to verify each transaction on a Blockchain.

The process is called ” Proof of Work”. It requires the miners to perform billions of calculations to verify transactions.

Proof-of-Stake is another consensus method by which cryptography is created. However, POW is used in many cryptographic forms.

Crypto mining is a highly competitive activity. The mining process is based on a consensus across the network that essentially backs up each transaction without a central authority.

A miner may receive new coins if they verify a block first on a blockchain platform after completing a certain amount of calculations.

There are some concerns about the environmental impact of cryptos that use proof-of-work (PoW) because it requires a lot of energy.

How does cryptocurrency work?

Blockchain is a public ledger that records all currency transactions. It’s updated by holders of the currency.

Mining is a method of creating cryptocurrency units. This involves the use of computer power to solve complex mathematical problems.

Users can buy currencies from brokers and then store them in cryptographic wallets.

You don’t actually own anything if you own cryptocurrency. You own a key that allows you to transfer a record or unit of measurement from one person to another.

Bitcoin, which has existed since 2009, is still a relatively new technology, but its finance applications are growing. The technology could trade bonds, stocks and other financial assets.

Traditional Currencies vs. Cryptocurrencies

Imagine that you are trying to pay back a friend for buying you lunch by sending online money to their account. This could go wrong in several ways, including:

  • It could be a technical problem like the systems being down or machines not working correctly.
  • Your or a friend’s account may have been compromised. For example, it could result from a denial-of-service attack or identity theft.
  • You or your friend may have exceeded the transfer limit for their account.

The bank is the central failure point.

The future of money is cryptocurrency. Imagine a transaction similar between two users of the Bitcoin app.

The notification asks the user if they are ready to send bitcoins. In this case, the system verifies the user’s identity and checks if the user has enough money to complete the transaction.

The money is then transferred to the recipient’s account. This all happens within minutes.

Cryptocurrency eliminates the problems associated with modern banking. There are no limitations to the amount of money you can send, your account cannot be hacked, and there is no central point of failure.

As we mentioned earlier, there are currently more than 1,600 cryptocurrencies. Some of the most popular are Bitcoin, Litecoin, Ethereum and Zcash.

Every day, a new cryptocurrency is created. Given the growth they’re experiencing right now, there may be plenty more!


Examples of cryptocurrency

There are many different cryptocurrencies. There are many popular cryptocurrencies.


Bitcoin, the first cryptocurrency, was founded in 2009. It is the most widely traded cryptocurrency. Satoshi was the person or group who created this currency.


Ethereum, a blockchain-based platform, was developed in 2015. It has its own cryptocurrency called Ether (ETH) or Ethereum. It is the second most popular cryptocurrency after Bitcoin.


The currency is similar to Bitcoin. However, it has developed faster to include new innovations, such as faster payments and processes allowing more transactions.


Ripple, a distributed ledger technology created in 2012, is an open-source system. Ripple is not limited to cryptocurrency transactions.

It can also be used for tracking other types of transactions. Its company has worked with a variety of banks and financial institutions.

Altcoins are cryptocurrencies that do not use Bitcoin as their base currency.

Cryptocurrency: Benefits

The transaction costs for cryptocurrency are low or even zero, unlike, for instance, the fee charged for transferring money to a bank from a digital wallet.

There are no restrictions on when you can buy or withdraw money. Anyone can use cryptocurrency. This is unlike opening a bank account which requires paperwork and documentation.

Cryptocurrency transactions internationally are also faster than wire transfers. Money is transferred by wire transfers in about a half-day.

Cryptocurrencies allow transactions to be completed in a matter of minutes or seconds.


We hope this article has helped you understand the basics of cryptocurrency and how it works. Cryptocurrency is a rapidly growing industry, and understanding the foundations of it can help you make informed decisions about your investments.

Back to top button