What is Cryptocurrency And How It Works?

Cryptocurrency is digital money that doesn’t require a bank or financial institution to verify transactions and can be used for purchases or as an investment. Transactions are then verified and recorded on a block chain, an unchangeable ledger that tracks and records assets and trades.


What is Cryptocurrency ?




Cryptocurrency, or crypto, is a digital payment platform that eliminates the need to carry physical money. It exists only in digital form, and although people mainly use it for online transactions, you can make some physical purchases. Unlike traditional money printed only by the government, several companies sell cryptocurrency. 

Cryptocurrencies are fungible, meaning the value remains the same when bought, sold, or traded. Cryptocurrency isn’t the same as non-fungible tokens (NFTs) with variable values. For example, one dollar in crypto will always be one dollar, whereas the value of one NFT dollar depends on the digital asset it’s attached to.

How are cryptocurrencies created?



Mining is the term used to describe the process of creating cryptocurrency. Transactions made with cryptocurrency need to be validated, and mining performs the validation and creates new cryptocurrency. Mining uses specialized hardware and software to add transactions to the block chain. 

Not all cryptocurrency comes from mining. For example, crypto that you can’t spend isn't mined. Instead, developers create the new currency through a hard fork. A hard fork creates a new chain in the blockchain. One fork follows the new path, and the other follows the old. Crypto you can’t mine is typically used for investments rather than purchases.

What are the advantages of cryptocurrency?



When it comes to cryptocurrency, there are some advantages to it versus traditional currency. An advantage of cryptocurrency is privacy. When you make a purchase with cryptocurrency, you don’t need to provide any personal information. This protects you from potential identity theft and other fraudulent activities. And no matter what happens to the government, your investment is secure. 

Another advantage of cryptocurrency is that it’s global, so there’s no need to figure or pay foreign exchange rates, although cryptocurrency isn’t legal in some countries. You also don’t need to worry about bank account restrictions, such as ATM withdrawal limits.

Types of cryptocurrency 



Cryptocurrency is available as coins or tokens. The difference between them is that tokens are assets that exist on a block chain, while coins can be virtual, digital, or tangible. Coins are more like traditional money; a digital coin has its own block chain.  Conversely, a token is created on an existing block chain and can be used as currency or to represent asset ownership.

The first cryptocurrency introduced was Bitcoin, the most commonly traded one. Ethereum is the second most valuable cryptocurrency and can be used for complex transactions. Other more common cryptocurrencies, called altcoins, include Cardano, Solana, Dogecoin, and XRP. 

How to get started with cryptocurrencies


To start with cryptocurrency, you’ll need to choose a broker or crypto exchange. An exchange is an online platform where you can trade cryptocurrencies. Brokers use interfaces that interact with exchanges. 

An exchange allows you to trade without a third party. Should you decide to use an exchange, you’ll need to find buyers for your cryptocurrency. A broker can do that for you. Here are the steps to start trading cryptocurrencies. 

Create and fund your account




When you’ve selected a broker or exchange, the next step is to open an account. You’ll want to keep a form of identification nearby since some platforms require it. Once you verify your identity, you can fund your account. Depending on your funding method, you may need to wait a few days for it to clear into your crypto account.

Buy crypto



You can make your first cryptocurrency purchase when your account is set up and verified. You’ll find many options. You can purchase as much or as little as you’d like. When you’ve selected the one you want to start with, you’ll need to enter the ticker symbol and the amount you wish to purchase. Some of the more traded cryptocurrencies and their symbols are:

  • Bitcoin (BTC)

  • Ethereum (ETH)

  • Dogecoin (DOGE)

  • Tether (USDT)

  • USD Coin (USDC)

  • Uniswap (UNI)

Select a storage method


Most often, you’ll store cryptocurrency in a wallet. When you purchase from a broker, you might not have an option regarding how you store your crypto. However, you can choose between a hot or cold wallet when purchasing through an exchange.

Hot wallets



A hot wallet offers online storage that you can access from a computer, phone, or tablet. A hot wallet has a security risk because it’s stored on the internet and is more susceptible to cyber-attacks. 

Cold wallets


A cold wallet doesn’t connect to the internet. You can store your cryptocurrency in an
external drive, such as a USB device. You’ll receive a keycode to keep in a safe place. Should you lose the keycode, you may lose your cryptocurrency.