How does Cryptocurrency work?

Our beginners guide to how cryptocurrency works.

We’re surrounded with technology that is making some serious advancements, which was also quite possible any time in the past. The evolution here is an ongoing process; thus human life is improving steadily and relentlessly.

So what is Cryptocurrency?

Well, the simple answer to this is that cryptocurrencies are a decentralized digital money. But to know how exactly it works, our guide will serve you the best.

Cryptocurrencies work similarly to online banking but without a central bank. And just like an online banking platform, it contains ledger, balances and account numbers. The role of a password is used to access funds and carry the transactions.

So what is Cryptocurrency?

To define it, a cryptocurrency is a digital asset which is based entirely on cryptography and is used as a currency. Cryptocurrency works as an encrypted, decentralized digital currency that is transferred between peers and is accepted in a public ledger through mining.

As of now, cryptocurrency is a decentralized alternative to traditional fiat currencies(currencies that are backed by central governments) such as USD, EUR, etc.

Also Read : What is a Cryptocurrency Wallet?

How Cryptocurrency came into existence?

How Cryptocurrency came into existence?

Cryptocurrency came into existence when Satoshi Nakamoto, the creator of Bitcoin whose identity remains to be anonymous. During the launch of Bitcoin in 2008, Satoshi’s intention was never to create a currency and said it was developed only as an “A Peer-to-Peer Electronic Cash System.” However, Bitcoin only went public in 2009; and at present, there are over 1000 cryptocurrencies available for trading in online markets. To make some notable mentions: Ethereum (ETH), Ripple (XRP) Litecoin (LTC) and a few other altcoins have a market capitalization of over $20 billion.  

How to use a Cryptocurrency?

For the ordinary people, using cryptocurrency is quite easy. Beginners can follow the steps below:

  • Mining, which helps in placing blocks in the blockchain system and claim a reward
  • Sign in to a website or an exchange to start with the process of buying and selling or even trade cryptocurrencies.
  • Lastly, you need a wallet to store the mined cryptocurrency. With the wallet, create a unique public address that will allow you to send and receive cryptocurrencies. The public address can also be used to transfer funds both in and out of the wallet.

Also Read : What is Blockchain? | Beginner’s Guide

What is a Public Address?

A public address is a series of characters that lets you receive cryptocurrency. Every public address includes a private address that is used to determine the actual ownership or the identity of the public address.

Consider the address as a unique email address where people send cryptocurrency instead of sending emails.

Also Read : 6 Ways To Guarantee Anonymity When Making Bitcoin Transactions

What are cryptocurrency wallets?

What are cryptocurrency wallets?

Cryptocurrency wallets are a software program which has the capability of storing both private and public keys. These wallets communicate with different blockchains, where users send and receive the digital asset and also keep track of their balance.

Cryptocurrencies aren’t like fiat currencies which are stored in conventional wallets that are carried in pockets. Whereas,  cryptocurrencies wallets do not save currencies.

The concept of cryptocurrency is smartly crafted such that the currencies never get stored in one precise location. Also, these currencies do not exist in either hard or physical form. The only things that are stored in the blockchain are the transaction records and nothing else.

Also Read : What is Bitcoin Mining? | Beginner’s Guide

Here’s an example of how a cryptocurrency wallet works:

Assume that your friend sends you some bitcoins. This friend of your is actually transferring the ownership of coins to the address of your wallet. When you look to use the currency that is sent, you’ve unlocked the funds too.

But to unlock these funds, you have to match the private keys of your wallet to the public address to the coins they are assigned to. To get the coins credited into your account, both the private and public addresses need to be matched. This will thereby decrease the sender’s balance. There is no presence of physical coins when the transactions are taking place in the digital currency.

Cryptocurrency, which is deemed to be a great alternative to fiat currencies, can also be used as a payment method for some goods and services that accept it as a payment system.

The benefits of using cryptocurrency as payment are its low transaction fees and instant transaction costs when compared to different payment systems. Cryptocurrencies also remove the worry and build trust between the sending and receiving party.

Also Read : French Crypto Wallet Ledger Is Solving Bitcoin’s Biggest Flaw For Financial Giants


With this guide, you have now learned what are cryptocurrencies and how they work. We’ve also shared the concepts to store them and where you can trade them from.

If you don’t understand this guide at first, we will also come up with videos to help you understand the cryptocurrency system clearly.