Blog Cryptocurrency

What is Cryptocurrency and How Does it Work?

Cryptocurrency is a hot topic that is on loud notes right now. There is a lot of information about crypto, which is taking over the finance market at this moment. Some of the misconceptions are there regarding crypto like it’s not for beginners or needs a lot of investments, while many people still need to be made aware of what cryptocurrency is and how cryptocurrency works.

In this article, let’s find out what cryptocurrency is, if a person wants to use it, and how cryptocurrency works.


What is cryptocurrency?

It is a decentralized form of digital money that is based on blockchain technology and backed up by cryptography. To understand what cryptocurrency is, we have to dig into its terms.

Blockchain: It is a digital ledger, and its excess is distributed among authorized users. This ledger records all the transactions, and the information stored is immutable, meaning that even the administrator cannot change the stored data.

Cryptography: It is a method that secures the data from any unauthorized access by using the encryption technique.

Cryptocurrency combines multiple decentralized digital assets not bound by centralized rules and regulations. It is a set of digital tokens and coins that can be used to trade, buy, and sell. Cryptocurrency payments are made online; many well-known cryptocurrencies like Bitcoin and Ether exist. These two are the foundation to which a digital currency like crypto works so well.

How does cryptocurrency come into existence?

To get started with this, we are going to the roots of cryptocurrency; it began in 1980 with the invention of the blinding algorithm. This algorithm works as a fundamental for modern world digital currencies. The theory of this algorithm is to establish a secure and immutable digital transaction.

The first cryptocurrency came into existence in 2008 when an individual or group of people with the pseudonym “Satoshi Nakamoto” created the principles for Bitcoin, the leading cryptocurrency in the market. Bitcoin was launched in 2009, but it was not recognized as a means of payment among merchants until 2012. WordPress is the first leading merchant site to use Bitcoin as a payment platform.

In the current scenario, blockchain technology is used in banking, finance, retail, wholesale, and many other industries.

How does cryptocurrency works?

Cryptocurrency is entirely on digital medium; hence the transactions occur through electronic messages. These electronic messages are sent to the entire network along with the transaction instructions. There are a few things involved in education, like the electronic address of both the sender and the receiver, the number of currencies that are exchanged, and the timestamp of when the transaction was initiated.

It can be used for performing transactions and investments, trade like buying and selling, and mining. Let’s understand in more depth about various ways cryptocurrency works.

• Mining:

Being a digital currency, crypto is generated through a complex mining process. In simple terms, miners have to solve some specified complex mathematical puzzles, and for this, they have specially equipped computer systems. With the help of mining, there are two benefits; on the one hand, new crypto gets generated, while miners get rewarded for their work in the form of a mining fee.

If we look into the overall mining process, it just takes 10 min to complete one process, but due to its complex nature, the actual time to mine one cryptocurrency can be estimated at up to 30 days.

• Buying and Selling:

Nowadays, cryptocurrency can be bought from a central exchange, a broker, or an individual currency owner. Multiple exchanges in the market provide buy and sell features to their users. Cryptocurrencies can also be stored in wallets for future usage.

• Transactions and Investment:

Cryptocurrencies are easy to transfer from one wallet to another. With a simple smartphone, people can trade their currencies and even invest in multiple assets. With cryptocurrency, you can buy goods and services, exchange them for cash, and trade.

The transaction process in a cryptocurrency has multiple steps, and in that particular flow, it works. Let’s understand the work of cryptocurrency through an example:

Alice went to a coffee shop to pay the owner, Bob, through Bitcoin. In this case, there are specific follow-up steps through which the traction went through.

  • Alice sends an instruction to send the crypto to Bob. Anyone who is using this network can see this message from Alice.
  • After this, miners will keep this transaction with the block of other transactions.
  • The new block thus transformed its information into a cryptographic code.
  • Now several miners will compete with each other to find out that code. This will add the new block to the blockchain.
  • After the code gets solved, the transaction gets confirmed.
  • After all these steps, Bob will receive the currency amount Alice sent him.

Benefits of cryptocurrency

The process of crypto transactions is simple and secure, and it possesses a lot of benefits that help traders:

  • Protects against inflation
  • Fast transactional speed
  • Cost-effective transaction
  • Decentralized platform
  • Secure and private for digital currency

Countries where cryptocurrencies are legal

We have seen cryptocurrencies working above, but only some countries consider this safe and legal for their citizens. Let’s have a quick look at the countries where cryptocurrency is legal.

  • Germany
  • El Salvador
  • Singapore
  • Portugal
  • Switzerland
  • United Arab Emirates
  • Malaysia
  • Malta
  • Cayman Islands
  • Puerto Rico
  • Bermuda
  • Japan

What to consider before investing in crypto?

Cryptocurrency is volatile and has many regulations followed in many countries regarding crypto. As the working process of crypto is easy and everything flows in a manner, it is important to consider certain things before investing in crypto.

• Research about exchanges

There are over 500 exchanges in the crypto market to choose from. If you are planning to invest in cryptocurrency, then talk to some experienced investors, research about them, read their reviews, and then move forward with it.

• Decide on digital currency storage

After buying crypto, one must store it at some safe place that can be exchanged or in wallets. There are different kinds of wallets with various technical requirements and benefits, while exchanges also have various storage choices. Hence, analyze them and choose at your convenience.

• Invest in multiple currencies

Diversifying your investment into multiple forms is always considered a safe option. If you are just starting to invest in crypto, then do not go for only one currency and try to invest in multiple.

• Consider Volatility

Due to volatility, there are many ups and downs in the crypto market. Considering these fluctuations and risks, if you are participating in cryptocurrency, then do all the needed research and invest conservatively before getting started.


Cryptocurrency is seen as future money, but with proper research, it is ideal to invest. If you have decided to invest in this, get started with leading crypto money like Bitcoin, as it has better liquidity than the other newly launched currencies. The market is stuffed with many scammers; hence using an authorized platform for trade is a must, especially for those starting.

Understanding the functionality of cryptocurrency is easy, and you can find that in this blog. From small to large, all the transactions with crypto follow a similar set of rules; with this, the overall process gets a lot simpler and more convenient.

Speed Team