What is Cryptocurrency and How Does it Work? Cryptocurrency Simply Explained

(Last Updated On: June 4, 2022)

You have heard of cryptocurrency, but you are not sure what it is? Don’t feel down, because, in this article, I’ll explain to you what cryptocurrency is, and try to do so as simply as possible.

What is Cryptocurrency – Simple Explanation

what is cryptocurrency

Cryptocurrency is a digital or virtual currency that works on blockchain technology and is primarily designed to make transactions and payments. It uses cryptography to ensure security and control over how money flow.

A cryptocurrency is a decentralized form of currency which means, it is not controlled by any government or central bank and exists as long as people are willing to accept it as a form of payment.

IMPORTANT: Watch the video with a simple explanation about cryptocurrency.

It is important to understand, that cryptocurrencies do not exist in physical form, instead, they live only on the internet. You can imagine them as virtual tokens where the value is decided by the market and people willing to invest in them.

But how can crypto works without any government or central bank controlling it?

Why is Blockchain so Important

Simply put, cryptocurrency works on blockchain technology which is a digital public ledger that can be used to record transactions. It is made up of blockchain information blocks linked together in an unbroken chain.

Each block contains transaction records that are linked together via a cryptographically secure digital signature also known as a hash and a time stamp.

The purpose of blockchain is to eliminate the need for a middleman as it allows peer-to-peer transactions between individuals in a secure, transparent environment.

crypto explained

The data of the transaction is distributed and stored on each node across the entire blockchain network, which adds more to its security.

So, if you want to make a transaction with your cryptocurrency, the data are validated and verified by every node on the blockchain.

With the use of this technology, you can send cryptocurrency to any person anywhere around the world in a matter of seconds and with low transaction fees.

Of course, the low fees and lightspeed transactions are not the only main benefits of using crypto. The most important factor about cryptocurrencies is that they are decentralized.

They are the exact opposite of fiat money.

Fiat money, in simple words, is any currency controlled by the government, so you are relying on governments and central banks to set its value.

Unlike fiat currency, the value of crypto is set by all its users and the possibilities for its use.

How to Get a Cryptocurrency

If you’re interested in crypto, then you probably have a question: where can you buy a cryptocurrency?

Luckily, there are many crypto exchanges that allow you to buy, hold, or sell any of the established cryptocurrencies. The best and most trusted are eToro, Binance, and CoinBase.

However, there is another way to get a crypto coin. It is a technique called cryptocurrency mining and it refers to the process of collecting cryptocurrency as a reward for solving complex functions and recording data to a blockchain.

These miners are using computing power to solve complex mathematical problems to verify transactions in a block on the blockchain.

When the miner solves the problem and verifies all of the transactions in a block, he is rewarded with a fee. This method of securing a blockchain is called proof of work.

However, these days, you have to use specialized hardware to mine quickly and efficiently to solve complex problems before other miners and receive a cryptocurrency reward.

Conclusion

As you can see, crypto coins are not so difficult to understand, and I hope that my simple explanation helps you know more about this amazing invention.

But if you have any questions about crypto, then use the comment section below and I will try to reply. And don’t forget to subscribe to the channel, to get notified when I release a new video about crypto and the digital world.