Did you know the Chinese were the first culture to introduce currency? They produced bronze coins with a hole in the center allowing it to be held on wire circles—Ironically, it was called “cash.”
Isn’t it amazing how things have changed? Today, we have digital money, with crypto being a hot topic since the 2010s and the rise of Bitcoin. But what is cryptocurrency? How can we use it? And more importantly—what role will it play in the future of the financial system?
Crypto is the people’s money—There are no banks, no intermediaries, only code and computers running a global network that never sleeps. It’s gone from a niche idea tossed around on forums online, to the biggest growth asset we’ve ever seen in financial markets ¬and it’s done all of that in less than two decades.
Crypto is changing the way we approach finance. Banks, governments, and investors are paying attention, with thousands of companies in all industries around the globe already accepting cryptocurrency as payment for goods and services.
So how does it work? What’s special about it, and should you own crypto in your portfolio? This guide will demystify the basics—how it works, why decentralization matters, and how blockchain technology is the next evolution of finance.
Understanding Cryptocurrency Fundamentals
In its simplest form, cryptocurrency is money, just in digital form, only it’s nothing at all like the money in your bank account. Traditional cash, or fiat currency, is controlled by central banks and governments. They print it, regulate it, and decide its value. Crypto does the exact opposite. It’s decentralized, which means no single entity can control it.
Unlike Dollars and Euros which are physically printed on paper, cryptocurrency exists in the form of lines of code in a network of computers spanning the globe. Every transaction is recorded in a blockchain, which is a giant, open ledger anyone can glance at with a few strokes of their keyboard.
Decentralization is the primary selling point behind the reason to own crypto. Banks keep your money in their ledger and decide if you can withdraw it—you might think you own it—but you don’t. Just ask anyone who’s tried to withdraw their savings during the bank run on SVB.
With crypto, you control your money yourself. No banks, no approval process, just a digital wallet and an internet connection. That makes crypto appealing to those who don’t have confidence in banks or reside in regions with unstable banking facilities.
All cryptos differ. While Bitcoin is “digital gold”—with a limited supply—others, like Ethereum, have added features, such as smart contracts, which allow users to create self-executing contracts. Stablecoins tied to the purchasing power of the Dollar or Euro facilitate transactions and market stability—there’s so much going on in crypto that it’s hard to keep up with the pace of innovation in the sector.
Explaining Cryptocurrency for Newbies
So how does it work? The magic happens on the blockchain, an electronic ledger that’s virtually impossible to modify. Unlike the traditional banking model, where a central body keeps records, blockchain spreads the data to a global network of computer nodes.
If you send cryptocurrency, your transaction is placed in a block with others. That block is secured by a “cryptographic verification process,” which is just a fancy word for it being encrypted and fraud-proof. Every block is linked to the last one, forming a chain—hence the name blockchain. A transaction—once entered—cannot be altered, maintaining secure digital ownership of the asset.
Banks screen transactions, verify transfers, and serve as the intermediary in traditional finance. In crypto, there is no CEO of Bitcoin—and no corporation running Ethereum. All the maintenance required to run the network is provided by the users.
Mining and validation are the backbone of all crypto networks. Bitcoin, along with most of the first cryptocurrencies to hit the market, employ “Proof of Work” (PoW) consensus models, whereby miners compete to solve extremely complex math problems. It’s a competition, and the winner adds the subsequent block to the blockchain, earning new coins in the process.
More up-to-date crypto networks use the “Proof of Stake” (PoS) consensus model, in which users stake their coins to validate transactions instead of solving problems. It’s faster, less power-hungry, and gaining in popularity as the new benchmark for crypto networks. Crypto transactions are peer-to-peer, so you can send money to anyone, anywhere in the globe, without the intervention of a bank required to facilitate the deal.
Different Types of Cryptocurrencies
Bitcoin is the giant of the cryptocurrency space. It was first-to-market, and it still has the largest market cap of all the coins and projects out there. It came out in 2009, and introduced the world to a new form of money—one that doesn’t rely on banks or governments.
It’s called “digital gold” because—like the yellow metal—it’s scarce, with a limited supply of 21 million coins, and generally considered a long-term investment, rather than a currency suitable for daily purchases.
And then there are “altcoins”—any cryptocurrency other than Bitcoin. The largest is Ethereum (ETH), which does more than merely serve as a currency for basic transactions. ETH has embedded “smart contract” functionality, allowing people to program its execution.
So, for instance, you can set up a smart contract to pay out when another party fulfills an obligation, without the need to physically process the transaction—its fully automated delivery of assets based on specific terms and conditions defined in the smart contract.
Stablecoins are unique. They’re pegged to real-world currencies, such as the US dollar, so their price doesn’t experience the same price volatility as BTC or ETH. The most well-known are USDT (Tether) and USDC, which offer stability in an otherwise unstable market.
And then there’s the meme coins. Dogecoin (DOGE) was originally a prank, but with online hype (and Elon Musk pumping it), it became one of the most popular alternative cryptos. Shiba Inu (SHIB) did the same, demonstrating how sometimes speculation can take a coin to absurd heights.
And we can’t leave out utility tokens like Binance BNB—cryptos with a specific purpose in mind, such as paying transaction fees, providing fuel for blockchain applications, or unlocking premium features in a network.
Acquisition and Storage of Cryptocurrency
Crypto marketplaces and exchanges are more accessible than ever, but that doesn’t mean you should jump in blindly to owning these digital assets. Having a strategy for how you will buy, hold, and protect your assets is just as important as choosing the best coin.
Most people purchase and sell crypto through exchanges—online websites where you can buy digital currencies the same way you buy stocks. Household names like Binance, Coinbase, and Kraken are among the most popular venues, with a mix of easy interfaces and advanced features for traders.
“Hot” wallets are the easiest option top hold your crypto and they’re readily available when signing up for an account on an exchange like Binance or Kraken. Wallets like MetaMask and Trust Wallet are fine for everyday use, but they’re also the most vulnerable to being hacked.
Long-term holdings should be stored in a “cold” wallet. These are physical hardware tools, with Ledger and Trezor being popular options. These wallets keep your private keys off the internet, making them virtually impossible to hack.
Security comes first in crypto. Losing your private keys will result in the loss of your funds—and there’s no customer support available to get them back. Always enable multi-factor authentication (MFA), and check website URLs to avoid phishing scams—and never share your seed phrase with anyone.
Cryptocurrency Uses and Applications
Owning cryptocurrency is one thing, but knowing how to actually utilize it is the real deal to participating in the crypto and Web3 community. There are those who utilize it as an investment, others as a tool for decentralized finance, while others just use it to buy things online.
More and more companies are starting to accept crypto as payment. You can use it to pay for the gas you pump at the petrol station, or to buy a Tesla—the continued adoption of crypto in the commercial sector shows it has real-world application and a promising future in finance.
We can’t forget about investing and trading on the crypto markets—it’s maybe the biggest reason people get into cryptocurrency. Others purchase and hold for the long term, anticipating enormous profits. DeFi protocols allow for “staking” of your tokens to earn interest, just like you would in the bank—but with much better APR.
Aave and Compound are just a few of the sites through which people can stake and lend their cryptocurrency, earning passive income without the need for a bank account or a mutual fund. NFTs brought a new level of utility to crypto. These digital assets changed the perception of ownership—giving creators a vehicle for selling their music, artwork, and collectibles with built-in proof of ownership.
Crypto is more than just a fad. It is revolutionizing finance, business, and art in ways we’re only beginning to understand. You can either get on board and enjoy the ride, or stand on the sidelines and watch as the rest of the world starts to get on board the crypto train—the choice is up to you—but the market isn’t going to wait around for you to decide to participate—it’s moving ahead at full throttle.
Challenges Facing Cryptocurrency
Crypto can be exciting, and it’s no wonder more people are starting to take it seriously. That said—the industry has plenty of risks, and being ignorant of the potential pitfalls can end up costing you dearly.
The most glaring risk for beginners is volatility in price action in various instruments–with meme coins being a great example. Sure, it’s common to see BTC drop or pump by 5%-10% in a given day. But mem coins are a different deal—they could make you a millionaire overnight, or break the bank, leaving you with nothing after insiders and snipers rug pull the market.
Unlike stocks, which are influenced by company profits, market fundamentals, and economic data, crypto prices are influenced by speculation, rumor, and social media trends. And there’s the matter of regulation—or the lack thereof.
While governments like Venezuela embraced BTC years ago, even the largest economy’s are starting to come to the party. Case in point—President Trumps signing of the executive order to form the U.S. Strategic Digital Assets Reserve on 23 January 2025.
Then there’s the other side of the coin—where countries like China have banned BTC because of issues with capital flight, and curtailed mining to stop its people from exiting their wealth from local banking systems.
Security is also a significant issue. Millions of users get robbed every year through hacking, scams, and phishing. Just look at the most recent hack of the Bybit exchange where North Korean hackers stole $1.5 billion in ETH. Once cryptocurrency is stolen, it’s very difficult to recover it, thanks to “mixers” like the now defunct “Tornado Cash” platform.
Scalability is a significant pain point too. We saw how the Solana network crashed in 2022, driving the SOL price down. The network clogs up, transaction fees skyrocket, and transfers take forever. Ethereum users have been known to face gas fees so outrageous it becomes unrealistic to use it for smaller transactions. Developers are working on scaling systems to solve the problem, but until it is fully sorted, it’s a hindrance to mass adoption.
The Future of Cryptocurrency
Crypto isn’t fading into the sunset anytime soon, so don’t think you’re going to wake up tomorrow and see BTC at zero—even if it seems like the markets crashing and a crypto winter is coming. The reality is the volume is increasing across all exchanges, more people are becoming aware of crypto and entering the market to trade it, invest in it, or use it as a means of payment.
Even the big corporate players like BlackRock are getting involved, offering ETFs like $IBIT to bridge the gap between the decentralized and centralized investment markets, giving traditional investors exposure to crypto in their portfolios.
Are you ready to join the next revolution in global finance?
