What is Cryptocurrency and How does Cryptocurrency work

Topics Covered in this article-

  • What is Cryptocurrency
  • How does cryptocurrency work
  • Advantages of cryptocurrencies
  • Disadvantages of cryptocurrencies
  • How does crypto mining work
  • What is Blockchain
  • How does blockchain work
  • What is Staking Crypto
  • Advantages of staking crypto
  • Disadvantages of staking crypto.
  • How does staking crypto work
  • What is crypto wallet
  • How does Crypto Wallet work

What is a cryptocurrency, and how does cryptocurrency work? 

all types of cryptocurrencies

All right, Bitcoin blockchain Dogecoin, Ethereum. Everyone is talking about cryptocurrencies right now. But good lord, what is a cryptocurrency, and how does cryptocurrency work? 

So welcome to the new article that will take you from crypto news to crypto genius. I’m gonna tell you what cryptocurrency is, why cryptocurrency keeps becoming more important and the dark side of cryptocurrency. 

Stage 1 Currency

Okay, so when society was in its early stages, there was no such thing as money, we’ll call this stage one, the only way to buy something if someone was to go up to them and be like, Oh, I really like your horse. I’ll trade you my cat for it.

But that can not be done for decades. Needs will change and you may not need a cat. Obviously, who exchanges a horse with a cat?

Stage 2 Currency

coins, which, because they were made of precious material, like gold and silver, everyone just accepted that they were worth something. If you don’t want my cat. As long as I have coins, we can still trade for your horse. Because it’s a precious material, you have that reassurance that you can take that coin, give it to someone else, and trade for something that you do want. Convenient, right? 

Stage 3 Currency

Paper money does the same thing. But now the money doesn’t have value because it’s made of pure silver, it just has value because the government says it has value. this is just a receipt, a kind of proof that you own a certain amount of value.

Stage4 Currency

It’s the stage where Online transactions, debit cards, credit cards are introduced. When you’re at that stage, we don’t see our money anymore. It’s not about coins, or notes, or cats. It’s just entries on a spreadsheet. Like when I buy a phone from Amazon, all that’s happening is that my bank adds an entry in my spreadsheet that says techsikhsha now has $10 less, and then $10 is added to Amazon’s sheet. 

So the reason I’ve given you this entire intro is to give you context on where cryptocurrency sits, it’s seen by many people as the most convenient era of exchange ever. 

Stage 5 Currency

The way to think about cryptocurrency is that it’s 100% Virtual. I know the logo for Bitcoin kind of looks like a physical coin, that really is a bitcoin now. But with crypto, there is no gold, there is no silver, there is no paper, it really is just the transfer of digital assets with the core concept being exactly the same. There is just one enormous spreadsheet of every transaction made using that currency. And this is called a ledger. Okay, we all have a good spreadsheet. But what’s all the fuss about? Why is everyone going crypto crazy? 

There are obviously some advantages to a currency system like this one-

Advantages of CryptoCurrency: 

Protection from inflation:

Inflation caused many currencies to decrease in value over time. But there are only 21 million Bitcoins released within the planet. So the value will go up over time. 

Self-governed and managed:

In Cryptocurrency Mining cryptocurrency is the key factor and the miner manages all the transactions and keeps the records too. So there are no other governance bodies.


This is the pro feature of cryptocurrency. Cryptocurrency is decentralized so no other organization can decide the worth of the coins.

Secure and Private:

Cryptocurrency data are stored in a ledger and blockchain ledgers are encrypted with cryptography which is pretty hard to decode. So no questions on privacy and security.

Disadvantages of Cryptocurrency:

Illegal transactions:

Cryptocurrency transactions are highly secure and private so it is difficult to trace for the government. There are various types of cryptocurrencies and one can use them for illegal purposes too.

Risk of Data Loss:

Cryptocurrencies are so secure that without a private key the owner also can’t get access to his wallet. If you lose your key, you will lose what is in the wallet forever. 

Difficult Process:

When half of the world is trying to become rich by mining Bitcoin, on the other side so many still don’t know about mining, how to do bitcoin mining. Bitcoin mining is not an easy job.

High Requirements:

The main obstacle of bitcoin mining is the system you need to do that. Bitcoin mining needs highly configured systems which are costly too.

What is Blockchain?

what is blockchain

Blockchain is a procedure for recording data such that makes it troublesome or difficult to change, hack, or cheat the framework.

A blockchain is basically an advanced record of exchanges that are copied and dispersed across the whole organization of PC frameworks on the blockchain. Each block in the chain contains various exchanges, and each time another exchange happens on the blockchain, a record of that exchange is added to each member’s record. The decentralized information base oversaw by various members is known as Distributed Ledger Technology (DLT).

Blockchain is a sort of DLT where exchanges are recorded with a permanent cryptographic mark called a hash.

How does Crypto Mining work?

how does crypto mining work

There’s Bitcoin. There’s Litecoin. There’s Ethereum. So exactly what is cryptographic money and how can it function?

Basically, it’s computerized cash that is purchased and sold on the web. There are no bills or coins. It’s not founded on another resource like gold, and it doesn’t go through conventional monetary foundations like banks. All things considered, these monetary standards work in a totally decentralized framework that utilizes purported blockchain to follow exchanges. 

To perceive how this functions, how about we take a gander at how you purchase something with digital money. Saying that Alice needs to purchase a bicycle from Dan utilizing Bitcoin her digital money of decision, Alice starts by signing into a Bitcoin wallet with a private key, a remarkable mix of letters and numbers. With a conventional monetary exchange, the trade gets shipped off to banks on each side who record the cash being deducted starting with one record and added then onto the next.

how does cryptocurrency work

However, in this situation, there are no banks or brokers. All things being equal, Alice’s exchange is imparted to everybody in the Bitcoin organization. These organization PCs add Alice’s exchange to a common rundown of ongoing exchanges, known as a block. The most current blocks of exchanges are added on or fastened to every one of the past blocks. That is the way you get a blockchain.

To guarantee that each square of exchanges on the chain is checked, a subset of the bitcoins network joins a competition to address an undeniably challenging numerical riddle. Furthermore, in the event that they settle it first, their record of the box of exchanges turns into the authority record. They’re compensated with bitcoins of their own, and the organization gets another box on the chain. This whole interaction is known as mining, yet rather than working on Rock, you’re solving complex riddles.

The way that numerous PCs are contending to check a block guarantees that no single PC can consume the Bitcoin market. To guarantee the opposition remains reasonable and equally coordinated. The riddle becomes tougher when more PCs participate. The Bitcoin convention says mining will proceed until there are 21 million bitcoins in circulation. That is set to occur around 2140 if bitcoin endures that long.

So this is the process of how crypto mining works.

Types of Cryptography | Definition of ALL Types of Cryptography, Cryptology & Cryptanalysis

What is a Crypto Staking and how does Crypto Staking work:

what is cryptocurrency and how does it work

What is crypto staking? 

Staking Crypto forms of money is a cycle that includes submitting your crypto resources to help a blockchain organize and affirm exchanges. 

It’s accessible with cryptographic forms of money that utilize the verification-of-stake model to handling installments. This is a more energy-proficient option in contrast to the verification-of-work model, which requires mining gadgets that utilize processing ability to address numerical conditions. 

Staking can be an extraordinary way of utilizing your crypto to create easy revenue, particularly in light of the fact that some cryptographic forms of money offer exorbitant loan costs for Staking. Before you get everything rolling, completely see how crypto staking works.

How does staking crypto work?

With digital forms of money that utilize the confirmation-of-stake model, Staking is the means by which new exchanges are added to the blockchain. Members vow their coins to the cryptographic money convention. From those members, the convention picks validators to affirm Blocks of exchanges. The more coins you vow, the almost certain you are to be picked. 

Each time a block is added to the blockchain, new digital money coins are stamped and conveyed as marking prizes to that block’s validator. The prizes are normally the very digital currencies that members are Staking, albeit some blockchains utilize an alternate kind of digital currency for remunerations. 

Assuming you need to stake crypto, you really want to claim a digital currency that utilizes the evidence-of-stake model. Then, at that point, you can pick the sum you need to stake. You can do this through numerous well known digital money trades. 

Your coins are as yet in your ownership when you stake them. You’re basically giving them something to do, and you’re free to unstake them later assuming you need to exchange them. The unstaking system may not be prompt, and, with some cryptographic forms of money, you’re needed to stake coins for a base measure of time. 

Staking isn’t a choice with a wide range of digital currency. Numerous cryptos utilize the evidence-of-work model to add Blocks to their blockchains. The issue with confirmation of work is that it requires significant figuring power. That has prompted huge energy utilization from digital forms of money that utilize evidence of work. Bitcoin (CRYPTO:BTC) specifically has been scrutinized because of ecological concerns. 

Verification of stake, then again, doesn’t need close to as much energy. This likewise makes it a more adaptable choice that can deal with more noteworthy quantities of exchanges. 

Advantages of Staking crypto 

Here are the advantages of Staking crypto: 

  • It’s a simple way of acquiring interest on your digital currency property. 
  • You needn’t bother with any gear for crypto Staking like you would for crypto mining. 
  • You’re assisting with keeping up with the security and proficiency of the blockchain. 
  • Staking is more harmless to the ecosystem than crypto mining. 

The essential advantage of Staking is that you acquire more crypto, and loan costs can be extremely liberal. Now and again, you can acquire over 10% or 20% each year. It’s conceivably an entirely productive way of putting away your cash. Furthermore, the main thing you want is crypto that utilizes the confirmation-of-stake model. 

Staking is likewise a method of supporting the blockchain of a digital currency you’re putting resources into. These digital currencies depend on holders Staking to check exchanges and keep everything chugging along as expected. 

Risks of Staking crypto:

There are a couple of risks of Staking crypto to know about: 

  • Crypto costs are unpredictable and can drop rapidly. If your staked resources experience a huge value drop, that could offset any premium you procure on them. 
  • Staking can necessitate that you lock up your coins for a base measure of time. During that period, you can’t do anything with your staked resources, like selling them. 
  • At the point when you need to unstake your crypto, there might be an unstaking time of seven days or longer. 

The greatest danger you face with crypto Staking is that the cost goes down. Remember this if you find cryptographic forms of money offering incredibly exorbitant loan costs. Numerous more modest crypto projects do this to tempt financial backers, yet their costs frequently wind up smashing. In case you’re keen on adding crypto to your portfolio, however, you’d favor less danger, you might need to settle on digital currency stocks all things being equal. 

What is a Crypto Wallet? 

what is crypto wallet

A cryptographic money wallet is an application that permits clients’ digital currencies to store and recover their computerized resources. Similarly, as with ordinary money, you needn’t bother with a wallet to go through your money, however, it unquestionably assists with keeping everything in one spot. At the point when a client secures cryptocurrency, for example, bitcoins, she can store it in a cryptocurrency wallet and from that point use it to make exchanges. 

How does a crypto wallet work?

Cryptocurrency wallets are applications actually like those you may run on a cell phone or PC. If you favor the material experience of holding a wallet, you can likewise purchase an actual gadget that runs a wallet application. 

The primary Cryptocurrency wallet was presented by Satoshi Nakamoto when he originally delivered the bitcoin convention in 2009. Bitcoin is the most famous and broadly utilized cryptographic money, however, others expanding upon its blockchain innovation have arisen, and any of them can be put away on a digital currency wallet. Crypto Wallets can hold different cryptographic forms of money. 

At the point when you need to obtain Cryptocurrency, regardless of whether by buying it in a cash trade or getting it as a gift or as income, you direct the sender to a special cryptographic location given by the wallet. You may picture your Cryptocurrency put away on the wallet the same way documents are put away on a USB drive, however, truth be told, the data put away on the wallet just focuses on your money’s area on the blockchain, the public record that records and verifies all exchanges for cryptographic money. Going through with the wallet is pretty much as basic as examining a retailer’s QR code or coordinating a particular measure of crypto coins to the retailer’s public location.


I hope this article helped you to know more about how does cryptocurrency works. I also added information on crypto mining, crypto staking, etc. The sources I used to get information are mentioned below.




Many other sources were used to learn to write this article. Thanks to these websites also.

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