What is Cryptocurrency and How does it Work?

About Cryptocurrency

Cryptocurrency is such a buzzword, which is often in news, and many people are talking about it, and many people are working on it as well. We can hardly find someone who has not even heard the word cryptocurrency (though there may be some people!). But, if you are wondering what cryptocurrency is, we have got you covered, and we are going to explore cryptocurrency over here. Firstly, we need to see why cryptocurrency is even there. And then we would move on to explore the concept of cryptocurrency.

What is Cryptocurrency and How does it work?

Cryptocurrency Doing Online Transactions

While we do some online transactions, it is very easy and convenient. We use some applications for example, and just scan the QR code, enter the details (like the amount and the pin and so on), and the transaction is done in moments! This is so easy, right? But, it has got some problems too sometimes.

For example, the transaction that you are trying to perform might fail, for several reasons, like –

  • Maybe you have insufficient balance.
  • Maybe your account has been hacked.
  • Maybe you have reached the transfer limit,
  • The bank servers are giving trouble.
    And several other reasons.

Due to several reasons like this, the transaction may fail, and sometimes, this becomes a thing to worry about. Also, there is one more thing, when you are doing some online transaction, between you and the receiver, there are some trusted parties. Let’s understand the process in brief –

So, when you are doing some transaction, you scan the QR code (or put the number or whatever), then you put the amount, and when you enter the pin and proceed with the transaction, and then the transaction gets done, and the receiver also receives money in some time. But while you did all these things, some other things happened as well, like when you entered the pin and proceeded with the transaction, your bank checked some things, like if you have sufficient funds for transfer, etc. if the conditions are met, then the transaction is approved, and then the receiver receives the money, and the money is added to the receiver’s account.

So, when you did the transaction, there were some trusted parties (authorities) during the transactions.

What is Cryptocurrency?

So, as a solution to many of the above problems, the concept of cryptocurrency comes into the picture. So, this brings us to understand what is cryptocurrency. Well, cryptocurrency, often referred to as crypto, is a virtual (or digital) currency, which can be used for online transactions. The term cryptocurrency, the term crypto relates to cryptography, which simply means securing the information using different techniques and rules. The other term currency simply means currency!

Now, let’s explore the concept a little bit, see what are the different cryptocurrencies out there, and let’s discuss in brief, how the cryptocurrency works.

Well, nowadays, many different cryptocurrencies have come up, but just to name a few, there is bitcoin, Ether, Dogecoin, Shiba Inu, Cardano, Solana, and many many more. There are over 10,000 cryptocurrencies that exist.

But now the question would be, how the cryptocurrency works? How this all is happening? Basically, many of the cryptocurrencies are based on a very amazing technology, which is Blockchain. So, now let’s understand the blockchain in brief so that we can have an idea, of how it works.

Blockchain Technology vs Cryptocurrency

Just by looking at the name, blockchain, you can think of it, like there is a chain of a lot of blocks, and the blocks might be having something. So, basically, blockchain technology is simply amazing. It is essentially a digital ledger of transaction records, which are duplicated and distributed over a network of several computers. The data is recorded in such a way, that makes it very very hard to manipulate or make any changes.

For example, let’s consider the cryptocurrency bitcoin, which is one of the most popular cryptocurrencies. Just imagine that you got some bitcoins(let’s say 5 bitcoins), and you want to transfer 2 bitcoins to your friend. Now, when you are doing the transfer, it will be checked in the records, for verification, and if the transaction is approved, then the transfer will take place, and this transaction would be recorded and updated into all the ledgers which are distributed over a network. Some details, like who sent what to whom, are recorded onto the ledgers. Here, the record is a public record, which is maintained on several thousands of computers over a network.

But now, you would be concerned, that earlier only a few trusted parties knew much of the details. But now, the data is public!! so won’t there be any privacy issues? Well, for the escape, there is cryptocurrency. The information that is recorded over the network, is secured using cryptography. There are different hashing algorithms, that can be used to secure the information bitcoin uses the SHA256 hashing algorithm.

So, to summarize what blockchain is, we can simply say that it is essentially a distributed ledger of transaction records. Basically, no country or any kind of third party has no control over the ledger, and anyone can participate, anyone can send payments to anyone, anywhere in the world. Blockchain technology is simply amazing.

So, now let’s come back to cryptocurrency, which is the topic for now. From all the information that we have now, we can define cryptocurrency as the virtual currency in which, there is no involvement of any trusted party, and anyone, anywhere, can send and receive payments. It is a peer-to-peer system (which simply means person to person or party to party).

What was the first cryptocurrency?

Well, as stated earlier, there are over 10000 cryptocurrencies available these days. But which was the first cryptocurrency? Well, this answer might be already known to you, but still, the first cryptocurrency was nonother than Bitcoin. You might also have heard the term altcoin, which simply means every other cryptocurrency, other than bitcoin, is an altcoin. This is pretty amazing, right?

Bitcoin was developed by Satoshi Nakamoto, which is believed to be a pseudonym for an individual, or a group of people who developed bitcoin.

How is cryptocurrency made?

Well, when it comes to traditional currency, it can be printed or minted. But how are cryptocurrencies made? Well, it depends on what cryptocurrency it is. There are many cryptocurrencies that are based on a proof-of-work(PoW) mechanism, where the miners have to prove to the verifiers, that a certain amount of computational efforts have been taken. Actually, the proof-of-work protocol allows all the nodes in the network to agree on a similar state and also prevents some attacks on the network. Many cryptocurrencies are based on this, like bitcoin, dogecoin, etc.

There is another such protocol, like proof-of-stake, which is quite more complex than PoW, uses drastically less energy, and is more secure than the PoW. Some cryptocurrencies that have this protocol are ADA(the primary cryptocurrency of Cardano), Solana, Polkadot, etc.

When it comes to mining cryptocurrencies, it takes special software, and special hardware, and the people who do it, are called miners. Basically, they are the people in the network, who verify the legitimacy of transactions, and they get rewarded with some tokens, in exchange for the service. You can also say that mining is simply a process to create new coins.


We have had a look at what cryptocurrency is. This gives you an insight into what the concept is, and what are the technologies behind, which are making this amazing concept to be possible. There are many many other cryptocurrencies, that you can explore if you are interested. You can further explore how the cryptocurrencies are working in detail, and also about how can you get some cryptocurrency. There is a lot to learn about cryptocurrencies and the amazing technologies behind this amazing concept.

FAQ About Cryptocurrency

Q: What is cryptocurrency?

Ans: Cryptocurrency is a virtual currency, used for transactions on the internet. It uses cryptography for secure information.

Q: Can you give some examples of cryptocurrencies?

Ans: There are many cryptocurrencies available, and some of them are bitcoin, dogecoin, Litecoin, ether, ADA, Solana, Polkadot, etc.

Q: Which was the first cryptocurrency?

Ans: The first cryptocurrency was Bitcoin.

Q: How can we get cryptocurrencies?

Ans: Well, there are many ways to get some cryptocurrency. There are many crypto exchange platforms, where you can buy some cryptocurrency. Alternatively, you can mine the cryptocurrencies(which can be mined). There are many other ways to get cryptocurrencies.


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