How does cryptocurrency work?

how does cryptocurrency work
  • Crypto currency is digital money that is affected by Block chain technology and that is secured by cryptography.
  • It is important to understand three key points of the crypto currencyBlock chain, decentralization and cryptography. Block chain is a digital ledger whose authority is distributed among users. Block chain keeps transactions of assets like houses, money or property.
  • The access of block chain is shared among users. The information remains transparent. The record block chain carries cannot be misused.
  • Centralized money stands for the regular money we use that is governed by the Reserve Bank of India.
  • In crypto, decentralization means that no similar authority can be responsible for the rise and fall down of a specific crypto currency. This carries an edge over centralized money.

Some of these benefits include the following:

  • The information in crypto currency cannot be modified as everyone accesses the same information. Currency owners shouldn’t worry about trusting one governing entity.
  • Only users have access to keeping data. The data is heavily secured.
  • There is a very minimal chance of data misuse. Cryptography is the system that keeps data secure from unauthorized access through encryption techniques.
  • There is some claim that block chain privacy and immutability are enabled through cryptography.
  • In the 1980s, the roots of crypto currencies originated. The invention is called a blinding algorithm. This algorithm is all about immutable and safe, secure digital transactions.
  • In 2008, Bitcoin was invented by the pseudonym Satoshi Nakamoto. He created the principles of Bitcoin. After one year, Bitcoin was launched globally. However, it takes three more years for Bitcoin to get recognition as a payment option.
  • Bitcoin today is used in the form of various transaction modes such as banking and insurance.
  • The cryptocurrency has become the backbone of investment and it is now well recognized in every country. There are some claims of Bitcoin reaching 4.84 billion by 2030.

How does crypto work?

Crypto currency is not authorized by the government. As per rule, crypto currency is different from banking systems;  it is used by different brands and types of coins.

  1. Mining

Cryptocurrency, a digital currency, is created through a process called mining. This is a very complicated mode in which miners are needed to solve maths puzzles over a special computer system to get rewarded with Bitcoins. It takes a person almost 30 days to mine one Bitcoin.

Buying, selling, and storing

Users can get crypto currency from brokers or individuals who own currency. There are crypto wallets like Coinbase that buy or sell crypto currencies. Users can keep the bought crypto currency in digital wallets.

Digital wallets can be connected to the internet, which makes work easy during transactions.

But the online mode isn’t considered safe as it creates chances for thefts and fraud. Offline storage of crypto currency is secured but users find it difficult to transact.

Transacting or investing

All crypto currencies can be easily transferred from one user’s digital wallet to another user’s digital wallet. This can be done through a smartphone. You can use crypto for buying goods, for trade or you can exchange crypto with cash. Purchasing Bitcoin through a debit card is found as the easiest way to do so. These cards have specifications similar to ATM cards. You can withdraw cash also. By using banking accounts, you can easily convert crypto into cash.

Types of Crypto currency

There are thousands of crypto currencies available today to buy.

Here are some popular ones.


Bitcoin is the most popular Cryptocurrency in this world. This Cryptocurrency is the world’s first Crypto that is widely accepted. If you’re looking to invest in Bitcoin, you should know that it has become very costly. One Bitcoin is worth $68,000.

Fortunately, you don’t need to buy an entire Bitcoin. You can purchase a smaller part of it.


Altcoin is a perfect alternative to Bitcoin. The most popular one is Ethereum. This is one of the fastest growing among the users.

Crypto tokens

The terms crypto tokens and crypto coins can put people in confusion, especially for those who are new to crypto. Coins and tokens are both different from each other.

You can mine coins, but tokens cannot be mined. Tokens are not linked with blockchain but coins are.

Advantages and disadvantages of Crypto currency

Every coin has two sides. This quote is suitable for crypto also.

There are many advantages and disadvantages of crypto currencies you should know before investing.

Advantages of Crypto currency

Private and Secure: The block chain system that controls Crypto currency hides all private information of users. It provides high level security with cryptography.

Decentralised, immutable, and transparent: The blockchain system functions on mutual ownership. The data remains for members who have access to it. This makes this system tamper proof.

Profit: If someone gains good knowledge of Crypto currency, they can make the best out of it by getting a huge return.

Disadvantages of Crypto currency

Not widely recognized: Crypto currency has been here for decades. However, the recognition is not satisfactory. The majority of people are unaware of Crypto currency terms.

High risk: Crypto currency is volatile. The chances of losing money are equal to gaining one. There is a high risk of losing a big amount if you have invested without having proper knowledge of Crypto currency.

Cryptocurrency in India

The craze for cryptocurrency is growing rapidly in our country. People are investing heavily in this digital currency. However, there are some rules coming regarding tax related issues that might affect the future crypto currency in India.

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