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What is Cryptocurrencies and How it Works: All You Need to Know About It

Personal Finance

All of us have heard of cryptocurrency by this point, but the majority still don’t fully understand what it is. Whether you came across cryptocurrency on social media or in the news, you should learn about the innovation that people are urging you to buy.

So it’s important to spend some time learning about cryptocurrencies.

What is Cryptocurrency

A cryptocurrency is a form of money that is entirely digital. It is used to make purchases and sales, but rather than taking the shape of a real note or coin, companies keep it in a virtual wallet and conduct their transactions online. 

What makes cryptocurrency special is something known as blockchain technology. In reality, it just means that it is centered on a very complicated online platform that is spread all over a lot of computers. This makes it very hard to fake or double-spend. It also means that it is not controlled by governments or central authorities. This means that the people who use these currencies are the only ones who can keep them up and decide how much they are worth.

How Does it Work? 

Cryptocurrencies are not regulated by the government or any other central body. Cryptocurrency works beyond the banking system. It uses various brands or different kinds of coins, with Bitcoin being the biggest one. 


“Mining” is the process by which completely digital cryptocurrency is made. This is a hard thing to do. In a nutshell, miners need to fix specific math puzzles on specially set-up computers to get bitcoins in return. 

One bitcoin would be mined in a perfect world in just ten minutes, but in the real world, it takes about thirty days.

Selling, Buying and Storing 

Users can buy and sell cryptocurrencies through central trades, brokers, and people who own their currency. The most convenient way to buy cryptocurrencies is through an exchange or platform like Coinbase.

Cryptocurrencies can be kept in digital wallets once they have been bought. There are “hot” and “cold” digital wallets. When a wallet is “hot,” it means it is synced with the web. That also makes it easy to make transactions but leaves it open to theft and fraud. Cold storage is safer, but it makes it more difficult to do business.

Investment or Trading 

The transfer of cryptocurrencies like Bitcoin between digital wallets is simple and requires only a smartphone. Once you have them, you have the option to: 

  • Spend them on products or services 
  • sell them. 
  • Sell them for cash. 

The simplest way to make purchases with Bitcoin is through debit-card-style transactions. These debit cards also permit cash withdrawals, much like ATMs. Using accounts online or peer-to-peer exchanges are other options for turning cryptocurrency into cash.

Different Types of Cryptocurrencies

There are currently so many cryptocurrencies, and the number is expected to reach 10,000 in 2022. Some of the most important cryptocurrencies are: 


Bitcoin is the first cryptocurrency that is widely used around the world. Bitcoin is so common that its name used to mean “cryptocurrency” for a while. But people who want to invest should know that bitcoins are now very expensive. In 2021, it will cost $68,000 for one bitcoin. But the great news is that you don’t just have to purchase a whole coin; you can purchase smaller parts of it.


An altcoin is a name for any digital currency that is different from bitcoin. Ethereum, which is one of the cryptocurrencies with the fastest growth, is the most famous in this ecosystem. There are also several other altcoins on the market today, such as Shiba Inu, Terra and Luckyblock.

Crypto Tokens

Many people don’t understand the difference between crypto coins and tokens. From the outside, coins and tokens look the same. But the two are not the same in many ways. 

  • You can mine for coins, but you can’t mine for tokens. 
  • Tokens are not connected to blockchains, but coins are. 
  • In terms of how useful they are, they are different in the kinds of goods and services they let people buy.

Advantages of Cryptocurrencies:

There are many advantages to cryptocurrencies. These are the following:

  • They are private and safe. The blockchain feature that makes cryptocurrencies work makes sure that users’ identities are kept secret. Cryptography, which we’ve talked about before, also provides high levels of security. 
  • They are decentralized, can’t be changed, and are open to everyone. The whole system is based on joint ownership, in which data is accessible to all members with permission and can’t be changed.
  • They are a way to protect against inflation. When inflation is high, cryptocurrency is a great investment. Investors often say that cryptocurrency is like gold. One reason for this is that there are only so many of them, just like gold. This is due to a limit on how much of a certain type of cryptocurrency can be mined.


Cryptocurrencies may or may not be the way of the future, but one thing is certain: It is not preferable to invest in them before doing some research. It’s not a recent trend for people to invest in cryptocurrencies. But the recent increase in the popularity and value of cryptocurrencies, along with lower returns on deposit accounts, has led more people to look for advice about cryptocurrencies. 

If you have chosen to invest in cryptocurrencies, start with the most popular ones like bitcoin because newer ones might not have enough cash flow. Scammers abound in the marketplace. So it’s important, especially when starting, to buy or trade cryptocurrency through authorized platforms.

Starting small and diversifying your investments is advised because cryptocurrencies are also very volatile. It’s beneficial if, as a beginner, you initially follow the advice of experts and gradually develop your knowledge by researching the subject. Understanding the past and present cryptocurrency policies of your nation is also crucial for the success of this type of research. As always, never risk more money than you can bear to lose.

For similar blogs like this, you can visit the Piramal Finance website and explore their products and services.