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Whether or not it’s worth investing in, there is an enormous interest in the field of cryptocurrencies, and so are the uncertainties and doubts.

We often hear people talking about cryptocurrency but there are many people who don’t know what it is. Also, so many of us really have no idea how they work.

So, in this post, we will give you a brief overview of what cryptocurrency is, how it works and its types. Let’s have a look!


Cryptocurrency meaningLet’s start by learning the very basics of cryptocurrency. Investopedia defines cryptocurrency as “a digital or virtual currency that’s secured by cryptography”. Digital currency implies that cryptocurrency only exists electronically.

They are typically not issued by a central issuing authority or regulatory body, which means it isn’t attached to a state or government and is solely controlled by users and computer algorithms. You can’t touch it, hold it in your hands, or store it in your wallet.

A Cryptocurrency is designed to work as a medium of exchange. The coin ownership records are stored in a ledger that exists digitally in the form of a computerized database. This database uses strong cryptography which secures the transaction records and verifies the transfer of coin ownership.

Moreover, it is also done to control the creation of additional coins. Since there are no financial institutions that are monitoring cryptocurrency transactions, this makes these transactions faster.

Also, since these transactions are not going through governments or banks, no fees are involved which makes them cheaper. These are some of the many reasons why cryptocurrencies are so popular amongst a lot of people nowadays. Also, many cryptocurrencies have grown exponentially in value in the last few years.

Most cryptocurrencies wouldn’t exist without the presence of a whole network of people and a little thing called cryptography, which also gives them their name. The term is derived from the Greek word “kryptos”, meaning hidden. In simple words, cryptography refers to the study and science of keeping information secure by communicating it in such a way that only the sender and receiver of that message are able to view its contents.

Bitcoin is the first decentralized cryptocurrency that was first released as open-source software in the year 2009. Since its release, many cryptocurrencies have been created and are in use. Some popular cryptocurrencies are Ethereum, Ripple, Dash, Litecoin, Dogecoin, and zCash. You can check out the value of different cryptocurrencies here. 


So, now let us talk about how cryptocurrency really works. Remember arcade games? How when you were a kid you’d go to the arcade and give the cashier a certain amount of money in exchange for a certain amount of tokens that could be used to play games?

Well, that’s very similar to the working of cryptocurrency. Here, you exchange real currency or money for cryptocurrency, and you can use this to buy and sell things online, or trade for a profit. Also, keep in mind that you cannot make a bunch of counterfeit copies of cryptocurrencies and become rich even if it is a digital currency. It is because it is a string of data that cannot be duplicated.

For starters, you can obtain digital coins online for dollars, through the exchange of goods and services, or by trading already-obtained cryptocurrencies for other cryptocurrencies. You can also purchase cryptocurrencies like bitcoin from bitcoin ATMs or kiosks using cash or debit.

Now, coming to the cryptocurrency transactions. These transactions are sent using special software which is known as cryptocurrency wallets. The person initiating or creating the transaction uses this wallet to transfer funds to a specific public address. Every transaction leads back to a unique set of keystrokes.  The person owning that passcode is the owner of the amount of cryptocurrency associated with that passcode.

Let us take an example of very popular crypto called Bitcoin. This will help you easily understand how cryptocurrencies work. A bitcoin is an entry on an extensive and global ledger. This ledger is known as the blockchain. Every bitcoin transaction that has ever happened is recorded in this blockchain. So, when you send bitcoin, it doesn’t mean that you are sending them some sort of code or files. Instead, you are recording that exchange on the ledger or the blockchain.

But since there is no issuing authority or regulatory body, who is keeping the checks on these transactions and keeping the records? Well, the blockchain is a central record but it is decentralized. There is no official body to keep track of everything like a bank does. Anyone can volunteer to update the blockchain and keep it up to date with all the new transactions that take place. And let me tell you, a lot of people do. Due to this, a large number of people keep it running by keeping track of the same.

Now, you must be wondering if so many people are individually maintaining this blockchain, how are all the ledgers kept in sync? To keep everything in sync and avoid any complications, you are supposed to announce some things to the bitcoin network for every transaction. These are your account number, the account number of the recipient of the bitcoins, and the number of bitcoins to be sent. Everyone keeping copies of the blockchain and managing it, then, adds your transaction to the current block.

When your account is created on the bitcoin network, which many call a “wallet”, that wallet is is linked to two unique keys. These are – a private key and a public key. The private key takes some data and marks it. This process of marking the data is known as signing. The private key can only be accessed by you.

When you send a message to the network related to the transaction, that message is signed using the private key that nobody can duplicate. This is done to help others to verify those signatures later. And when you send this signed message to the bitcoin network, others can use your public key to verify and make sure that the signature checks out.

When your public key works, it also acts as solid proof that the message that was sent was signed by your private key and was intentional. That way, everyone keeping track of the bitcoin trading can add your transaction to their copy of the blockchain. This is how cryptocurrency works. You can learn more about cryptocurrency here.


There are generally three main types of Cryptocurrencies: Bitcoins, Altcoins, and Tokens. Let us discuss them one by one.


Logo of Bitcoin cryptocurrency

Bitcoin was created in January 2009 by a group of people or an unknown individual using the name Satoshi Nakamoto. The identity of its creator is unknown and still remains a mystery. It is commonly abbreviated as “BTC.” Despite it not being a legal tender, it is still one of the most popular cryptocurrency.

It offers a variety of benefits like lower transaction fees as compared to the traditional online payment methods. Also, since it is a cryptocurrency, it is not government-issued and is operated by a decentralized authority. Following the success of Bitcoin, many digital currencies have been created. As of 6th February 2020, the value of 1 bitcoin is equal to almost 27,29,716 Indian Rupees. More than 18 million Bitcoins are in circulation worldwide.


Altcoins = Alternatives to Bitcoins

The huge success of bitcoin paved the way for many digital currencies. Altcoin refers to all the cryptocurrency that was launched after Bitcoin. They are just alternate versions of bitcoins with some small changes. This is why it is known as “alt” coin, meaning “alternative to Bitcoin”.  Most of the altcoins are based on the same framework used by Bitcoin. This also implies that most altcoins are peer-to-peer.

Just like any other cryptocurrency, they offer easy, quick, and comparatively cheaper ways to carry out transactions online. Ethereum and NEO are some popular examples of altcoins. Namecoin, created in the year 2011, is considered to be the first altcoin.

However, not all altcoins are the alternate versions of Bitcoins. In fact, there are many altcoins that are very different from bitcoins. For example, consider Ethereum and NEO. These are some popular altcoins. Even though they are altcoins, they were not completely designed to be used as a digital currency. Instead, they are widely used to build apps on a blockchain called dApps.

The blockchains on which they are created allow app building. However, these are not the regular applications that you use. The technology that these cryptocurrencies use is called a smart contract that can automatically process transactions when certain requirements are met or certain actions are executed.

These actions are also known as conditions. They are written into the smart contract during its creation. An example of a condition could be something like “WHEN A sends 200 Ether into the smart contract, THEN B’s apartment will be sent to A”. Thus, these smart contracts eliminates the need of third parties. Bitcoin requires no third party in direct payments. But, smart contracts eliminates this need of third parties in lots of things — such as the sale of a house, electricity, or stock on the stock market.

Now, you must be wondering how you can put electricity into a smart contract. Well, you cannot. Instead, a token is used with that smart contract that can represent the electricity legally. Thus, you can “tokenize” real things and use them or put them on the blockchain.

Now, what are these “Tokens”? Let’s find out.


The third type of cryptocurrency is a token. While other cryptocurrencies use blockchain, a token does not have its own blockchain and is built over an Initial Coin Offering (ICO). A token is built on top of an existing blockchain. For example, 0x is an Ethereum-based token. It is based on another cryptocurrency – Ethereum.

Tokens are used on decentralized applications, commonly abbreviated as dApps. These applications are built on blockchains like Ethereum and lets you use smart contracts, which is why they use tokens. Then, you can use these tokens purchase things on these decentralised applications.

The prime function of tokens is not be used as money. Instead they are used to describe a function. For example, consider Indian Rupees. They represent a specific amount of value. However, they are not in themselves of value. Similarly, a Token is a type of encryption. By encryption, we mean the long lines of digits and numbers that represents the cryptography used in a transaction.

Each token represents a tradable good. For example, in-game items, points, certificates, and so on. This implies that tokens can be utilized to represent a share in a company. They can also be used as a central committee voting rights. It is common for tokens to be used to raise funds in a crowdsale. Due to this, many people refer to tokens as cryptocurrency assets or equity.


There is no denying that the popularity of cryptocurrency is increasing day by day. Even though it has been into existence for more than a decade now, it is still a novel and confusing concept for many. Still, more and more people are now investing in cryptocurrency. The last few years have witnessed a steady and drastic growth of the cryptocurrency market and this growth is not slowing down any soon. However, uncertainties and doubts co-exist in the minds of people concerning digital currency. But that’s common with any new concept or idea. Hence, it can be concluded that cryptocurrencies are surely on the rise and they are no way on their way out.

I hope you enjoyed reading this blog post. Feel free to check out our blog for more posts and share your thoughts in the comments section down below!

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