What Is Cryptocurrency and How Does It Work?

What is cryptocurrency and how does it work - Readers desire

Cryptocurrency is a digital currency that is based on blockchain technology and does not rely on any central authority like banks, governments, etc., to maintain it.

It is a completely decentralized system that enables anyone to send and receive payments.

A blockchain is a digital ledger that is distributed among the network of computers of its users.

This ledger keeps the records of all the transactions which are made by authorized users, such as buying and selling of coins.

The transactions of money on the blockchain are secured by cryptography.

Cryptography secures the record of transactions, checks the transfer of coin ownership, and also controls the creation of additional coins.

The information on this digital ledger is transparent and cannot be modified by an administrator.

Crypto is not physical money but digital money that is stored in digital wallets. In this article, you will learn how to buy and sell cryptocurrency.

Also Read:- Crypto | Prices, Market & Online Exchange- Readers Desire

How Does Cryptocurrency Work?

Cryptocurrency is decentralized digital money that is not controlled by any government or central authority.

In cryptocurrency, there are different types of coins like Bitcoin, Ethereum, etc. that run on a distributed public ledger in which all the transactions are held by the currency holders.

1. Mining


Cryptocurrencies are created through the mining process.

It is a very complex process in which miners have to solve complicated mathematical puzzles by using computer power.

If they become successful in solving the puzzle, then they will be rewarded with coins in exchange.

2. Buying and Selling of Cryptocurrency

Buying and Selling of Crypto

If the users want to buy cryptocurrency, then they can buy it from brokers, online exchanges, and also directly from the currency holders.

They can even sell their cryptocurrency to them.

There are many online exchanges where you can buy or sell crypto, like Coinbase, Binance, Coinmarketcap, etc.

3. Store Cryptocurrency

Store Crypto

After buying, the user can store their cryptocurrency in a digital wallet.

Remember that digital wallets can be hot, cold, custodial, or physical wallets.

A hot wallet is connected to the internet and you can easily do transactions, but there is a security risk if you store your crypto online.

A cold wallet is safer, but it is difficult to do transactions through this. This wallet provides the highest level of security.

A physical wallet is a paper wallet that stores cryptographic private keys offline.

If the wallet gets misplaced, then there are a lot of risks.

When you store your crypto in a crypto exchange, then it is a custodial wallet.

This is the most convenient way to store cryptocurrency.

4. Transactions and Investing in Cryptocurrency

Transactions and Investing in Crypto

You can transfer cryptocurrencies from one digital wallet to another. The user can even use their smartphone for transactions.

When you buy crypto, you can invest in buying goods or services, do trading, and exchange them for cash.

Various Types of Cryptocurrency

Various Types of Cryptocurrency

There are various types of cryptocurrencies that are available on the market. But the common cryptocurrencies are mentioned below.

  1. Bitcoin
  2. Ethereum
  3. Tether
  4. USD Coin
  5. Ripple
  6. Binance Coin
  7. Cardano
  8. XRP
  9. Solana
  10. Altcoin
  11. Litecoin
  12. Dogecoin
  13. Polkadot

How to Buy Cryptocurrency?

1. Choose the Platform to Buy Cryptocurrency

Choose the Platform to Buy Cryptocurrency

First of all, you have to choose the platform to buy cryptocurrency.

The user can buy with the help of a broker or through a crypto exchange.

When the user is choosing the platforms, they should look at which cryptocurrencies are on offer, what fees they charge, what security features they provide, and the currency storage wallet.

Cryptocurrency brokers are online brokers who help you buy and sell crypto and other financial assets such as stocks, bonds, etc.

They interact with the exchanges to buy crypto for you, but they charge higher fees as compared to exchanges.

They offer lower trading costs but fewer cryptographic features.

Cryptocurrency exchanges offer different cryptocurrencies, and wallet storage, and have a complex interface.

These exchanges charge lower fees as compared to brokers.

2. Set Up Your Account

Set Up Your Account

After deciding on a platform, the user has to open an account.

They will verify your identity before creating an account.

You have to create an account in order to prevent fraud and meet different requirements.

Remember that you cannot buy or sell crypto until the verification process is completed.

They might ask you to upload a selfie in order to verify your identity.

They will match your appearance with the documents that you have submitted.

3. Money In Your Account

Money In Your Account

If you want to buy crypto, then you should have funds in your account.

Users must deposit money into their crypto account by linking it to their bank account, or they can pay with a debit or credit card.

4. Place a Cryptocurrency Order

Place a Cryptocurrency Order

After you deposit cash into your account, then you can place a crypto order through your broker, online exchange, or through your Smartphone.

To buy cryptocurrencies, you have to choose “buy”, then order type, now just enter the amount of cryptocurrency which you want to buy, and lastly, just confirm the order.

5. Choose a Wallet to Store Your Cryptocurrency

Choose a Wallet to Store Your Cryptocurrency

If you forget the code of your account, it is very necessary that you have storage space for your crypto.

You can store your cryptocurrency on a crypto exchange, or you can purchase a hot or cold wallet to store your cryptocurrency.


If you are deciding to invest in cryptocurrency, then it is advised that you do proper research before investing.

If you are a beginner, then you should first buy Bitcoin because there might be others who do not have sufficient liquidity.

And it is very important that you choose the platform to buy and sell your cryptocurrency.

The user profits from crypto, but keep in mind that there is risk involved. So, you should invest the amount that you can afford to lose.