What Is Cryptocurrency? Blockchain Explained for Beginners

A cryptocurrency is a digital asset whose ownership is recorded on a blockchain: a shared public ledger that thousands of computers keep in sync, so no single bank or company controls it. You hold crypto by controlling a secret key, and you trade it on exchanges where its price is set purely by supply and demand. For a trader that means markets that never close, large price swings and payments that usually cannot be reversed.

Money is already a ledger

Your bank balance is not a pile of notes in a vault. It is a number in your bank's database, and the bank decides which payments are valid. If someone tricks you into a transfer, the bank can sometimes freeze or reverse it, and if the bank fails, a government scheme may protect part of your deposit.

Cryptocurrency replaces that single trusted database with a public one. Anyone can download the full history of every transaction, anyone can check it, and nobody can quietly change it. The trade-off is that there is no customer-service desk standing behind the ledger.

How a blockchain works

When you send crypto, your wallet broadcasts a signed message: "move 0.01 BTC from this address to that address". Computers on the network, called nodes, check that the signature is valid and that the coins have not already been spent.

Valid transactions are grouped into a block. Each block contains a hash of the block before it. A hash is a short digital fingerprint: change even one character of the data and the fingerprint changes completely. Because every block carries the fingerprint of the previous one, the blocks form a chain. Rewriting an old transaction would change its block's fingerprint and break every link after it, which honest nodes would immediately notice.

Proof of work and proof of stake

Someone has to decide which block comes next. Networks use one of two main systems:

• Proof of work (Bitcoin). Miners run specialised hardware to solve a puzzle. The winner adds the next block and earns newly created coins plus the fees in that block. Bitcoin aims for one block about every 10 minutes. Cheating would require more computing power than the rest of the network combined.
• Proof of stake (Ethereum since September 2022, and many newer networks). Validators lock up coins as a deposit, called a stake. They take turns proposing and checking blocks and earn rewards. If they break the rules, part of their stake can be destroyed, which is called slashing.

Keys, addresses and ownership

Every wallet has two linked pieces of data:

• A public address, which you can share so people can pay you, like an account number.
• A private key, which signs transactions and proves you own the coins at that address. Whoever has the private key controls the coins.

Most wallets back up the private keys as a seed phrase of 12 or 24 words. Lesson 4, Crypto Wallets and Seed Phrases, covers how to store it. For now, remember the saying "not your keys, not your coins": if an exchange holds your keys, you are trusting that exchange.

Bitcoin in brief

Bitcoin was described in a white paper published in October 2008 under the name Satoshi Nakamoto, and the network started running in January 2009. Its rules cap the supply at 21 million coins. New coins are paid to miners, and that reward is cut in half every 210,000 blocks, roughly every four years. This event is called the halving. After the April 2024 halving the reward is 3.125 BTC per block. You will see why traders watch the halving in Crypto Market Cycles.

Thousands of other cryptocurrencies followed. Some, like Ethereum, run programs called smart contracts; others are designed to hold a steady value. The next lesson sorts them into groups.

What gives crypto its price?

A share in a company entitles you to part of its profits. A bond pays interest. Most cryptocurrencies pay neither. Their price is whatever buyers and sellers agree on at that moment, driven by:

• Adoption and use: how many people and businesses use the network.
• Liquidity and interest rates: when money is cheap and plentiful, speculative assets tend to rise. The strength of the US dollar matters too; see Dollar Index vs Crypto.
• Regulation and news: approvals, bans, exchange failures and hacks move prices fast.
• Sentiment: fear and greed spread quickly in a market that trades every second of every day.

Because there is no profit stream to anchor the value, crypto prices can move a long way. Bitcoin fell by more than 70% from peak to trough in both the 2018 and 2022 bear markets, and many smaller coins fell further and never recovered.

What this means for you as a trader

Feature	Crypto	Bank or stock market
Trading hours	24 hours a day, 7 days a week	Weekday sessions
Reversing a mistake	Usually impossible	Often possible
Who holds your asset	You (with your keys) or an exchange	A regulated bank or broker
Typical volatility	High	Lower
Regulation	Different in every country and changing	Long established

In the next lesson, Bitcoin vs Altcoins vs Stablecoins, you will learn the three families of coins you will meet on every exchange and why they behave so differently.