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Cryptocurrency for beginners: What is it and how does it work?

Cryptocurrency is a type of digital currency that uses encryption techniques to regulate the generation of units of currency and verify the transfer of assets.

In recent years, cryptocurrencies like Bitcoin (BTC), Ethereum (ETH), and Dogecoin (DOGE) have become increasingly popular, with many people seeing them as potentially lucrative investment opportunities, while others view them as more efficient payment tools.

However, for beginners, the world of cryptocurrency can be confusing and overwhelming. In this article, we’ll cover the basics of cryptocurrency and what you need to know to get started.

What is cryptocurrency?

Crypto is a decentralized digital currency that operates independently of governmental bodies or central banks. It is based on blockchain technology, a distributed ledger that records all transactions made with a particular cryptocurrency.

Most leading coins have their own native blockchain network. For instance, all Bitcoin (BTC) transactions are secured and recorded on the bitcoin blockchain. On the other hand, all transactions related to Ether (ETH) are recorded on the Ethereum network.

Each transaction on a blockchain is verified by a network of computers, and once verified, it is added to the digital ledger. Because the blockchain is decentralized, it is virtually impossible to hack or manipulate.

This makes blockchain technology a secure and transparent way to conduct transactions without the need for intermediaries, like banks. As a result, it has the potential to revolutionize various industries beyond just finance, such as supply chain management and voting systems.

Quick Take:

Cryptocurrency works by using complex algorithms to generate new units of currency and to verify transactions made with existing units. These algorithms are solved by a network of computers that work together to maintain the blockchain. Once a transaction has been verified, it is added to the blockchain and cannot be changed.

Types of cryptocurrency

The following are the basic types of cryptocurrencies that exist today, each with its own examples except “Bitcoin”:

  • Bitcoin
  • Altcoins
  • Stablecoins
  • Memecoins


Launched in 2009, Bitcoin is the first and most popular cryptocurrency. It’s a decentralized currency, meaning it’s not controlled by any party, government, or financial institution.


Any cryptocurrency that is not Bitcoin is considered an altcoin. These coins address some of Bitcoin’s shortcomings, such as transaction speed and scalability. Examples of altcoins include Ethereum, Litecoin, and Ripple.


These cryptocurrencies are pegged to a stable asset, such as the US dollar, or a stable commodity, like gold. The aim is to provide price stability and avoid the volatility associated with other cryptocurrencies. Examples of stablecoins include Tether (USDT), USD Coin (USDC), and Dai.

Meme coins

Meme cryptocurrencies are created based on internet memes and viral trends. They often have no real-world use case and are purely for entertainment. However, most of the leading memecoins are now creating multiple, valuable utilities. Examples of meme coins include Dogecoin, Shiba Inu, and Baby Marco.

Cryptocurrencies for beginners: What are they and how do they work?

Buying and storing your first cryptocurrency

The process of buying cryptocurrencies can be intimidating for those who are new to the space, but here are some steps to follow when buying cryptocurrencies.

  1. Choose a reputable exchange: There are many cryptocurrency exchanges to choose from, but it’s important to do your research and find one that is reputable and secure. Some popular exchanges include Binance, Coinbase, and Kraken.
  2. Create an account: Once you’ve chosen an exchange, you’ll need to create an account and, most of the time, verify your identity through what we know as the know-your-customer (KYC) process.
  3. Fund your account: You can fund your account with fiat currency (your local currency like USD, NGN, etc.) or other cryptocurrencies.
  4. Buy your cryptocurrency: Once your account is funded, you can buy the cryptocurrency of your choice.

However, there are different methods of storing cryptocurrencies, each with its own advantages and disadvantages.

One common method is storing cryptocurrencies on a cryptocurrency exchange platform. Exchanges allow users to buy, sell, and store cryptocurrencies on their platform. However, this method is not without risks, as exchanges have been known to suffer security breaches resulting in the loss of cryptocurrencies.

Another method is storing cryptocurrencies in a software wallet. Software wallets are applications that run on desktops, mobile phones, or other devices. They are more secure than exchange platforms, but users need to ensure that they download the wallet from a reputable source and keep their private keys secure.

Hardware wallets provide an even higher level of security as they store the user’s private keys offline. They come in the form of a USB device and require the user to physically connect the device to their computer to access their cryptocurrencies.

Paper wallets, on the other hand, involve printing out the user’s private keys on a piece of paper. This method is not recommended for beginners, as it requires a high level of technical knowledge to ensure the safety of the printed keys.

Nevertheless, the method of storing cryptocurrencies depends on the user’s preferences and level of technical knowledge. While each method has its advantages and disadvantages, it is essential to prioritize security when choosing a storage option.

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Closing thoughts

Cryptocurrency is a complex and rapidly evolving field, but with the right knowledge and understanding, it can be a potentially lucrative investment opportunity. Remember to do your research, understand the risks involved, and choose a reputable wallet provider to store your cryptocurrency. With these tips, you’ll be well on your way to becoming a successful cryptocurrency investor.

DISCLAIMER: This article is only for educational purposes and does not constitute investment advice. While many people see cryptocurrency as a potentially lucrative investment opportunity, it is important to remember that it is a highly volatile and speculative asset. The value of cryptocurrencies can fluctuate wildly, and there is no guarantee that you will make a profit. It is important to do your research and understand the risks involved before investing in cryptocurrencies.

Joseph Alalade
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Joseph Alalade

Joseph Alalade is the founder of Starite Media and a fervent learner of all things Web3, driven by the belief that it holds the key to revolutionizing numerous aspects of human life.