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What is a cryptocurrency – everything you need to know!

If you want to learn about what a cryptocurrency is and know all the details about this new technology, I recommend you to stay until the end to know and understand in detail how cryptocurrencies work, and the differences between them. Since each cryptocurrency is different from the others and has its own functionalities.

If you want to buy any of the main cryptocurrencies, below, you can find a guide on how to buy the different cryptocurrencies, where we will leave you the main cryptocurrencies of the moment. If you want to know how you can buy another cryptocurrency that you do not find below, you can search in the menu in the search engine, and you will surely be able to find a detailed guide on our website.

Terra (Luna)
Axie Infinity
Cosmos (Atom)
Star Atlas
Baby Doge Coin

This introduction explains the most important things about cryptocurrencies. After reading it, you will know more than most other people.

Nowadays cryptocurrencies (Buy Crypto) have become a global phenomenon known to most people. Although somehow it is still a bit clumsy and not understood by most people, banks, governments and many companies are aware of its importance.

In 2016, you will be hard pressed to find a major bank, a large accounting firm, a major software company or a government that hasn’t researched cryptocurrencies, published an article on the topic or started a project called blockchain-project. (Take our courses on blockchain to learn more about blockchain)

“Virtual currencies, perhaps most notably Bitcoin, have captured the imagination of some, frightened others, and confused the rest of us.” – Thomas Carper, U.S. Senator

But beyond the noise and press releases, the vast majority of people – even bankers, consultants, scientists and developers – have very limited knowledge about cryptocurrencies. Often they don’t even understand the basics.

So let’s review the whole story. What are cryptocurrencies?

  • Cryptocurrency basics
  • Where did cryptocurrency originate?
  • Why should you learn about cryptocurrencies?
  • And what do you need to know about cryptocurrencies?
  • What is a cryptocurrency and how did cryptocurrencies emerge as a byproduct of virtual money?

Few people know this, but cryptocurrencies emerged as a byproduct of another invention. Satoshi Nakamoto, the unknown inventor of Bitcoin, the first and even more important cryptocurrency, never intended to invent a currency.

In his announcement of Bitcoin in late 2008, Satoshi said he had developed “a peer-to-peer electronic money system.” 

His goal was to invent something; many people failed to create before digital cash.

We announced the first release of Bitcoin, a new electronic cash system that uses a peer-to-peer network to avoid double spending. It is completely decentralized, with no server or central authority.  – Satoshi Nakamoto, January 09, 2009, announcing Bitcoin on SourceForge.

The most important part of Satoshi’s invention was that he found a way to build a decentralized digital cash system. In the 1990s, there have been many attempts to create digital cash, but they all failed.

… after more than a decade of failed systems based on Trusted Third Party (Digicash, etc.), they see it as a lost cause. I hope they can make the distinction, that this is the first time I know of that we are testing a non-trusted based system. – Satoshi Nakamoto in an email to Dustin Trammell

After seeing all centralized attempts fail, Satoshi tried to build a digital money system without a central entity. As a Peer-to-Peer network for file sharing.

This decision became the birth of cryptocurrencies. They are the missing piece that Satoshi found to realize digital cash. The reason is a bit technical and complex, but if you get it, you will know more about cryptocurrencies than most people. So, let’s try to make it as easy as possible:

To make digital cash you need a payment network with accounts, balances and transactions. That’s easy to understand. A major problem that any payment network has to solve is to avoid so-called double spending: to prevent an entity from spending the same amount twice. This is usually done through a central server that keeps track of balances.

In a decentralized network, you do not have this server. Therefore, it is necessary for each of the entities in the network to do this work. Each peer in the network needs to have a list of all transactions to check whether future transactions are valid or an attempt to duplicate charges.

But how can these entities maintain consensus on these records?

If the peers in the network disagree on a single minor balance, everything breaks down. They need absolute consensus. Usually, it takes, again, a central authority to declare the correct status of the balances. But how can consensus be achieved without a central authority?

No one knew until Satoshi came out of nowhere. In fact, no one believed it was possible.

Satoshi proved it was. His greatest innovation was to achieve consensus without a central authority. Cryptocurrencies are part of this solution – the part that made the solution exciting, fascinating and helped it roll around the world.

Most popular cryptocurrencies

If your curiosity has piqued, here you will find a lot of information on the different most popular cryptocurrencies of the moment and how they work. Although first I recommend that you finish this article to better understand what a cryptocurrency is.

What are cryptocurrencies really?

If you remove all the noise around cryptocurrencies and boil it down to a simple definition, you find that they are just limited entries in a database that no one can change without meeting specific conditions. This may seem ordinary, but, believe it or not: this is exactly how you can define a currency.

Take money from your bank account: what is more than entries in a database that can only be changed under certain conditions? You can even take physical coins and banknotes: What are they more than limited entries in a public physical database that can only be changed if you meet the condition that you are the physical owner of the coins and banknotes? Money is about a verified entry in some kind of database of accounts, balances and transactions.

How miners create coins and confirm transactions.

Let’s look at the mechanism that governs cryptocurrency databases. A cryptocurrency like Bitcoin consists of a network of peers. Each peer has a record of the complete history of all transactions and thus the balance of each account.

A transaction is a file that says “Bob gives X Bitcoin to Alice” and is signed by Bob’s private key. It is basic public key cryptography, nothing special. After signing, a transaction is transmitted over the network, sent from peer to peer. This is basic p2p technology. Nothing special at all, again.

Blockchain and cryptocurrencies

The transaction is known almost immediately throughout the network. But only after a specific amount of time is it confirmed.

Confirmation is a critical concept in cryptocurrencies. You could say that cryptocurrencies are all about confirmation.

As long as a transaction is not confirmed, it is pending and can be forged. When a transaction is confirmed, it is set in stone. It can no longer be forged, it cannot be reversed, it is part of an immutable record of historical transactions: of the so-called blockchain.

Only miners can confirm transactions. This is their job in a cryptocurrency-network. They take transactions, stamp them as legitimate and broadcast them on the network. After a transaction is confirmed by a miner, each node has to add it to its database. It has become part of the blockchain.

For this work, miners are rewarded with a token of the cryptocurrency, e.g. Bitcoins. Since the activity of miners is the most important part of the cryptocurrency system, we should stay for a moment and take a closer look.

“In the next few years, we’re going to see national governments take big steps to institute a cashless society in which people transact using centralized digital currencies. At the same time, decentralized cryptocurrencies – which some even see as harder money – will see an increase in usage across all sectors.” – Caleb Chen London Trust Media

What do miners do?

Primarily everyone can be a miner. Since a decentralized network has no authority to delegate this task, a cryptocurrency needs some sort of mechanism to prevent a ruling party from abusing it. Imagine someone creating thousands of pairs and spreading counterfeit transactions. The system would immediately break down.

Therefore, Satoshi established the rule that miners need to invest some work from their computers to qualify for this task. In fact, they have to find a hash – the product of a cryptographic function – that connects the new block with its predecessor. This is called Proof of Work. In Bitcoin, it is based on the SHA 256 Hash algorithm.

You don’t need to understand the details about SHA 256. It is important for you to know that it can be the basis of a cryptologic puzzle that miners compete to solve. After finding a solution, a miner can build a block and add it to the blockchain. As an incentive, he is entitled to add a coin base transaction that gives him a specific number of Bitcoins. This is the only way to create valid Bitcoins.

itcoins can only be created if miners solve a cryptographic puzzle. Since the difficulty of this puzzle increases the amount of computer power invested by the entire miner, there is only a specific amount of cryptocurrency token that can be created in a given amount of time. This is part of the consensus that no peer in the network can break.

Revolutionary properties

If you really think about it, Bitcoin, as a decentralized network of peers that maintains a consensus about accounts and balances, is more of a currency than the numbers you see in your bank account. What are these numbers other than entries in a database – a database that can be changed by people you don’t see and by rules you don’t know?

“It’s that narrative of human development under which we now have other struggles to fight, and I would argue that in the Bitcoin realm it’s primarily the separation of money and state.” – Erik Voorhees, cryptocurrency entrepreneur

Basically, cryptocurrencies are entries on tokens in decentralized consensus databases. They are called CRYPTOcurrencies because the process of maintaining consensus is secured by strong cryptography. Cryptocurrencies are based on cryptography. They are not secured by people or trust, but by mathematics. It is more likely that an asteroid will fall on your house than a bitcoin address will be compromised.

Describing the properties of cryptocurrencies we need to separate between transactional and monetary properties. Although most cryptocurrencies share a common set of properties, they are not carved in stone.

Transactional properties:

1) Irreversible: after confirmation, a transaction cannot be reversed. By no one. And nobody means nobody. Not you, not your bank, not the president of the United States, not Satoshi, not your miner. Nobody. If you send money, you send money. Period. No one can help you, if you sent your funds to a scammer or if a hacker stole them from your computer. There is no safety net.

2) Pseudonymity: Neither transactions nor accounts are connected to real-world identities. You receive Bitcoins in so-called addresses, which are random strings of about 30 characters. Although it is usually possible to analyze the transaction flow, it is not necessarily possible to connect the real-world identity of users to these addresses.

3) Fast and global: Transactions propagate almost instantaneously in the network and are confirmed within a couple of minutes. Since they occur on a global network of computers, they are completely indifferent to their physical location. It doesn’t matter if I send Bitcoin to my neighbor or someone on the other side of the world.

4) Secure: Cryptocurrency funds are locked in a public key cryptocurrency system. Only the owner of the private key can send cryptocurrencies. Strong cryptography and the magic of large numbers makes it impossible to break this scheme. A Bitcoin address is more secure than Fort Knox.

5) No permission: You don’t have to ask anyone to use cryptocurrencies. It’s just software that everyone can download for free. After installing it, you can receive and send Bitcoins or other cryptocurrencies. No one can stop you. There is no gatekeeper.

What is a cryptocurrency: Monetary Properties

1) Controlled supply: Most cryptocurrencies limit the supply of tokens. In Bitcoin, the supply decreases over time and will reach its final number around the year 2140. All cryptocurrencies control the supply of the token by a program written into the code. This means that the money supply of a cryptocurrency at any given time in the future can be roughly calculated today. There is no surprise.

2) No debt but bearer: Fiat money in your bank account is created by debts, and the numbers you see on your ledger represent nothing but debts. It is an IOU system. Cryptocurrencies do not represent debts. They only represent themselves. They are money as hard as gold coins.

To understand the revolutionary impact of cryptocurrencies it is necessary to consider both properties. Bitcoin as a permissionless, irreversible, pseudonymous means of payment is an attack on the control of banks and governments over the monetary transactions of their citizens. You can’t stop someone from using Bitcoin, you can’t prohibit someone from accepting a payment, you can’t undo a transaction.

As money with a limited and controlled supply that is not exchangeable by a government, bank or any other central institution, cryptocurrencies attack the scope of monetary policy. They eliminate central banks’ control over inflation or deflation by manipulating the money supply.

“Although still fairly new and unstable relative to the gold standard, cryptocurrency is definitely gaining traction and will certainly have more normalized uses in the coming years. Right now, in particular, it is increasing in popularity due to market uncertainty following the election. The key will be in facilitating large-scale adoption (as with anything involving cryptocurrency), including the development of safeguards and protections for buyers/investors. I expect that, within two years, we will be in a place where people can put their money under the virtual mattress via cryptocurrency, and know that wherever they go, that money will be there.” – Sarah Granger, author and speaker.

Cryptocurrencies: Dawn of a New Economy

Mainly because of their revolutionary properties, cryptocurrencies have become such a success, their inventor, Satoshi Nakamoto, did not dare to dream of it. While every other attempt to create a digital cash system failed to attract a critical mass of users, Bitcoin had something that provoked enthusiasm and fascination. Sometimes it felt more like religion than technology.

Cryptocurrencies are digital gold. Sound money that is safe from political influence. Money that promises to preserve and increase in value over time. Cryptocurrencies are also a fast and convenient means of payment with global reach, and are private and anonymous enough to serve as a means of payment for black markets and any other prohibited economic activity.

But while cryptocurrencies are most commonly used for payment, their use as a means of speculation and store of value dwarfs the payment aspects. Cryptocurrencies gave rise to an incredibly dynamic and fast-growing market for investors and speculators. Exchanges such as Okcoin, poloniex or shapeshift allow trading of hundreds of cryptocurrencies. Their daily trading volume exceeds that of major European exchanges.

At the same time, the practice of Initial Coin Distribution (ICO), mostly facilitated by Ethereum smart contracts, gave life to incredibly successful crowdfunding projects, where often one idea is enough to raise millions of dollars. In the case of “DAO” it has been more than $150 million.

In this rich ecosystem of coins and tokens, you experience extreme volatility. It is common for a coin to gain 10 percent a day – sometimes 100 percent – only to lose the same the next day. If you’re lucky, the value of your coin grows by as much as 1,000 percent in a week or two.

While Bitcoin remains the most famous cryptocurrency and most other cryptocurrencies have no non-speculative impact, investors and users should keep an eye on several cryptocurrencies. Here we present the most popular cryptocurrencies today.


The unique, the first and most famous cryptocurrency. Bitcoin serves as a digital gold standard throughout the cryptocurrency industry, is used as a global means of payment and is the de facto currency of cybercrime such as darknet markets or ransomware. After seven years of existence, Bitcoin’s price has risen from zero to over $650, and its transaction volume reached over 200,000 transactions per day.

There’s not much more to say: Bitcoin is here to stay.


The brainchild of young crypto genius Vitalik Buterin has ascended to second place in the hierarchy of cryptocurrencies. Apart from Bitcoin, its blockchain not only validates a set of accounts and balances, but also so-called states. This means that Ethereum can not only process transactions but also complex contracts and programs.

This flexibility makes Ethereum the perfect tool for blockchain implementation. But it comes at a cost. After the Hack of the DAO – a smart contract based on Ethereum – developers decided to do hard work without consensus, resulting in the emergence of Ethereum Classic. In addition to this, there are several Ethereum clones, and Ethereum itself is a host for several tokens such as DigixDAO and Augur. This makes Ethereum more of a family of cryptocurrencies than a single coin.


Perhaps the least popular – or most hated – project in the cryptocurrency community is Ripple. While Ripple has a native cryptocurrency – XRP – it is more about a network for processing IOUs than the cryptocurrency itself. XRP, the coin, does not serve as a means to store and exchange value, but rather as a token to protect the network against spam.

Each XRP-token was created by Ripple Labs, the company that manages the Ripple network, and is distributed by them at will. For this reason, Ripple is often called pre-mined in the community and dissected as a real cryptocurrency, and XRP is not considered a good store of value.

Banks, however, seem to like Ripple. At least they adopt the system at an increasing rate.


Litecoin was one of the first cryptocurrencies after bitcoin and labeled as the silver to the digital gold bitcoin. Faster than bitcoin, with a larger token pool and a new mining algorithm, Litecoin was a true innovation, perfectly suited to be bitcoin’s little brother. “It facilitated the emergence of several other cryptocurrencies that used its code base, but made it, even more, lighter.” Examples include Dogecoin or Feathercoin.

Although Litecoin could not find a real use case and lost its second place after bitcoin, it is still being actively developed and traded and is stored as a backup if Bitcoin fails.


Monero is the most prominent example of the cryptonite algorithm. This algorithm was invented to add the privacy features that Bitcoin does not have. If you use Bitcoin, every transaction is documented on the blockchain and transactions can be traced. With the introduction of a concept called ring-signatures, the cryptonite algorithm was able to cut that trail.

The first cryptonite implementation, Bytecoin, was heavily premined and therefore rejected by the community. Monero was the first non-premined clone of bytecoin and created a lot of awareness. There are several other cryptocurrency incarnations with their own small improvements, but none of them reached the same popularity as Monero.

Monero’s popularity peaked in the summer of 2016 when some darknet marketplaces decided to accept it as a currency. This resulted in a steady increase in price, while the actual usage of Monero seems to remain disappointingly small.

On top of that, there are hundreds of cryptocurrencies from various families. Most of them are nothing more than attempts to reach investors and make a quick buck, but many of them promise playgrounds for testing innovations in cryptocurrency technology.

What is a cryptocurrency: Conclusion

The cryptocurrency market is fast and wild. Almost every day new cryptocurrencies emerge, old ones die, early adopters get rich and investors lose money. Every cryptocurrency comes with a promise, mostly a great story to change the world. Few survive the first few months, and most are pumped and dumped by speculators and live as zombie coins until the last holder loses hope of seeing a return on their investment.

“Within 2 years, I believe cryptocurrencies will be gaining legitimacy as a protocol for commercial transactions, micropayments and overtaking Western Union as the preferred remittance tool. As for commercial transactions, you will see two paths: There will be financial businesses that will use it at no cost, with almost instantaneous ability to move any amount of money, and there will be those who use it for their blockchain technology. Blockchain technology provides the greatest benefit with trustless audits, single source of truth, smart contracts and colored currencies.”- Cody Littlewood, and I’m the founder and CEO of Codelitt

The markets are dirty. But that doesn’t change the fact that cryptocurrencies are here to stay – and here to change the world. It’s already happening. People all over the world are buying Bitcoin to hedge against the devaluation of their national currency. Especially, in Asia, a lively market for Bitcoin remittances has emerged, and Bitcoin using dark webs of cybercrime are flourishing. More and more companies are discovering the power of smart contracts or tokenization in Ethereum, the first real-world application of blockchain technologies.

The revolution is already happening. Institutional investors are starting to buy cryptocurrencies. Banks and governments realize that this invention has the potential to take control away from them. Cryptocurrencies are changing the world. One step at a time. You can stand by and watch – or you can become part of history in the making.