What Is Cryptocurrency? A Beginner's Guide

The emergence of cryptocurrency has transformed financial transactions in the digital age. Unlike traditional currencies that governments and central banks control, cryptocurrencies operate on decentralized networks using blockchain technology. This ensures security, transparency, and peer-to-peer functionality, eliminating the need for intermediaries like banks. 

Since the creation of Bitcoin in 2009, thousands of other cryptocurrencies — such as Ethereum, Tether, and Binance Coin — have emerged, each with unique features and use cases. 

As cryptocurrency continues to evolve, it is reshaping various sectors, including finance and decentralized applications, offering new opportunities and challenges in the global digital economy.

What Is Cryptocurrency?

Cryptocurrency is a secure digital currency on decentralized networks, using cryptographic techniques to enable peer-to-peer transactions without the need for intermediaries like banks. Unlike traditional fiat currencies controlled by central banks, cryptocurrencies rely on blockchain technology, a distributed ledger that records all transactions across multiple computers. This system ensures transparency, security, and decentralization by distributing the verification process across participants, known as nodes.

Bitcoin, launched in 2009 by the pseudonymous Satoshi Nakamoto, was the first cryptocurrency and remains the most valuable and well-known​.

A key feature of cryptocurrencies is the ability to conduct peer-to-peer transactions globally, reducing costs and increasing accessibility. Bitcoin paved the way, and since then, thousands of other cryptocurrencies have been created, including Ethereum, which enables decentralized applications (dApps), and stablecoins like Tether, which are pegged to traditional currencies to minimize volatility. Cryptocurrencies are widely used for payments, investments, and decentralized finance (DeFi), reshaping the financial landscape by providing secure, decentralized transaction options​.

How Is Cryptocurrency Created?

There are two methods by which cryptocurrency is created: mining and staking. Mining, used by cryptocurrencies like Bitcoin, involves solving complex mathematical problems through a process called Proof of Work (PoW). Miners use powerful computers to validate and secure transactions on the blockchain, and in return, they are rewarded with newly created cryptocurrency. This process is energy-intensive, requiring significant computational power. 

Alternatively, some cryptocurrencies, such as Ethereum (after its transition from PoW), use Proof of Stake (PoS). In PoS, validators are chosen to create new blocks based on the amount of cryptocurrency they hold and stake in the network. This process is more energy-efficient than mining and is becoming more popular as a means of securing blockchain networks. 

Both methods ensure the integrity and security of cryptocurrencies by distributing the verification process across multiple participants.

What Are the Advantages of Cryptocurrency?

One of the primary benefits of cryptocurrencies is the concept of decentralization, which means no central authority, such as a government or bank, controls the network. This reduces the risk of interference, censorship, or manipulation, allowing for peer-to-peer transactions with lower fees, particularly for cross-border payments. Additionally, cryptocurrencies use blockchain technology, which ensures security and transparency by recording all transactions on an immutable public ledger. This makes it difficult for fraud or tampering to occur. 

Another advantage is inflation protection — cryptocurrencies like bitcoin have a fixed supply, arguably making them more resistant to inflation compared to traditional fiat currencies. Moreover, cryptocurrencies promote financial inclusion, providing individuals in underbanked or underserved regions globally access to financial services, as anyone with an internet connection can participate. These benefits are transforming how people interact with finance and enabling a more decentralized, accessible global economy.

What Are the Most Popular Cryptocurrencies?

There are thousands of cryptocurrencies in circulation today, but a few have gained widespread popularity due to their unique features and use cases.

Bitcoin (BTC)

The first and most well-known cryptocurrency, Bitcoin was created in 2009 by an anonymous figure known as Satoshi Nakamoto. Often referred to as “digital gold,” Bitcoin operates on a Proof of Work (PoW) consensus mechanism and has a limited supply of 21 million coins, which helps to protect against inflation. It’s primarily used as a store of value and for peer-to-peer transactions​.

Ethereum (ETH)

Launched in 2015, Ethereum is the second-largest cryptocurrency by market capitalization. Ethereum’s blockchain supports smart contracts, enabling developers to build decentralized applications (dApps) on its platform.  In 2022, Ethereum transitioned from PoW to the more energy-efficient Proof of Stake (PoS) mechanism, making it an innovative leader in the cryptocurrency space​.

Tether (USDT)

Tether is a stablecoin, meaning its value is pegged to a traditional asset, in this case, the U.S. dollar. It provides price stability in the often volatile cryptocurrency market, making it a preferred option for traders looking to minimize risk​.

Binance Coin (BNB)

Created by the Binance exchange, BNB was initially designed to pay for transactions on the platform. It has since evolved into a multifunctional cryptocurrency used for payments, smart contracts, and token burns that reduce its supply over time​.

Solana (SOL)

Known for its high-speed and low-cost transactions, Solana is popular among developers looking to build scalable decentralized applications. It competes with Ethereum but offers faster processing times and lower fees​.

How To Choose a Cryptocurrency Platform

When choosing a cryptocurrency platform, it's essential to prioritize security, ease of use, and the range of supported cryptocurrencies.  Look for platforms that offer robust security measures like two-factor authentication (2FA), encryption, and cold storage for your assets to minimize hacking risks. Popular exchanges including Gemini are known for their security features and user-friendly interfaces, making them suitable for both beginners and experienced traders.

Another consideration is whether to opt for a centralized exchange (CEX), which offers greater liquidity and ease of navigation but controls your private keys, or a decentralized exchange (DEX), where you maintain control of your assets but may require more technical knowledge.

Lastly, be mindful of the fees associated with each platform and ensure that it supports the specific cryptocurrencies you're interested in trading, especially if you're focusing on niche or emerging altcoins​.

How To Buy Cryptocurrency

To buy cryptocurrency, choose a reputable platform (such as Gemini) that offers user-friendly interfaces for trading digital currencies. After choosing a platform, you create an account by providing personal information and verifying your identity. Depending on the platform and location, this process can take a few minutes or a few days. 

After verification, deposit funds via a linked bank account, debit/credit card, or transfer existing cryptocurrency. Then, select and confirm your desired purchase. For added security, many users transfer their funds to external wallets, like hardware wallets, to protect their assets from online threats​.

Gemini is a secure way to buy, sell, store, and convert crypto, and millions of people are using our platform to diversify their portfolios. We’re a full-reserve and highly-regulated cryptocurrency exchange and custodian, available in 70+ countries — and we prioritize the security of your assets. 

Sign up with Gemini to get started. 

How To Store Cryptocurrency

To securely store cryptocurrency, you can choose between hot wallets and cold wallets. Hot wallets are internet-connected and convenient for frequent transactions, making them suitable for daily use but more vulnerable to hacking. Examples include mobile or web-based wallets like those provided by exchanges such as Coinbase or MetaMask. Cold wallets, like hardware wallets (e.g., Ledger, Trezor), store cryptocurrency offline, offering greater security and protection from cyber threats, making them ideal for long-term storage. 

Many users combine both methods, keeping smaller amounts in hot wallets for regular use and larger amounts in cold wallets for enhanced security​.

What Can You Use Cryptocurrency For?

Cryptocurrency has a wide range of use cases beyond simple transactions. One of the most common uses is making purchases, as more businesses, such as Microsoft and Shopify, now accept Bitcoin and Ethereum as payment for goods and services. This growing acceptance enables users to make purchases both online and in stores. 

Another key use of cryptocurrency is as an investment. Many people buy and hold cryptocurrencies like Bitcoin and Ethereum, hoping their value will appreciate over time, making them an attractive speculative asset​. Additionally, cryptocurrencies play a vital role in Decentralized Finance (DeFi), allowing users to lend, borrow, and earn interest on their assets without needing intermediaries like banks. DeFi platforms operate on blockchain networks, increasing accessibility to financial services globally. 

Some cryptocurrencies, like Tether, are also widely used for cross-border payments, providing faster and cheaper alternatives to traditional remittance services. With these diverse applications, cryptocurrency is transforming the way people engage with finance and commerce​.

Is Cryptocurrency Safe?

Cryptocurrency transactions are generally safe due to the blockchain technology that underpins them, which ensures transparency and prevents tampering. However, the safety of your assets depends largely on how you store and protect them. Hot wallets (internet-connected) are convenient but more vulnerable to hacking. Cold wallets (offline storage) offer greater security, especially for long-term holdings.

It's also important to note that the cryptocurrency market is highly volatile, and prices can fluctuate significantly. Additionally, the rise in cryptocurrency use has attracted scammers, making it essential to practice good security measures, such as enabling two-factor authentication (2FA) and avoiding suspicious links or emails. Overall, while cryptocurrency is built on secure technology, users must take precautions to safeguard their investments.

Wrapping Up

Cryptocurrency is a secure, transformative digital asset on decentralized networks, offering an efficient and transparent alternative to traditional finance. Blockchain technology eliminates the need for intermediaries like banks, ensuring the security and immutability of transactions.  Created through processes like Proof of Work (PoW) and Proof of Stake (PoS), cryptocurrency networks are maintained by a decentralized global community of participants. The advantages of cryptocurrency include decentralization, reduced transaction costs, financial inclusion, and inflation protection. 

Popular cryptocurrencies like Bitcoin, Ethereum, and Tether showcase the diverse applications of this technology, from peer-to-peer payments to supporting decentralized applications and stablecoins.  As cryptocurrency continues to evolve, it brings both exciting opportunities and challenges, particularly in terms of regulation, security, and adoption across various sectors.

 If you’re ready to get involved, get started with Gemini today.