How Cryptocurrency Works For Beginners

Unless you’ve been living under a rock the past few years, we’re sure you’ve definitely heard of cryptocurrency and bitcoin. But with lots to learn, it can be difficult to understand if you don’t know the basics. 

Below we’re simplifying things to make a somewhat complex system easier to understand. 


A cryptocurrency is a digital currency that uses cryptography as a means of security. Most cryptocurrencies operate without the need for a central authority like a bank or government, and operate instead through a distributed ledger, known as the Blockchain.


The blockchain is like a decentralised bank ledger that records transactions and balances. A blockchain consists of blocks, which hold individual transaction information. This information is timestamped and posted to the ledger so that each transaction can be verified by other blockchain stakeholders. In order to conduct a transaction on the blockchain, users agree to pay a small fee, which helps maintain the security of the blockchain itself.

Let’s say you want to send your friend some crypto. You create a transaction using your cryptocurrency wallet and request to send crypto to your friend’s wallet. At this time you agree to pay a small transaction fee for the transfer. After you make the request, your transaction gets grouped with other transactions into a block on the blockchain. This block is verified by miners (discussed below) and posted to the blockchain, making the transaction complete. 

You can send cryptocurrency to anyone, anywhere in the world. Not only will the transaction usually be completed in a matter of seconds or minutes, it will only cost you a fraction of the fee you would have paid if using a traditional money transfer service.


Blockchain transactions are encrypted when added to a block. Therefore, these transactions need to be verified before the blockchain can continue adding transactions to the next block. This is where mining comes in. Bitcoin mining is performed by high-powered computers that solve complex computational math problems to verify transactions in a block on the blockchain. The first miner to solve the problem and verify all of the transactions in a block is rewarded with a fee for their services. This method of securing a blockchain is known as proof of work (POW).


OWNERSHIP: cryptocurrencies are a decentralised form of value, meaning they are not at the control of a single individual or institution. There is no need for a middleman such as a bank or government, making it a completely peer-to-peer electronic cash system. It’s decentralised nature makes it globally inclusive, enabling millions of people around the world to take control of their financial future. You don’t have to rely on a third party service to give you access to your funds, and there is no entity that can lock you out or limit what you can do. You have complete ownership over your assets.

ACCESSIBILITY: Cryptocurrency allows any bank, business or individual to securely send and receive payments anywhere at any time, with or without a bank account. For many, the idea of not using a bank seems unimaginable, but there are places around the world where proximity or political situations make banking not an option. Take for example El Salvador, where roughly 70% of its people do not own a bank account or credit card. In such places, out of necessity, the concept of digital currency has been accepted more readily. El Salvador has recently become the first country in the world to adopt bitcoin as legal tender after Congress approved President Nayib Bukele’s proposal to embrace the cryptocurrency. This move will help El Salvador’s residents save, invest and obtain profits in a place with little access to bank branches. 

TRANSPARENCY: Unlike fiat currency, which is backed by a central authority (the U.S. government for the U.S. dollar, the EU for the euro), cryptocurrency is backed by a widely distributed network. The transparency of this network is fundamental to the success of cryptocurrency as a safe alternative to the standard banking system. Since cryptocurrency transactions require verification and authentication, offering a permanent record of every transaction ever made, the use of cryptocurrency is safe, secure, and actually offers more transparency about how funds are managed than regular, closed-off banking systems, where decision making is done behind closed doors.


With cryptocurrency, you can own your hard-earned money rather than leaving it to the mercy of a financial institution. And here at Coinstop, we want to help you secure your future! That’s why we stock the very best in digital security. From hardware wallets to recovery seed phrase storage devices, our products will help you to become your own bank. If you’d like any further help understanding the basis of cryptocurrency, you can get in touch with us at We also offer in-depth remote consultations.