Table of contents
- What is cryptocurrency?
- How Bitcoin works
- What are altcoins?
- Transactions, fees, and confirmations
- Wallets: hot vs. cold storage
- Where to buy crypto and why KYC exists
- Risks and how to avoid scams
- A simple starter plan
- Quick FAQ
What is cryptocurrency?
Cryptocurrency is digital, bearer-style money that runs on public networks called blockchains. A widely used technical definition describes a blockchain as a distributed ledger of cryptographically signed transactions grouped into blocks and linked so that tampering is difficult, with network nodes reaching consensus on the valid history.
Bitcoin launched in 2009 after the 2008 publication of the Bitcoin whitepaper, which proposed a peer-to-peer system that solved the double-spending problem without a central authority by using proof-of-work and a chain of time-stamped blocks.
How Bitcoin works
Bitcoin is the original cryptocurrency and remains the most well-known. New bitcoins are issued at a decreasing rate and the total supply is hard-capped by the protocol at 21 million, which is why people call it scarce or deflationary in design.
Every four years or so, a scheduled event called a halving reduces the block subsidy paid to miners by 50%. This slows the rate at which new bitcoins enter circulation and is part of the monetary schedule. The most recent halving occurred in 2024.
What are altcoins?
Altcoins are cryptocurrencies other than Bitcoin. They exist for many reasons, including adding programmability, improving performance, or targeting niche use cases.
Common categories:
- Smart-contract platforms that let developers build decentralized apps. Ethereum is the largest and, after “The Merge” on September 15, 2022, it uses proof-of-stake instead of proof-of-work and dramatically reduced its energy use.
- Payment-focused coins that prioritize low fees or fast settlement.
- Stablecoins that aim to maintain a stable price, often linked to a reserve of assets like short-term Treasuries and cash. Policymakers track their growth and the potential financial-stability implications.
- DeFi governance tokens used to vote on protocol changes.
- Meme and community tokens that trade mostly on social momentum.
Transactions, fees, and confirmations
On Bitcoin, wallets track unspent transaction outputs, not a single account balance. When you spend, your wallet assembles one or more UTXOs as inputs and creates new outputs; the remainder becomes change back to you. Merchants and services often wait for several confirmations before treating a payment as final because deeper blocks make double-spends increasingly impractical. A common high-value practice is to wait for six confirmations.
Network fees are market-based. When demand for block space rises, fees rise; when demand falls, fees fall. Different blockchains have different fee models.
Wallets: hot vs. cold storage
A crypto wallet manages your keys, which control your coins on the blockchain. Hot wallets are software connected to the internet and convenient for daily use. Cold wallets keep private keys offline on dedicated hardware and are preferred for long-term holdings. Many beginners use a hot wallet for small amounts and a hardware wallet for savings. Always secure and back up your recovery phrase offline.
Custodial wallets are managed by a third party, while non-custodial wallets give you sole control of your keys and responsibility for security.
Where to buy crypto and why KYC exists
Centralized exchanges and some brokers let you purchase crypto with bank transfers or cards. In many jurisdictions they must follow anti-money-laundering rules, including know-your-customer checks and the so-called Travel Rule for certain transfers. The global standard setter FATF monitors how countries implement these requirements for virtual asset service providers.
Decentralized exchanges allow wallet-to-wallet swaps without an intermediary but come with different risks, such as smart-contract bugs and price slippage.
Risks and how to avoid scams
Crypto assets can be volatile, transactions are irreversible, and mistakes like sending to the wrong address are often unrecoverable. Scams are common. Consumer authorities warn that anyone guaranteeing profits, pressuring you to invest quickly, or mixing romance with investment advice is a red flag. Verify URLs, never share seed phrases, and be skeptical of unsolicited messages.
Policy bodies are also focused on illicit finance trends, including misuse of stablecoins, which reinforces the need to use reputable platforms and follow local laws.
A simple starter plan
- Learn basics for a week. Read a primer on Bitcoin and how wallets work.
- Choose a reputable exchange available in your country and complete identity verification if required.
- Start small with an amount you can afford to lose.
- Set up a non-custodial wallet. Write the recovery phrase on paper, store it in two safe places, and enable two-factor authentication where applicable.
- Practice sending a tiny test transaction to confirm your process.
- Move savings to a hardware wallet; keep only spending amounts in a hot wallet.
- Keep software and firmware updated.
- Revisit your plan quarterly; avoid chasing hype.
Quick FAQ
Is crypto legal?
Legality varies by country. Many jurisdictions regulate exchanges and stablecoins differently. Check local rules before buying.
Can I lose my coins if I lose my phone?
If you control your keys and still have your recovery phrase, you can restore your wallet on a new device. If you lose both, funds are typically unrecoverable.
What is a confirmation?
It is how many blocks have been added after the block that includes your transaction. More confirmations mean stronger finality on proof-of-work chains like Bitcoin.
Why did Ethereum switch to proof-of-stake?
To replace mining with a validator system and lay groundwork for scalability and energy efficiency.
What is a stablecoin?
A token designed to hold a stable price, usually backed by reserve assets. Growth and design choices have policy implications regulators are studying.
