Cryptocurrency for Beginners: What It Is and How It Works

Need an introduction to cryptocurrency? We’re serving up the basics of blockchain and Bitcoin, what you need to know before considering investing in crypto, what the heck cryptocurrency is, and exactly how it works.

What's a blockchain?

By definition, a blockchain is a decentralized ledger that allows transactions across a peer-to-peer network. 

So, what does that mean? It’s a growing list of records. Each block contains information and together, these blocks form a chain that cannot be altered or corrupted—like a Google sheet with view only permissions. 

You can also visualize the blockchain as train tracks. These tracks are the foundation on which cryptocurrencies (and NFTs) run on. The blockchain provides security and infrastructure that keeps the trains—crypto and NFTs—safe, without the need to be governed by a central figure or bank. There are many blockchains, and even more cryptocurrencies, that run off these blockchains. 

What’s the benefit of the blockchain for me?

• With decentralized finance (DeFi), you can act as a bank—borrowing, lending, and earning interest on your cryptocurrency holdings.
• Proof of ownership for creators, artists, and brands means lifetime royalties on future sales and control over supply and scarcity.
• Blockchain can support consumer safety, store medical records, and increase transparency between consumers and corporations.

What is cryptocurrency?

Cryptocurrency is decentralized, digital currency that runs on the blockchain. Different cryptocurrencies have different purposes (referred to as utility). Crypto utility can range from gaming to supply chain management to payment processing. Some crypto run on their own blockchains (like Bitcoin or Ethereum). These cryptocurrencies are called coins. Some crypto don’t have their own blockchain, and instead run on another coin’s blockchain. These are called tokens. 

Cryptocurrencies tend to be less regulated, or sometimes even unregulated, when compared to traditional investments. Because crypto is laden with risk, it is typically not an ideal option for novice investors. Understand the risks associated with this alternative investment, especially in the current economic environment. 

Understanding Cryptocurrency Exchanges

Cryptocurrency exchanges are platforms where you can buy and sell crypto. Some crypto exchanges are centralized, meaning they are run by a company. Other exchanges are decentralized, meaning they are built on a blockchain network and use smart contacts to facilitate transactions. For those just getting started, we recommend Coinbase or Gemini Exchange. These are trusted centralized exchanges that offer customer support and coin education. 

Cryptocurrency Wallet Basics

A cryptocurrency wallet is a physical (hardware) or online (software) device that stores your public and private keys. These keys give you access to your crypto. Without your private key, your crypto cannot be accessed. Having your funds in a wallet means you have full custody and ownership. You should always store your crypto in a wallet, and never leave it on an exchange. It’s important to know that not all wallets are compatible with all cryptocurrencies. For beginners, we like MetaMask as a software wallet and Ledger Nano S as hardware wallet. 

What To Know For Your First Purchase

• Do your own research on the cryptocurrency you choose to invest in.
• Know that you can purchase crypto fractionally—you don’t need to purchase a full Bitcoin to invest in it. Try starting with just $20.
• Plan to hold long term. Crypto can be very volatile.

How To Get Started

1. Sign up for a cryptocurrency exchange.

2. Select three projects to research from their available crypto projects.

3. After your research, select the coin/s you want to purchase.

4. Download or purchase a crypto wallet that’s compatible with your coin/s.

5. Transfer your crypto to your wallet to keep it safe.