What Are Cryptocurrencies and How Do They Work? A Complete Beginner’s Guide

If you're a beginner looking to understand how cryptocurrencies actually work or how to take your first step and invest in them, your search for answers will most likely start online.

When doing independent research on topics like blockchain technology and cryptocurrencies, it’s important to know where to begin.

Otherwise, you’ll be faced with an overwhelming amount of new information that you'll need to dig into and verify — which can quickly become a tiring process.

Another common issue with articles about cryptocurrencies, even those meant for beginners, is that they are often packed with technical jargon.

After reading such articles full of unfamiliar terms and concepts, you might end up feeling even more confused than before.

With so much information out there, beginners often find themselves asking: “Where do I start, how should I begin, and in what order should I learn?”

That’s exactly why we’ve created this complete guide — to clearly and simply explain what cryptocurrencies are and how they work through blockchain technology.

A Brief History of Currencies

Cryptocurrencies have gained a public reputation as a revolutionary tool that could modernize the financial system as we know it in the coming years.

To better understand what cryptocurrencies aim to change in today’s financial system, let’s briefly go back in time and look at some simple examples of how people used money throughout history.

Before money existed in the form of coins or banknotes, people mainly traded goods directly — a system known as bartering.

If you needed a tool, you would offer another tool or any other item that the owner of the tool considered acceptable in return.

This system of exchange evolved once gold and silver coins were introduced as a form of payment.

So instead of two parties negotiating the value of goods, they could now simply give or receive money in the form of precious metals.

The gold or silver used to make the coins served as a guarantee of value — in other words, a promise that the money could be used in future transactions.

Later, when the first banks were established and became part of the state system, gold and silver were replaced with a much lighter alternative: paper banknotes.

This marked the beginning of a “trust-based” system, where the government and the bank guaranteed that the paper in your wallet held a specific value and could be used to pay for goods and services.

In short, a banknote became a kind of receipt or certificate issued by the bank, stating that the piece of paper represents a certain value.

Today, we’re in a time when managing finances is even simpler.

Most transactions now take place in a digital environment — using cards, apps, and other services — and are recorded in spreadsheets (“Excels”) and databases.

For example, when you make a purchase (online or in a physical store), your bank adds a new entry in its database that says: Person A now has 20 euros less in their account.

At the same time, the merchant’s bank updates its records to show that the store now has 20 euros more.

The reason we’ve provided this simplified historical overview is to give you better context — to help you understand how cryptocurrencies are expected to position themselves as a medium of exchange within the existing financial system.

What Are Cryptocurrencies?

Cryptocurrencies are essentially digital forms of currency designed to be used as a means of payment over the internet.

They’re called “crypto” because they rely on encryption systems to ensure security for all users during transactions and data storage on the blockchain.

A financial digital ecosystem based on cryptocurrencies is expected to revolutionize the way we understand and use money today.

The first reason behind this belief is that everything happens virtually — there’s no physical storage of coins or banknotes.

On the other hand, everything operates in a way that is:

Transparent

Decentralized

Secure

Another major reason why many believe cryptocurrencies will transform the financial world is that you won’t need banks to make transactions.

You’ll be able to send money directly (peer-to-peer) to another person, transfer funds across the globe in real time, and pay only small fees to do so.

How Do Cryptocurrencies Work?

When we talked about the payment system we use today, we gave a general overview of how banks keep records of all transactions.

Different banks communicate with each other, adding or subtracting amounts from various accounts and storing all transactions in their private databases.

As a bank customer, you can see your own account balance, but only the banks have access to the full record of all transactions.

Cryptocurrencies work differently.

Every transaction made with a cryptocurrency — for example, Bitcoin — is recorded in one continuous, ever-growing list or database.

This type of database is commonly known as a ledger.

Although the ledger is a single source of truth, there are many copies of it.

This means that every user on a cryptocurrency network can view all transactions that are happening — and that have happened in the past.

This level of transparency, along with strong security, is made possible by the blockchain technology on which every cryptocurrency is built.

Cryptocurrencies and Blockchain Technology

One of the most common questions people ask when first encountering cryptocurrencies is: If it’s not controlled by a bank or government, who ensures the security of transactions?

The short answer is — blockchain technology.

Every cryptocurrency transaction is stored on a single ledger.

This endless database is built on blockchain technology — a chain of blocks.

Each cryptocurrency has its own blockchain, which is permanent and constantly verifies the record of every single transaction ever made with that currency.

Unlike a bank’s centralized database, a crypto blockchain is distributed among all participants in the network of a given digital currency.

No company, government, or third party controls it — and anyone can participate in maintaining the blockchain network of a cryptocurrency.

If you want to learn more about how the blockchain technology behind every cryptocurrency works, check out our visual beginner’s guide: What Is Blockchain and How Does It Work?

Cryptocurrency Mining – What Is It and How Does It Work?

The term cryptocurrency mining can best be described as the process of confirming cryptocurrency transactions and storing them in the so-called “ledger.”

The transaction verification process involves more technical details, so if you want a deeper understanding of how it works, read our article: What Is Proof of Work? Cryptocurrency Mining.

Let’s go back to our store example. Suppose you buy an item worth 1 Bitcoin.

Instead of two banks verifying the buyer’s and seller’s account balances, in a blockchain network, every user has access to the transaction data.

In other words, anyone participating in the blockchain network can see the balances of the buyer and the seller (note that personal information is not shown — only wallet addresses and their balances are visible).

Once all network participants confirm that your wallet has sufficient funds, the transaction is approved.

After the transaction is approved by the network, it is executed and permanently stored on the ledger (the blockchain).

The user who confirms the transaction is rewarded with cryptocurrency for their work.

So, what banks do today for each transaction, in a blockchain network is done by its users.

And that’s exactly what makes blockchain decentralized.

What Types of Cryptocurrencies Exist?

Every cryptocurrency is created with a specific goal — to support the functioning of the blockchain network it’s built on.

Bitcoin (BTC) was the first cryptocurrency, launched in 2009. The Bitcoin network and its currency were created as the first attempt to build a decentralized payment system.

After Bitcoin, other cryptocurrencies emerged with completely different purposes.

ETH – the native cryptocurrency of the Ethereum network – was designed as a way to pay transaction fees and create new blocks.
Since the network transitioned to the Proof-of-Stake system, ETH has gained additional functions.

On the other hand, XRP, developed by Ripple, was created as a payment system intended for use by banks to facilitate faster cross-border money transfers.

Today, there are thousands of different cryptocurrencies on the market, and it’s important to understand the various types that exist.

Knowing the different types of cryptocurrencies can help you make more informed decisions about whether it’s worth investing in a specific project.

The 5 Most Common Types of Cryptocurrencies

1. Utility Cryptocurrencies

These are cryptocurrencies created to serve specific functions within their own blockchain ecosystems. Examples include:

Basic Attention Token (BAT) – A token used within the Brave web browser. Users can earn BAT tokens by choosing to view ads while browsing the internet. The token can also be used to reward content creators.

Store Finance (SEF) – The SEF token is used to pay fees when trading on the Bitcoin Store platform. As the ecosystem grows, SEF will offer additional use cases. Users will be able to stake the token or use it as collateral.

2. Transactional Cryptocurrencies

As the name suggests, these cryptocurrencies are used as a means of payment and exchange of goods.

The most well-known examples of transactional cryptocurrencies include:

Bitcoin (BTC)

Litecoin (LTC)

3. Governance Cryptocurrencies

This type of cryptocurrency aims to democratize decision-making within various decentralized applications (dApps).

To ensure that projects remain truly decentralized, their creators give part of the control to the user community.

Tokens in these projects grant voting rights to holders, allowing them to influence future decisions and developments.

Examples of blockchain projects with governance tokens include:

Aave (AAVE)

Compound (COMP)

4. Security Cryptocurrencies

Security tokens represent ownership of an asset (such as stocks) that has been tokenized and stored on a blockchain.

The main goal of these cryptocurrencies is to transfer ownership or value onto a blockchain network.

This category of cryptocurrencies is still in development, and security tokens are in a regulatory grey area in many jurisdictions.
In most countries, they are subject to stricter oversight and are often not available to retail investors.

5. Stablecoin Cryptocurrencies

A stablecoin is a type of cryptocurrency whose value is pegged to a traditional asset, such as the US dollar or gold, in order to maintain a stable price.

The value is typically kept at a 1:1 ratio. For example, if a stablecoin is pegged to the US dollar, 1 stablecoin will always be worth 1 dollar.

Examples of stablecoins include:

Eurite (EURI) – A digital version of the euro that enables fast and simple transactions within the crypto ecosystem, while offering the stability of the euro as a fiat currency.

USD Coin (USDC)

You can read more about stablecoins and how they work in our article:
What Is a Stablecoin and How Does It Work? A Beginner’s Guide.

What Determines the Value of Cryptocurrencies?

Cryptocurrencies exist exclusively in digital form within blockchain networks, which is why they may seem abstract to many. However, like stocks, gold, or real estate, they have market value — primarily determined by supply and demand.

For example, Bitcoin has a limited supply of 21 million units, making it deflationary and increasing its value when demand rises.

In addition to supply and demand, the price of cryptocurrencies is influenced by:

Technology and use case – Does it solve a real-world problem?

Community and popularity – How active and influential is it?

Competition – Are there better alternatives on the market?

Network costs – Mining, validation, and maintenance expenses

Media – News can strongly impact public perception and price

Market conditions – Whether it's a bull or bear market

Regulation – Laws like MiCA are increasingly shaping the market

Institutional investments – Entry of ETFs and large investment funds

Speculation – Especially with meme coins or tokens lacking real utility

How to Buy Cryptocurrencies

In recent years, cryptocurrencies have attracted a large number of people — especially during periods of rapid price growth.

Most newcomers enter the market during these price surges, which is understandable given the constant media coverage that creates a sense of urgency and fear of missing out.

Before you, as a beginner, invest money into any digital currency, spend some time researching the technology to understand what different projects on the market are aiming to achieve with their products.

Try to find reliable sources that explain things in simple, beginner-friendly language.

Look for forums where other beginners gather and share experiences.

Seek out educational resources such as blogs, newsletters, podcasts, or YouTube videos.

A great place to start is the Bitcoin Store Blog, where beginner-friendly guides combine infographics and everyday examples to explain key concepts in the blockchain and crypto industry.

Only after investing time into learning and understanding the basics should you move on to the next step: choosing a platform to buy your first cryptocurrency.

Choosing a Platform to Buy Cryptocurrencies

The first step you need to take is to choose a platform where you will buy your cryptocurrencies.

In most cases, the choice comes down to two options:

Brokerage services – This is the most common choice for beginners. These platforms buy and sell cryptocurrencies on behalf of users through professional crypto exchanges.

Cryptocurrency exchanges – These are advanced trading platforms that offer more features than just buying, selling, and storing crypto.

What to look for when choosing a platform:

Fees – Check what fees are charged for buying, selling, converting, and withdrawing crypto.

Security – Make sure the platform uses two-factor authentication (2FA), cold wallets, and other security measures.

Customer support availability – Local support can greatly simplify the process, especially for beginners.

Crypto storage – Do they offer a built-in wallet or allow withdrawals to private wallet addresses?

Payment methods – Cards, bank transfers, cash, etc.

Depositing Funds

Once you’ve chosen a platform, the next step is to create an account and deposit the funds you’ll use to buy cryptocurrencies.

Most platforms offer several deposit methods — from bank transfers to instant card payments.

In addition to electronic payment methods, the Bitcoin Store platform also allows users to deposit cash directly at one of its physical crypto exchange offices.

You can simply visit any Bitcoin Store location and top up your digital wallet with cash.

How to Buy and Sell Cryptocurrencies

Bitcoin Store is a platform where you can easily buy over 170 of the most popular cryptocurrencies from the world of DeFi, Metaverse, NFTs, GameFi, Fan Tokens, and AI tokens.

In addition to offering a secure and user-friendly experience, the platform also provides competitive crypto exchange rates.

One of the main reasons why many users choose Bitcoin Store is that its interface is fully tailored to beginners.

Buying and storing cryptocurrencies can be done in just a few clicks.

In addition to its online platform, Bitcoin Store also offers the option to trade and receive support in person through direct interaction with staff at its physical exchange offices.

How to Store Cryptocurrencies

Once you’ve bought your first cryptocurrency, you need to store it in a safe place. Since all cryptocurrencies are digital, they are stored in digital wallets.

There are two main types of crypto storage:

Cold digital wallets

Hot digital wallets

Cold wallets, also known as hardware wallets, are physical devices — often resembling a USB stick.

Many consider them the safest option for storing cryptocurrencies because they are offline and thus less exposed to cyber threats.

On the other hand, hot wallets refer to storing cryptocurrencies in an online environment, such as mobile apps or other types of software.

Is Investing in Cryptocurrencies Worth It?

Cryptocurrencies are a highly volatile type of asset.

This means their prices can experience significant increases — but also sharp drops — within a single day.

Just like with other types of investments (real estate, stocks, gold, etc.), investing in cryptocurrencies can be profitable only if you understand the technology and the projects you’re investing in.

Investing based solely on the belief that a project might generate high returns — without knowing what it does or what its long-term goal is — can easily lead to financial losses.

3 Key Tips for Safely Investing in Cryptocurrencies:

1. Research Cryptocurrency Buying and Selling Platforms

Assuming you already understand the basics of cryptocurrencies and blockchain technology, your first step before investing should be to research platforms that offer crypto trading services.

Read user reviews, compare features, and evaluate which platform is best suited for beginners.

2. Don’t Invest Large Amounts of Money

Even if you believe you have enough knowledge, you should never invest more than you’re willing to lose.

This rule applies to all types of investments — not just cryptocurrencies.

If you’re ready to invest, start with a small amount. It will help you get a feel for how the crypto market behaves.

3. Don’t Let Emotions Guide Your Decisions

During periods of rapid price increases, many people rush in and forget about the risks.

It’s common to chase projects that promise high returns, ignoring the potential red flags that may be present.

There will always be a new “hyped” project on the market.

When the media and influencers start calling something “the next big thing,” remember that many of those cryptocurrencies never regained the same popularity or price again.

Also, read our blog on the psychology of investing in cryptocurrencies.

Are Cryptocurrencies Safe?

Cryptocurrencies were created as an attempt to build a more efficient financial system. While blockchain technology is still relatively new, it continues to evolve and is increasingly being adapted for everyday use.

Compared to traditional assets like stocks or government bonds, investing in cryptocurrencies can be risky — especially due to their high volatility and still limited real-world adoption.

However, today’s cryptocurrency trading platforms are becoming more regulated, and governments are gradually introducing laws to oversee the market. At the same time, many financial institutions are looking to integrate cryptocurrencies into their services, further strengthening their credibility and future role in global finance.

Stronger Regulation and Platform Security

Cryptocurrency platforms today are much safer than they were in the past. Many are now subject to stricter regulations and financial supervision, especially within the EU, where the MiCA framework has been introduced.

Adoption by Traditional Financial Institutions

More and more traditional financial institutions are integrating cryptocurrencies into their offerings — through spot ETFs, digital wallets, or their own blockchain-based solutions.

Security Is No Longer the Main Barrier — Understanding Is

While cryptocurrencies still carry a higher risk, with the right approach, trusted sources of information, and the use of reliable platforms, they can be part of a secure and long-term investment strategy.

Cryptocurrencies and Scams: How to Protect Yourself

Scammers are always looking for new ways to get their hands on your money — and in recent years, due to the growing popularity of cryptocurrencies, they’ve increasingly turned their attention to the crypto industry.

That’s why we constantly emphasize the importance of education before entering the world of crypto. The more informed you are, the easier it will be to recognize scam attempts.

In the following article, you can explore what the most common scam methods look like: Top 9 common types of internet scams - learn how to protect yourself from crypto fraud.

4 Essential Ways to Protect Yourself from Crypto Scams

1. Never Share Your Private Key or Seed Phrase

If someone contacts you asking for your wallet’s private key or seed phrase, ignore the message and block the sender immediately.

This is a classic scam technique used to gain access to your wallet and steal your funds.

Never share this information — not even with people you trust.

2. Ignore Urgent Requests

Scammers often create pressure-filled situations to push users into acting quickly and sending money.

For example, they may offer “limited-time bonuses” or “exclusive deals” that expire soon.

They want you to feel like you're missing out on a big opportunity and don’t give you time to think.

If someone tells you to “invest now before it’s too late,” end the conversation — it’s very likely a scam.

3. Don’t Fall for Social Media Posts

Believe it or not, social media posts (especially sponsored ones) are one of the most effective tools scammers use.

They often create fake posts on platforms like Facebook, Twitter, or Discord, claiming that celebrities or well-known companies are backing a cryptocurrency as investors.

Of course, if you check the official profiles of those individuals or companies, there’s no mention of such a partnership.

Additionally, these posts often lead to fake websites.

If someone contacts you via direct message offering a “can’t-miss opportunity,” block and report them.

4. Double-Check Website Addresses

When visiting crypto-related websites — especially trading platforms — always verify the website address is correct.

If you’re unsure of the official website, visit the company’s verified social media profile and follow the link from there.

Scammers often create perfect copies of well-known crypto websites, tricking users into entering their login credentials.

These fake websites are designed to steal your data and funds.

Even if someone you know shares a familiar-looking link, always double-check the domain name before clicking or entering any information.

Do Cryptocurrencies Have a Future?

Cryptocurrencies — along with the blockchain technology they’re built on — show strong potential for cross-industry applications in the coming years.

The entry of institutions and major global brands into the crypto space demonstrates a growing interest in adopting and utilizing this technology.

What remains to be seen is whether cryptocurrencies will successfully overcome upcoming challenges, such as:

Stricter regulations

Technological advancements

The development of mainstream products to accelerate adoption

Competition from CBDCs (central bank digital currencies) being developed by national banks in various countries.