Cryptocurrency explained for Newbies in simple terms

An easy explanation of cryptocurrency for tech newbies.

5 min readMar 4, 2022

For centuries the conventional “money” used for transactions was either in the form of notes or coins. Financial institutions like banks and other third-party institutions were the major means of processing financial transactions.

Moving forward, the scene is changing, with the presence of digital banks, there are new “monies” to this niche. One such new money is Cryptocurrency.

This article will give an easy novice-friendly explanation of what cryptocurrency is about and how it is used.

What is Cryptocurrency?

Cryptocurrency is derived from two words, crypto meaning data encryption, and currency meaning medium of exchange.

Cryptocurrency is a virtual currency. It is an electronic peer-to-peer currency used for the payment of goods and services.

So, unlike dollars or pennies that can be held physically or kept in a wallet, you cannot hold cryptocurrency.

Examples of cryptocurrencies are Bitcoin (BTC), Ethereum (ETH), Ethereum Cash (ETC), Litecoin ( LTC), Tether (USDT), and a lot more.

The USDT is a stable cryptocurrency and directly fixed to US Dollars.

Does that mean they are worthless? No!

Think about Casino chips or game coins, to place a bet you need to change your dollar into chips. To get coins to play a game you need to purchase game coins and in that space it is valuable.

For cryptocurrency, you would have to use conventional money (dollars) to purchase cryptocurrency, which in turn can be used for transactions.

That being said, how do you use cryptocurrency and how is it created?

How is Cryptocurrency formed?

For physical money, we know it is printed and produced physically by central banks, and money is spent to produce it.

For Cryptocurrency, the process of production is called mining. It is also an electrical process, so major resources needed for production are electricity and money.

Mining is a process where cryptocurrency miners (active nodes) seek to solve a complex math problem with high-powered systems, they compete with other miners.

The various nodes connected to the network try to solve that problem, the first person to solve the problem, and verify a transaction in the blockchain is rewarded, this is called “block reward”.

The block reward is paid in virtual coins and the entire process of validating a transaction in the block and solving the equation is called Proof of Work (PoW).

Now that we have seen a simple explanation for cryptocurrency production, let’s discuss how it is being used.

How do you use Cryptocurrency?

Like physical cash, cryptocurrency can be used to purchase or sell goods and services. It can also be exchanged by peers like a forex trade.

To have access to Cryptocurrency, you need to have an e-wallet, as the name implies, it does the job of a physical wallet, only electronically. It holds or stores your crypto. There are lots of Crypto trading companies where you can open an e-wallet.

If you find a peer or a store that accepts payment in Cryptocurrency, you obtain their wallet address and make the transfer of the agreed crypto tokens to them, this is a swift transaction. Company currencies are called tokens.

You might wonder, do I get a receipt, like when I make regular money transfers? Yes. Your “receipt” is in the form of Blockchain.

A blockchain is a digital ledger that stores all transactions made with a cryptocurrency in an encrypted manner. This ledger information is stored in hard drives in computers, also called nodes, that can be accessed globally, unlike conventional banks where the transaction data is stored in a central system.

Eco-friendly Cryptocurrency

As mentioned in the previous section, cryptocurrency mining requires high energy consumption, this is not eco-friendly. It leaves a large carbon footprint.

Carbon footprint refers to the number of carbon emissions emitted or released during the production or consumption of a product.

Research by the Cambridge Bitcoin Electricity Consumption Index shows that the energy consumed by creating cryptocurrency (Bitcoin) is above the limits and it consumes more energy than countries like Malaysia and Sweden.

So that being said, how can cryptocurrency be eco-friendly:

More use of eco-friendly crypto that does not use blockchain as their means of verifying transactions.
Use of more sustainable and renewable energy methods like cloud-based storage instead of hard drives.

Examples of eco-friendly cryptocurrencies are:

Nano
Chia
BitGreen or Bitcoin Green
Card
IOTA

Why the excitement for Cryptocurrency?

For starters, the use of banks for financial transactions means all data is stored in a central system and is controlled by an authority. With Cryptocurrency the catchword is Decentralized finance. There isn’t one data center to store transaction history, so no individual has authority over a virtual currency.

Also, with cryptocurrency, there is no third-party bank or middleman required to oversee transactions, and the transaction fees attached might be lower than they are.

Furthermore, transfers happen swiftly. Conventional banks have rigid working hours, and some days in the week they are closed, this could put a damper on some transactions. And for transactions across borders and currency, it might take days to process while holding up funds, but with cryptocurrency, those limitations are avoided. Crypto networks are swift compared to traditional networks.

Finally, unlike regular stocks where the highest shareholder has part ownership of a company, owning crypto tokens doesn’t make you own a company, and for upcoming crypto companies, you can purchase their token with a little amount of money.

Examples of Cryptocurrency Purchases

Noteworthy entrepreneurs, celebrities, and socialites are making investments in cryptocurrency.

An example is the Tesla King, Elon Musk, making a purchase of 1.5 billion in Bitcoin, which caused a spike in the price of Bitcoin.

Snoop Dogg, is another huge BTC fan, he started during Bitcoin’s early beginnings and to date, no one knows how much BTC he owns.

Mark Cuban, a billionaire entrepreneur has an on and off relationship with Cryptocurrency but he is a fan of digital currency.

Other notable persons are Kanye West, Mike Tyson, Jack Dorsey, and many more.

Millionaires and Billionaires are not the only ones who purchase cryptocurrencies, individuals can also make purchases. Small commercial shops or individuals that accept cryptocurrencies as payment also purchase.

Companies like Burger King, Microsoft, Reddit, and Amazon accept payment in cryptocurrency.

We hope you have gotten a soft, beginner-friendly landing into the world of cryptocurrency. There are a lot of opportunities that come with the crypto space, keep learning and evolving with the times.