The Cryptocurrency Guide: What is cryptocurrency, how do cryptocurrencies work, where did crypto start and should I invest?

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Pineapple Workshop

4 min readMay 31, 2022

In recent years, cryptocurrencies have gained popularity. People have shown interest in this form of digital money due to its extreme growth rate.

If you bought 1 Bitcoin in January 1st 2020, when 1 Bitcoin was worth $ 6,985.47, you would have profited $25,141.80 a year later when one Bitcoin reached the value of $32,127.27.

Many investors were lured into crypto, interested by the hype and the high growth rate of digital currencies. Without understanding crypto, crypto’s existence provides little value for the average person. In the following paragraphs we will dive into an understanding of these new currencies. We hope to inform anyone who wants to know more.

Let’s understand what cryptocurrency is

We can define cryptocurrency as anonymous cryptographic electronic money.

Anonymous money is money that cannot be traced. Meaning that banks, government and applications can’t see where the money comes from and where is being transferred, along with other information. In this case, what makes cryptocurrency anonymous is encryption.

Cryptography is a set of principles and technique that transforms any communication into code. The code that communication is transformed into can only be understood by those who wrote or can crack the code. This means that a system will transform the information regarding money to code. From there, only the system can understand the information.

Lastly, an electronic money is a money that does not exist in physical form, it only exists in the virtual space.

Where did cryptocurrency start?

Before what is known today as cryptocurrency, people attempted to create different systems for digital cryptographic money. None of these systems caught on until Bitcoin.

In 1983, the American cryptographer David Chaum created a cryptographic money called eCash. Chaun implemented eCash in 1995 through Digicash, an early form of a cryptographic payment system.

The term “cryptocurrency” was first coined in 1998 by Wei Dai. He wanted to create a decentralized cryptographic payment system. We will explain what decentralization means later.

It wasn’t until 2009 when Bitcoin was created. A year before, a paper explaining the cryptocurrency and blockchain (the technology used to work with cryptocurrencies) was published under the name of Satoshi Nakamoto, whose real identity remains a mystery to this day.

After 2 years, other companies started creating their own cryptocurrencies and the market began to fill with competitors. Today 1 Bitcoin is worth more than $30,000.

How does cryptocurrency work?

We can think of cryptocurrency as arcade tokens. To access a game, you have to exchange real money for tokens. The same thing happens with cryptocurrencies. To buy or access the goods or services that a company or person is offering for cryptocurrency you have to exchange your fiat currency, such as dollars, for the desired amount of cryptocurrency, such as Bitcoin. You can also sell your cryptocurrency for fiat currency. Fiat currencies are currencies like US Dollars, Euros, and the Brazilian Real. A fiat currency is any currency that has value because a government maintains its value.

Cryptocurrencies are stored in what we call “wallets”. You can think of a wallet as a bank account. You have an address — a code with letters and numbers — that indicates that your wallet is unique and belongs to you. You can check your wallet’s balance and also transfer cryptocurrencies to other wallets.

Cryptocurrencies use blockchain, a decentralized technology that works as a public digital ledger. Blockchain stores all cryptocurrency transactions in an array of code. This code is connected in a way that no one can change — it’s inalterable.

As a decentralized technology, cryptocurrency transactions occur without the use of an intermediary. Intermediaries transfer fiat currencies between individuals. This common form of money is transferred from one account to another by bank transactions which have predetermined rules and fees. Fiat currencies are issued and controlled by the government. Contrastingly, cryptocurrency transactions are sent directly from one source to another. Since cryptocurrencies don’t use an intermediary, they are free from a lot of rules, regulations and fees that fiat currencies are subject to. To learn more about this technology, read our article about Blockchain technology.

Should I invest in cryptocurrencies?

Cryptocurrencies have had extreme growth rates, as well as large volatility. Said simply, cryptocurrency value can raise or decrease a lot in a short time span. Cryptocurrencies do not generate revenue unless you sell your currency at a price higher than you paid for it.

Some consider cryptocurrency as the future of currencies, part of the next web revolution. As a result, people are storing their cryptocurrencies with the belief that the currencies will grow in value. But storing cryptocurrency will eliminate value as the cryptocurrency is not being used. If cryptocurrency is not used, people are not looking for it. If people are not looking for it, products are not being sold. If products are not being sold, their price will fall. If their price falls, sellers might change the currency and try other markets. In conclusion, if no one uses the currency, the currency loses its value.

If you intend to invest in cryptocurrencies, know the risk that’s involved. If you’re able to keep in touch with the market, cryptocurrency investments can bring you solid profit.

Cryptocurrencies are growing in number and in value. No one knows for sure if cryptocurrencies are the currency of the future, but we know that crypto is trending and getting people hyped.

We hope we helped you find answers to your questions. If you want to know more about cryptocurrencies follow @poweredby_pw on Instagram and Twitter.