What Is Cryptocurrency – Meaning, Features & How It Works

Cryptocurrency is a type of digital money that exists online and uses special codes to secure transactions. It has no central authority like a bank; instead, it runs through a network of users who record and verify transactions.

Cryptocurrencies were created to offer greater privacy, faster payments, lower fees, and global access to money, especially for those without access to traditional banking systems.

Let us take the example of Rohan, a freelance web designer. He works for a client in the USA who pays him in Bitcoin instead of rupees. Rohan then converts some of the Bitcoin into rupees for his monthly expenses and keeps the rest as an investment.

Here’s a simple breakdown of Rohan’s monthly crypto usage:
 

Rohan does not need a bank to receive or hold this money. He uses a digital wallet to store, spend, and track his cryptocurrency securely. This example shows how crypto can work just like regular money in daily life.

In this blog, we’ll explore how cryptocurrency works, why people use it, its advantages and risks, and how it’s changing the way we handle money in everyday life.

Types of Cryptocurrency 

There are thousands of cryptocurrencies in use today. Below are four of the most common ones, along with a simple numerical example for each to show how they work in practice.

1. Bitcoin (BTC)

Bitcoin is the first and most widely used cryptocurrency. People use it mainly for digital payments and investment.

Example:
A person receives 0.015 BTC as payment.
If 1 BTC = ₹60,00,000, then:

0.015 × ₹60,00,000 = ₹90,000
They now hold Bitcoin worth ₹90,000.

Storage and Use: Bitcoin is stored in a digital wallet (software or hardware), which keeps private keys safe. It can be spent online, sent to others, or held as an investment.

2. Ethereum (ETH)

Ethereum is both a cryptocurrency and a platform for building smart contracts and applications.

Example:
Someone buys 0.4 ETH as an investment.
If 1 ETH = ₹2,50,000, then:

0.4 × ₹2,50,000 = ₹1,00,000
They have invested ₹1,00,000 in Ethereum.

Storage and Use: Like Bitcoin, ETH is kept in digital wallets and can be used to pay for services or participate in decentralised apps (dApps).

3. Litecoin (LTC)

Litecoin is similar to Bitcoin but offers faster transaction processing.

Example:
A person purchases 5 LTC.
If 1 LTC = ₹8,000, then:

5 × ₹8,000 = ₹40,000
They spend ₹40,000 to get 5 Litecoins.

Storage and Use: Stored in wallets, Litecoin is used for quicker, lower-cost transfers compared to Bitcoin.

4. Ripple (XRP)

Ripple is mainly used for fast international money transfers and is supported by several banks.

Example:
An individual sends 800 XRP for a transaction.
If 1 XRP = ₹50, then:

800 × ₹50 = ₹40,000
They transfer ₹40,000 worth of Ripple.

Storage and Use: XRP is held in Ripple-compatible wallets and is popular among financial institutions for cross-border payments.

Each of these cryptocurrencies functions in a different way, but all are used to transfer value without a traditional bank. The examples above show how to calculate their worth based on current market prices.

How to Buy Cryptocurrency?

Step 1: Choosing a Platform

This is like choosing where to shop. You can buy crypto either from:

• Traditional Brokers: These are like big online stores that sell not just toys (crypto), but also books, clothes, and more (stocks, bonds).
  Examples:
   
  • Robinhood (popular in the US)
     
  • eToro (available globally)
     
  • Zerodha Coin (India, for some crypto investments)
     
• Crypto Exchanges: These are special toy shops that only sell toys (cryptos) and usually offer more types of cryptocurrencies.
  Popular exchanges include:
   
  • Coinbase (easy for beginners)
     
  • Binance (large variety of coins)
     
  • WazirX (popular in India)
     
  • Kraken (good for advanced traders)

When choosing your platform, think about:

• Which cryptocurrencies do they sell
   
• How much they charge (fees)
   
• How safe they are (security measures)
   
• Whether they offer learning resources

Step 2: Funding Your Account

Once you’ve picked your shop, you need to put money into your account just like putting cash into your school lunch card.

You can do this using:

• Debit or credit cards (note: some platforms don’t accept credit cards)
   
• Bank transfers (like NEFT or UPI in India, or wire transfers internationally)
   
• Wallet transfers (some platforms accept PayPal or other payment apps)

Step 3: Placing an Order

You place an order through the broker’s or exchange’s website or app. To buy cryptocurrency, select "buy," choose the order type, enter the amount, and confirm. To sell, follow the same steps with the "sell" option.

Using Crypto to Buy Everyday Things

Imagine Riya, a tech lover living in Mumbai, who has some Bitcoin saved up. She wonders if she can actually use it to buy things locally.

One day, Riya tries to shop online. While global sites like Newegg accept Bitcoin, many Indian e-commerce sites do not yet offer direct crypto payments. Instead, she discovers Indian platforms like Paxful and Unocoin, where she can buy gift cards or vouchers using her crypto, which she then uses to shop on popular Indian sites.

Later, Riya’s brother, Arjun, tells her that a few Indian car dealerships and luxury goods sellers are beginning to accept payments in cryptocurrencies like Ethereum and Bitcoin, though this is still quite rare. They visit a showroom where, while most buyers pay in rupees, one dealer has started exploring crypto payments to attract tech-savvy customers.

Though not yet widespread, Riya realises that in India, using crypto for daily purchases is growing slowly, with options like converting crypto to rupee-backed wallets or using crypto-enabled prepaid cards offered by some startups.

This shows that while crypto is mostly used for investment and trading in India today, there are emerging ways to spend it locally and internationally.

Crypto Scams: Be Careful Before You Click

Cryptocurrency can make you money, but it can also take it away if you’re not careful. Some bad people use tricks to steal your money. Let’s look at how these scams work in very simple words.

1. Fake Websites

Some websites look really like CoinFred and say, “Give us money, and we’ll double it!” They even show fake people saying they got rich. But when you send your money, the website disappears and you lose everything.

2. Ponzi Schemes

These scams pay old investors using money from new ones. They say, “Invite your friends, and you’ll earn more!” But it’s all fake. One scam like this, BitClub Network, took over ₹5,800 crore before it was caught.
 

3. Fake Celebrities

Scammers pretend that big stars or businesspeople support a coin. But the famous people never said that! When many people buy the coin, scammers sell their own and vanish. The price drops, and you lose money.

4. Love Scams

Some scammers act like they’re in love with you online. Then they say, “Trust me, invest in crypto.” Once you send money, they disappear. In 2021, over 1,800 people lost more than ₹1,100 crore like this.
 

5. Hacks and Fake Apps

Some fake crypto apps like safepalesa.com and traders steal your money. Others break into your wallet and take your coins.

Conclusion

Cryptocurrency is a type of digital money that people use to buy things or invest in. It works online without banks or paper notes. People use it because it is fast and global. But it also has risks. You must stay careful and learn before using or investing in it.

FAQ’s

1. What makes cryptocurrency different from digital money in my bank?

Cryptocurrency isn’t tied to any bank or country; it's run by users worldwide.

2. How do cryptocurrencies stay secure without a central authority?

They use blockchain technology, where many computers verify every transaction together.

3. Can cryptocurrency be used offline like cash?

No, crypto needs the internet to confirm transactions and update records.

4. Why do some people call cryptocurrency “digital gold”?

Because, like gold, it’s limited in supply and seen as a store of value.

5. What happens if I lose my crypto wallet password?

You could lose access to your coins forever. There’s usually no way to recover them.

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LoansJagat Team

We are a team of writers, editors, and proofreaders with 15+ years of experience in the finance field. We are your personal finance gurus! But, we will explain everything in simplified language. Our aim is to make personal and business finance easier for you. While we help you upgrade your financial knowledge, why don't you read some of our blogs?