Cryptocurrency

What is Cryptocurrency?

Crypto is a digital currency, meaning it doesn’t have a physical form nor is it based on an asset like gold or silver. You might think it’s a risky investment due to its nature. Although you’re not entirely wrong, there is a fairly large market for this type of investment, which makes it a potentially valuable asset.

But before we get into crypto, we need to have some background knowledge of blockchain and their contributions to cryptocurrency. However, if you don’t care about how they are obtained (besides buying) or why investors see their value, you can skip to "The Currency” section.

Basics of Blockchain

Blockchain is a public digital ledger, where anyone can access the blockchain data to oversee its transactions, history, or to validate a block. Validating a block is simply making sure that before transactions happen, the sender has enough funds to make the transaction and it follows the rules of the blockchain, where if it is validated it is added to the blockchain permanently.

One of the defining aspects of blockchain is the ability to always add blocks, but never to remove any blocks. They can easily retrace fraudulent actions due to their nature, making them extremely reliable for transactions. Its transparency and immutability makes cryptocurrency more attractive for investors.

How Crypto is Obtained

There are two ways to obtain a cryptocurrency, besides buying it,: Mining and Validating. Mining is referred to as Proof-of-Work (PoW) and Validating is referred to as Proof-of-Stake (PoS).

Mining (PoW)

1.

Mining is where miners use computer power to solve complex mathematical puzzles. When they are solved, they validate a block of transactions and add it to the blockchain.

In return for their work, they are rewarded with the type of cryptocurrency. Rewards are given because in order to mine, it requires a lot of resources and energy.

Who chooses the validators?

Instead of mining, users are able to validate a block by placing an amount of their cryptocurrency as collateral. They do this to prevent dishonesty in validating transactions.

In return for their validation and honesty, they are rewarded with this type of cryptocurrency. The more put at stake, the higher chances of being selected to validate a block.

The blockchain algorithm will “randomly” choose a validator through its protocols. Think of it like a queue, where people who are willing to stake any amount of crypto join the queue. The higher the stake, the higher the chances of you being selected.

Mining and Validating Blocks are rewarded in cryptocurrency coins. Bitcoin and Ethereum are some of the most popular coins that come to mind. So what about coins that are less serious.

The less serious ones or more widely available cryptocurrency are tokens. They are representations of anything, such as assets, points, and memes. They aren’t created from newly created blockchain, instead they are created on top of existing blockchain platforms, which means they typically lose the scarcity aspect that other cryptocurrencies hold. They are purely for fun and speculation, making them much more volatile, but due to this their price swings can be huge as they don’t rely on scarcity or have clear uses.

The “Currency”

So how do they have any value? Well we can see from the supplier side, mining or staking requires a lot of resources, energy, and time. Since most coins are created with a finite amount, the supply is scarce, therefore the value of the coin exists as long as there is demand for it.

The demand side boils down to what consumers might seek in these coins or tokens. Some consumers are confident that the coin may be useful in the future, while others may just want ownership of the coin before it goes up in value. Others do it for jokes (tokens), in the event to make some quick cash. Either way, it’ll put a price tag on the cryptocurrency.

Although cryptocurrency may still sounds crazy, there are very real reasons as to why an investor would want to purchase them. The two big reasons are: Decentralization and Transferability.

What it means for crypto is that they aren’t backed or owned by any government, central bank, or corporation. They are instead operated on any computer with internet access, which are used to monitor the activity of the coin.

This means how easy it is to have access to your asset and to make transactions quicker. For example, when you want to send money from your Bank Account, you’d typically have to use a third-party software, like Venmo or Zelle. Cryptocurrency gets rid of the middleman, you can directly transfer money to another person, allowing faster transactions.

The “Crypto”

Encryption is to conceal access to unauthorized users. Cryptocurrency networks are protected with encryption, which allows safe and secure transactions and maintains decentralization. Since they aren’t associated with banks or the government, encryption is key in preventing fraud or at least regulating any accidents.

Recall back to PoW and PoS. By giving the responsibility to the users and having a stake in transactions, it can ensure honesty and fewer vulnerabilities.

Decentralization is important to many users because it allows you to control and manage your own assets. If it’s owned by a single authority, there’s a chance it’ll collapse from corruption, compromising risk, or damage.

Pros and Cons

PROS

1. Lower Transaction Costs

   Relying on Peer-to-Peer transactions makes it fairly low cost to send and receive a variety of cryptocurrencies. There are even ATMs like Bitcoin ATM that allows people to buy its cryptocurrency using cash and send coins to their crypto wallet.

2. Market Access

   Unlike other markets, they are available 24/7, 365 days a year. On the other hand, stock markets are only open from a certain time frame on business days, but cryptocurrencies can be bought and sold at any time.

3. Transparency

   Since blockchains are public ledgers, anyone is able to see activity and its history.

4. Easier Global Transactions

   When you want to send money across borders, there are fees and high wait time that comes at a cost. Transferring cryptocurrency bypasses this problem, as peer to peer transactions removes the middleman.

5. Decentralization

   Allowing users to control and oversee their own assets mitigates potential risks that traditional methods may face. Single entities can face corruption, which decentralization helps prevent.

Conclusion

This video by the New York Times does a great job explaining how crypto and blockchain work together.

1. Price Volatility

   Since it’s simply based on supply and demand, people can lose interest for any reason. Prices can drop in minutes, making them uncomfortable to hold for long periods of time.

2. Scalability

   Due to its rise in popularity, there have been recordings of network slowdowns when too many transactions happen. This can cause delays in the future, negating its transferability benefit.

3. Environmental Impact

   The amount of energy and resources to mine and maintain cryptocurrency poses many environmental issues. If it doesn’t align with your morals, it’s not worthwhile to invest in certain currencies that solely rely on mining.

4. Irreversible Transactions

   This isn’t cash or credit, once you commit to a transaction and is validated, there is a low chance of refunds. Without the backing of financial institutions or the government, there is a very low chance you’ll get your money back.

5. Data Risk & Hacking

   Although blockchain is known for its security, many users in the environment are still known for hacking into other’s accounts. Along with losing access to crypto keys or wallet means that you may never be able to access your crypto account ever again.

Crypto is extremely complicated. Even after researching, it’s hard to justify the majority of cryptocurrency. It seems the best choices are to go for coins that have existed a lot longer and have some credibility. Even then, its volatility can be too risky, so it honestly seems better to not invest in it at all unless you have real research on the coin you’re investing into.

Keep in mind, this is investment advice, but just my understanding and conclusions of cryptocurrency. You can always disregard my ending thoughts if you want to invest, but please do plenty of research before you drop money into it.

SOURCES

Nibley, B. (October 9, 2025). The Pros and Cons of Cryptocurrency. SoFi. https://www.sofi.com/learn/content/pros-and-cons-of-cryptocurrency/

Nevil, S. (August 23, 2025). Understanding Proof of Work (PoW) in Blockchain: Key Mechanism Explained. Investopedia. https://www.investopedia.com/terms/p/proof-work.asp

Investopedia Team. (August 06, 2025). Understanding Proof-of-Stake: How PoS Transforms Cryptocurrency. Investopedia. https://www.investopedia.com/terms/p/proof-stake-pos.asp

Published by Due.com (April 4, 2022). Why Decentralization is Crypto’s Greatest Strength and Greatest Threat. Nasdaq. https://www.nasdaq.com/articles/why-decentralization-is-cryptos-greatest-strength-and-greatest-threat

(Retrieved March 19, 2026). How Does Cryptocurrency Work? A Beginner’s Guide. Coursera. https://www.coursera.org/articles/how-does-cryptocurrency-work

Fidelity Learn. (September 15, 2025). What is cryptocurrency? Fidelity. https://www.fidelity.com/learning-center/trading-investing/what-is-crypto

The New York Times (April 2, 2018). How Cryptocurrency Works | NYT. YouTube. https://www.youtube.com/watch?v=0B3sccDYwuI&t=3s