How Does Cryptocurrency Work? A Beginner's Guide

Cryptocurrency works by replacing a bank's private database with a public record that thousands of computers keep identical copies of. Nobody is in charge of it, and nothing moves unless the holder of a secret key signs for it. That is the whole idea. The rest of this beginner's guide is what it means in practice, from the moment you press send.

What are you really holding?

Two things, and neither of them is a coin. There is an address, which is safe to share - it behaves like an email address people can send to. And there is a private key, which stays hidden and proves the address is yours. A wallet app such as MetaMask, or a hardware device like a Ledger, exists only to keep that key and sign with it. The coins themselves never leave the shared record.

What happens when you press send?

• Your wallet signs. It writes the payment and stamps it with your private key, on your own device.
• The network hears it. The signed message is passed from computer to computer within seconds.
• It waits in a queue. The fee you attached decides how soon it gets picked up.
• It is written into a block - about ten minutes on Bitcoin, about twelve seconds on Ethereum.
• Everyone updates. Every copy of the record now shows the new balances, and the payment is done.

Why can nobody rewrite the record?

Each block carries a fingerprint of the block before it, so the chain works like a stack of numbered receipts glued together: pull one out and every receipt above it stops matching. To change an old payment you would have to redo the work on every block since, faster than the whole network is adding new ones. That is the defence, and it is why the record is called a blockchain.

Start by sending a tiny test amount between two of your own wallets before you move anything larger, and never type your recovery words into a website, however official it looks. Next: how Bitcoin works and the slang you will meet everywhere.