What are Cryptocurrencies and How do they work?

We hear about it in the news, friends talk about it, and we see the logos everywhere: Cryptocurrencies, Bitcoin, Crypto, Blockchain!

For many, this world seems technically complex and scary. Is it real money? Where is it kept? And is it legal?

Let’s put the complex terminology aside. In this guide, we will explain the story from the beginning with a simple tour to help you understand what are cryptocurrencies, how they work, and why the world considers them the “future of money”—without exaggeration or complexity.

What are Cryptocurrencies?

Cryptocurrencies are entirely digital money; they have no physical existence (you cannot touch them).

They are not issued by a central bank or a government. Instead, they rely on a technology called “encryption” to secure transactions and run on a decentralized system called the Blockchain.

Think of it like your bank balance that you see in your banking app—just numbers on a screen.

The core difference is that the bank controls your bank balance, while cryptocurrencies are controlled by a network of computers around the world, and no one can freeze or cancel them as long as you own the private key.

How Does Crypto Work?

To understand crypto, you must understand the Blockchain. Don’t worry, it’s simpler than you might imagine.

Imagine we have a giant notebook (ledger) where we record every single financial transaction.

• In Traditional Banks: This notebook exists only in the bank’s vault. The bank is the only one who sees who sent money to whom, and only they can edit it.
• In Cryptocurrencies: This notebook (the Blockchain) is copied and distributed across millions of computers worldwide.

When you send Bitcoin to a friend:

1. This information is broadcast to the entire network.
2. The computers (validators) verify that you have the funds.
3. The transaction is recorded in everyone’s notebook at the exact same moment.

Because the copy exists with everyone, no one can tamper with the ledger or erase an old transaction. This is called Decentralization, and this is the secret behind the power of cryptocurrencies.

Blockchain technology is much deeper than this. Read more about Blockchain Technology

What Are the Types of Cryptocurrencies? (It’s Not Just Bitcoin!)

Some people think crypto is just Bitcoin. In reality, there are thousands of coins, and the most important ones can be classified into 4 main families, each with a different function:

1. Store of Value

The most famous is Bitcoin (BTC). It is the first and most famous currency. It was designed to be scarce (limited to only 21 million coins). People mostly buy it for investment and to preserve wealth for the future, just like buying gold.

2. Functional Currencies (App Platforms)

The most famous is Ethereum (ETH). This is not just a currency; it is a platform where programmers can build and run complex applications and services on its network, such as Smart Contracts and Decentralized Finance (DeFi).

Many people confuse these two giants, so we prepared a special guide explaining the Difference between Bitcoin and Ethereum and which one suits your goals.

3. Stablecoins

The most famous are (USDT) and (USDC). These coins were designed to solve the problem of price volatility. Their value is always fixed and equals 1 US Dollar.

They are the best currency for commercial use and payments (like using them to load your Kazawallet card), because they give you the speed of crypto with the stability of traditional currency.

Read: What are Stablecoins and how do we use them?

4. Meme and Community Coins

This type started as a joke and turned into a massive financial phenomenon driven by internet communities, like Dogecoin. Despite their risk, they sometimes yield astronomical profits.

To explore this strange world, read: Meme Coins: How a Digital Joke Became an Investment Tool?

With thousands of currencies, choosing can be difficult.

If you are thinking of entering the market for profit, we recommend reading our analytical guide on The Best Cryptocurrencies for Investment

How Do You Get Crypto and Where Do We Keep Them?

To enter this world, you need two simple steps: Get the currency, and a place to store it.

First: How to Buy Crypto?

In the past, this required complex trading platforms. Today, the process is much easier. You can buy cryptocurrencies instantly using safe, local payment methods through our app.

Second: Where Do You Store Crypto? (Digital Wallets)

Since currencies are digital, you need a Digital Wallet. There are multiple types:

1. Cold Wallets: External devices (like a USB drive) not connected to the internet, used to store millions with total security.
2. Hot Wallets: Apps on your phone connected to the internet for easy daily use.
3. Kazawallet: Kazawallet is a comprehensive financial platform that allows you to securely store and manage both your traditional money and cryptocurrencies without the need to deal with technical complexities.
   It gives you the option to exchange your balance into traditional currency for withdrawal via various methods, or instantly convert it for spending via a Visa card.

What Can You Do with Crypto Today?

1. Investment: Preserving value for the future.
2. Money Transfer: Sending huge amounts anywhere in the world in minutes at a negligible cost, without passing through banks.
3. Shopping and Payment: Thanks to solutions like the Kazawallet Card, you can now use your crypto balance (especially USDT) to pay at supermarkets, buy airline tickets, or shop on Amazon, just like any regular currency.

Are Cryptocurrencies Safe?

Technically speaking (Blockchain), they are extremely secure, and hacking the network itself is impossible. The risk usually comes from human error:

• Forgetting your password (or recovery phrase).
• Sharing your data with scam websites.

The golden rule in crypto is: “You are your own bank.” This is great freedom, but it is also a great responsibility.

Crypto FAQ

Are cryptocurrencies legal?

The legal status varies from one country to another. However, in most countries, holding and trading are permitted, though regulatory restrictions may apply to exchange platforms.

Can my coins be stolen?

The blockchain network itself is extremely secure. However, you can lose your coins if you share your private keys or use untrusted platforms.

What is the minimum amount I need to start?

You can start with very small amounts to experience buying and storing. On the Kazawallet platform, you can buy digital currencies starting from as low as $1.

Can I buy using my local currency?

Yes, through intermediary solutions like Kazawallet, which allow you to pay using local methods and receive crypto directly in your wallet.

What is the quick difference between Bitcoin and Stablecoins?

Bitcoin is a volatile investment asset, whereas stablecoins are designed for short-term storage and payments with a fixed value (typically pegged at $1 per coin).

In Conclusion:

Cryptocurrencies are not just a bubble! They are the natural evolution of the concept of “money” in the internet age, offering you full ownership, speed, and financial freedom.

Now that you understand the basics and know the types of currencies and wallets, you stand on solid ground to begin. Browse the related articles we mentioned to deepen your knowledge in every area that interests you.

Buy your first cryptocurrency with your local currency via Kazawallet today!