What Are Cryptocurrencies?

Kai Vollmer
Kai Vollmer Author
Crypto Expert

Everyone has probably heard of Bitcoin by now. Similar to Tempo for the handkerchief, Dixo for the adhesive strip or O.B. for the tampon, the brand has become synonymous with its actual use. Bitcoin, the well-known cryptocurrency, is on everyone's lips. But what exactly are cryptocurrencies?

In general, cryptocurrencies are like any other currency, for example, euro or dollar (so-called fiat money). You can trade them or exchange them for goods. So far, so simple. The difference with conventional currencies: Crypro currencies are digital. That means there is no paper money equivalent to them and - now this is the interesting thing - they are completely outside the control of governments or financial institutions. They are backed by a decentralized payment system, with the technical implementation happening via blockchain. More on this below.

The goal of cryptocurrencies is to enable its users to make cashless payments. Moreover, cryptocurrencies are speculative objects in themselves, meaning that you can earn money by investing in cryptocurrencies such as Bitcoin or Ethereum.

How do cryptocurrencies work?

Cybercurrency is based on the concept of cryptography, which means the encryption of information. Hence, the name “crypto”. Whereas with traditional currencies, you have to rely on a so-called “trusted third party”, i.e., a bank (and pay a service fee to make the transfer), this also ensures that exactly the amount you want to transfer arrives at the recipient. So if you would like to make a person-to-person digital transfer, you also want to be sure that the correct amount will arrive and also that it can't be increased or decreased afterward. This is where cryptocurrencies rely on blockchain technology.

How does the blockchain work?

In blockchain technology, there are non-reversible encryption functions, so-called hashes. Each time an action, such as a transaction, is performed, a new block is created with its hash and appended to all existing blocks, as in a chain. Hence, the name blockchain. The great thing about this is that all the data on owners and movements of the currency are stored on thousands of servers simultaneously, encrypted. Thus, every single transaction is stored decentrally and forgery-proof in a network.

How do I buy cryptocurrencies?

Now that they are digital, these currencies are sold or traded on the Internet, depending on the currency. In fact, there are more cryptocurrencies than just Bitcoin, many more. As of June 2021, over 10,000 different recognized digital currencies have been counted. Their value depends on various factors, but a central component is supply and demand.

On the one hand, you can buy digital currencies via your crypto exchanges. There you simply exchange “conventional money”, for example euros, against a cryptocurrency. Moreover, only fractions of cryptocurrencies can be exchanged. If you look at Bitcoin, you also quickly understand why. Currently, (as of 02/12/2021), 1 Bitcoin is worth over 50,000 euros.

To trade and pay with cryptocurrencies, you need the following:

Now, you would like to buy something with your cryptocurrency. Only where, now the question arises.

Which companies accept cryptocurrencies?

It depends on the currency, of course. But common cryptocurrencies like Bitcoin or Ethereum are accepted by a long list of merchants, which is extended every day. There are even providers that exclusively welcome Bitcoin as a means of payment.

Some well-known companies that accept cryptocurrencies:

How does payment with cryptocurrency work?

Generally, payment with Bitcoin and Co. works as follows: Either a Bitcoin address is provided by the store or it is sent to you via email, in which case you have to manually add the address to your wallet. In other stores, the wallet opens automatically by a button. In this case, the payment address is also inserted automatically. There is also still the possibility to pay with a QR code that connects to the Wallet. In physical stores, hotels or restaurants where you can pay with cryptocurrency, it often works via QR codes as well.

Which wallet should I choose?

Before you get a wallet, think about how you want to use it. Would you rather have a safe or a wallet? Roughly speaking, there are three different types of wallets. They differ in their usability and in their security.

Online wallet:

Advantages Disadvantages
Free of charge Less secure than hardware wallets
Wallet can always be carried with you Is stored on foreign servers

Software wallet and desktop wallet:

Advantages Disadvantages
Free of charge Less secure than a hardware wallet
You have the key for your wallet in your own hand Defective terminal device can lead to problems during recovery
Works without additional hardware Uses a lot of storage space when matched with the blockchain

Hardware wallet:

Advantages Disadvantages
Safest way to store cryptocurrencies Fast transfer is troublesome
No running costs Costs arise with the acquisition
Can be easily lost

Which cryptocurrencies should I buy?

Which cryptocurrency you should choose depends on your needs and your risk tolerance. If you want to be on the safe side, it is best to invest in already established cryptocurrencies like Bitcoin or Ethereum. However, you can also put your money on cryptocurrencies that are promising but not yet as established, like Dogecoin or Shiba Inu. The risk with lesser-known currencies is higher, but the profit margin is usually higher as well. Just like real currencies, cryptocurrencies are subject to fluctuations and ultimately the decision is a very personal one. Therefore, it would be nonsensical to give a direct recommendation for a currency. However, here you have a small guideline that you should follow:

1) Research, research, and research. See what's happening in the cryptocurrency market right now, follow insiders on their social media channels, and watch YouTube tutorials.

2) If you have done enough research, then choose a cryptocurrency.

3) What speaks for this currency, what speaks against it? What risk do you take with which investment, and what could you gain?

4) Find an established crypto exchange, a trusted broker (e.g., Bitpanda) or invest directly.

Where do I store my cryptocurrencies?

Clearly, gold bullion is best kept in a safe or safe deposit box. But what do you do with cryptocurrencies? You need to protect them from theft and cyberattacks in the same way. You should take the following security measures in any case:


As you can see, it's not as complicated as it might seem at first. Nevertheless, we recommend acquiring basic knowledge of Bitcoin and Co. before you blithely get started. Because, as Warren Buffett so aptly put it? Don't invest in anything you don't understand.

Kai Vollmer Author
Crypto Expert

Kai is a crypto guru at BTCasino.info, specializing in cryptocurrencies and financial technologies, who promotes the understanding and safe use of digital currencies through his extensive knowledge and practical advice.

Last updated on 01/07/2024 um 9:44 p.m.