What Is Cryptocurrency? A Beginner’s Guide to Digital Money

You have probably seen headlines about Bitcoin hitting new highs or heard people talking about crypto at work or over dinner. Yet when you ask how it actually works, the answer often turns into a confusing mix of terms like blockchain, mining and private keys.

Feeling unsure at the beginning is completely normal.

This guide explains what cryptocurrency is, how it works behind the scenes, and the main ways Australians can use and store it safely.

The Core Concept: What is Crypto?

At its simplest, cryptocurrency is digital money. There are no physical coins or notes you can hold in your hand. It only exists online.

The key difference is that most cryptocurrencies are decentralised. With traditional money, central banks and governments issue and control the currency. With cryptocurrency, a global network of computers maintains the system. No single bank, government or company can change the rules by itself or freeze everyone’s funds.

In practice, this gives people more direct control over their money, but it also means more personal responsibility.

It works like a shared spreadsheet

Think of a blockchain, the technology behind most cryptocurrencies, as a shared online spreadsheet that everyone can see.

Every time someone sends crypto, the transaction is recorded as a new entry in this spreadsheet. Once a group of these entries is confirmed and added, it is locked in permanently. You cannot go back and quietly edit or delete it later.

Over time, these entries form a complete, transparent record of who owns what. Anyone can verify the history, but no single person can secretly change it.

Understanding fungibility

Most cryptocurrencies, such as Bitcoin (BTC) and Ethereum (ETH), are what economists call fungible tokens.

Fungible simply means interchangeable.

If you lend someone a AUD $10 note, you do not expect them to return the exact same piece of paper. Any AUD $10 note with the same value is fine. Bitcoin works in a similar way. One BTC has the same value and function as any other BTC.

This consistency is important. It lets people use these digital assets as a medium of exchange and, for some, as a way to store value over time.

How Transactions Are Processed: The Role of Mining

In the traditional system, a bank checks that you have the money before it approves a payment. In many cryptocurrencies, there is no bank in the middle, so the network uses a process called mining instead.

Mining is like a global competition between specialised computers. These computers, known as miners, race to solve difficult mathematical puzzles. The work they do serves two main purposes.

1. Validation: Miners check that each transaction follows the rules, for example that the same coins are not being spent twice.
2. Creation: The miner that solves the puzzle first earns the right to add a new block of transactions to the blockchain. As a reward, they receive newly created cryptocurrency and sometimes transaction fees.

This is how new units of certain cryptocurrencies, including Bitcoin, enter circulation.

Modern mining trends

In the early years, you could mine some cryptocurrencies on a regular home computer. That time has largely passed.

By 2024 and 2025, mining has become a specialised industry. Many miners now run large-scale facilities that look more like data centres than home offices. Some of these operations use renewable energy sources, or reuse existing industrial infrastructure, to reduce costs and emissions.

There is also a growing link between mining and Artificial Intelligence (AI). In some cases, the same facilities that mine crypto also power AI workloads, which can improve overall efficiency.

Not every cryptocurrency uses mining. Some newer networks use different methods, such as proof of stake, to validate transactions and issue new coins.

Ownership and Storage: Custody

One of the first questions people ask is, “Where does my crypto actually live?”

Your cryptocurrency does not sit in a file on your laptop or phone. It exists as balances recorded on the blockchain. What you control are your private keys.

Private keys are long, unique codes that act like a master password. They prove that you are allowed to move the funds linked to a particular blockchain address. If you control the private keys, you control the crypto. This idea is known as crypto custody.

There are two main ways to manage these keys.

1. Self-custody (non‑custodial)

With self-custody, you act as your own bank.

You use tools such as hardware wallets (often small devices that connect via USB or Bluetooth) or software wallets to store and manage your private keys yourself.

• Pros:
  You have full control over your assets. No third party can freeze, move or claim your funds if you still hold your keys.

• Cons:
  If you lose your private keys or your backup recovery phrase, there is usually no way to restore access. There is no forgotten password link, no call centre that can reset it. The funds may be stuck on the blockchain permanently.

Because of this, secure backups and careful storage are critical for anyone using self-custody.

2. Third‑party custody (custodial)

With third-party custody, you let a business hold and manage the keys on your behalf. This might be a cryptocurrency exchange, a digital asset platform or a specialist custodian.

From your perspective, it often looks and feels like internet banking. You log in with an email address, password and sometimes two-factor authentication, then send or trade your crypto inside the platform.

• Pros:
  It is convenient and more familiar for most people. If you lose your login details, there is usually an identity verification process to help you regain access to your account.

• Cons:
  You are relying on the company to look after your assets. If the platform is hacked, poorly managed or goes into administration, your funds could be at risk. This is why using reputable, regulated providers is essential.

In Australia, more platforms are working with independent, qualified custodians that focus on storing digital assets securely and meeting regulatory standards.

How to Read the Market: Candlestick Charts

When you look up the price of a cryptocurrency on an exchange or price app, you will often see a candlestick chart instead of a simple line.

These charts were first developed in Japan to track rice prices. Today, traders across global markets, including crypto, use them to see how prices move over time.

For any chosen period, such as 1 minute, 1 hour or 1 day, each candle shows four key price points:

• Open: The price at the start of the period.
• Close: The price at the end of the period.
• High: The highest price reached during that time.
• Low: The lowest price reached during that time.

Reading the body and wicks

Each candlestick has a body and, usually, thin lines at the top and bottom known as wicks or shadows.

• The body:
  The thick part of the candle shows the range between the open and close. Platforms typically colour the candle green if the price closed higher than it opened, and red if it closed lower. This makes it easier to see at a glance whether buyers or sellers were stronger during that period.

• The wicks:
  The thin lines show how far the price moved above and below the body. Long wicks signal that price swung up or down significantly within that period, even if it ended close to where it started. This is one way traders gauge volatility.

Candlestick charts do not predict the future, but they are a simple visual tool to understand how prices have behaved.

Real‑life Examples of Crypto Assets

Not all crypto assets serve the same purpose. Broadly, they can be grouped into a few common categories.

• Native cryptocurrencies:
  These are the primary assets of their own blockchains. Bitcoin is often described as digital gold, since many people use it as a store of value. Others use it for payments. Similar examples include Litecoin and the native coins of other networks.

• Utility tokens:
  These tokens are used to pay for services on a specific blockchain. For example, on the Ethereum network, users pay ETH as a fee to send transactions or interact with applications. It is a bit like needing tokens to play games at an arcade.

• Stablecoins:
  Stablecoins are designed to track the value of a reference asset, often a traditional currency. For instance, USD Coin (USDC) aims to maintain a value of 1 USDC equal to 1 US dollar (USD $1.00). This makes it attractive for traders who want to move between crypto and a more stable value without constantly moving money back to a bank account.

  Some stablecoins are backed by cash and short-term bonds in reserve. Others use crypto collateral or algorithms. Each design comes with its own risks and trade-offs.

• Governance tokens:
  Governance tokens give holders voting rights in a protocol or decentralised application. Holding a token like Uniswap (UNI), for example, can allow you to vote on proposals about how that protocol should operate, which fees it should charge or how its treasury should be used.

New types of tokens continue to appear, such as non-fungible tokens (NFTs), which represent unique items rather than interchangeable units.

Safety and Risks

Cryptocurrency can offer new levels of control, speed and access. However, it also places more responsibility on the individual than traditional banking does.

It is important to understand the key risks before you start.

• Irreversible transactions:
  Blockchain transactions usually cannot be reversed. If you send crypto to the wrong address, or choose the wrong network, it may be impossible to recover. Always check each character of the address, use QR codes where possible, and send a small test transaction first if you are unsure.

• Phishing and scams:
  Scammers often try to trick people into sharing their private keys or recovery phrases by pretending to be support staff, friends or official services. No legitimate exchange, wallet provider or custodian will ever ask for your seed phrase or full private key. If someone asks, treat it as a red flag and stop immediately.

• Custodial risk:
  If you entrust your crypto to a third party, you are exposed to their business and security risks. Look for platforms that are transparent about their licences, security controls, insurance arrangements and how they store client assets.

  Around the world, including in Australia, regulators are paying closer attention to crypto custody. There is a growing focus on qualified custodians, which are entities that meet strict standards to hold assets on behalf of clients.

• Market volatility:
  Crypto prices can rise and fall quickly, sometimes within minutes or hours. This volatility creates opportunities for traders but can also lead to large losses. Never invest money you cannot afford to lose, and be wary of promises of guaranteed returns.

Taking time to learn the basics, using strong passwords and two-factor authentication, and starting with small amounts can all help manage these risks.

Summary

Cryptocurrency represents a shift from money controlled mainly by central institutions to systems where users can hold and transfer value directly.

For some people, it is a long-term investment. For others, it is a new way to send payments across borders, experiment with emerging technology, or diversify their financial exposure. Whatever your view, the underlying idea is the same. It is a digital system that lets value move globally, securely, and often within minutes, without needing a traditional middleman.