What is Cryptocurrency? A Simple Guide to Digital Money

Have you ever wondered what money would look like if it were invented today, in the age of the internet? The answer might be cryptocurrency.

Think of cryptocurrency as internet money. It’s a type of digital cash that exists entirely online. But here’s the key difference: unlike the New Zealand Dollar, which is controlled by a central bank, cryptocurrencies are decentralised.

A system where no single company, government, or person is in control. Instead, the network is run by a global community of users and computers working together.

So, what can you actually do with it?

• Invest: Buy and hold it, similar to stocks or gold, hoping its value grows. Sprinter vs. Marathon Runner: Find your strategy →
• Spend: More and more businesses are starting to accept crypto as payment.
• Send: Transfer money anywhere in the world, often faster and with lower fees than traditional banks.

Why is Crypto Worth Anything?

Why does a digital coin on a computer have any value at all? It comes down to the same three things that give traditional money its value:

• Utility (Is it useful?): Crypto can be used for fast global payments and as a new way to invest. The more problems it solves, the more valuable it can become.
• Scarcity (Is it rare?): Just like gold, many cryptocurrencies have a limited supply. For example, there will only ever be 21 million Bitcoin. This fixed supply can make it a good store of value.
• Trust (Do people believe in it?): Value comes from collective belief. People trust crypto because of its powerful underlying technology, the blockchain, which is incredibly secure and transparent.

The Story of Money: From Bartering to Bitcoin

To understand why crypto is such a big deal, it helps to see it as the next step in the evolution of money.

• 🤝 The Barter System: Swapping goods directly (e.g. chickens for wheat). It worked, but was inefficient.
• 🪙 Precious Metals: Gold and silver coins became the standard because they were rare, durable, and easy to carry.
• 💵 Paper Money: Governments issued paper notes that were “backed by” and redeemable for a real asset, like gold.
• 💳 Fiat Currency (Today’s Money): The gold backing was removed. Today, our money has value simply because the government says it does.
• Cryptocurrency: The newest step. It’s digital money based on mathematical proof and a secure network. It brings back the idea of scarcity, like digital gold.

How Bitcoin Works: The Four Key Ingredients

1. A Shared Digital Notebook | The Blockchain 📓

Think of the blockchain as a giant, public notebook that records every single transaction. Once a transaction is written down, it can never be erased or changed. This notebook isn’t stored in one place; a copy is shared with thousands of computers worldwide.

2. No Single Boss | Decentralisation 🧑‍🤝‍🧑

A traditional bank is a centralised system—it has a boss that controls everything. If the bank closes or blocks your account, you’re stuck. Bitcoin is decentralised—the network is run by all its users together. There’s no CEO to make decisions and no single point of failure.

3. The Network’s Accountants | Mining ⛏️

How are new transactions added securely to the notebook? Through a process called “mining.” Powerful computers (miners) compete to solve a complex math puzzle. The winner gets to verify the transactions and is rewarded with newly created Bitcoin.

4. Your Digital Vault | Wallets 🔑

To use crypto, you need a digital wallet. This is where you store your funds and the “private keys” that prove you own them. It’s like your bank account, but with one huge difference: you are in complete control.

Which wallet is right for you? →

The Big Picture

Cryptocurrency is more than just a new way to invest—it’s a fundamental change in how we think about money. By removing the need for a middleman like a bank, it gives individuals more control and freedom over their own finances.