What is Cryptocurrency? All You Need to know

Most or all of the products shown here are the products of our partners who reward us. This may affect the products we write about and how and where they appear on the page. However, this does not affect our measurement. Our thoughts are ours. Here is a list of our partners and how we earn money.

The information presented on this page is for educational purposes only. NerdWallet does not provide advisory or brokerage services and does not encourage or advise buyers to buy or sell special or security products.

1. Definition of cryptocurrency
2. How to buy cryptocurrency
3. The best cryptocurrency by capitalization market
Read more
1. Definition of cryptocurrency
Cryptocurrencies are digital assets created through the use of computer networking software that promote security and adherence.

Bitcoin and most other cryptocurrencies are supported by a technology called blockchain. Technology-enabled data management, tamper-proof operations, and tracking who owns what. Public blockchains are usually decentralized and operate without a central body such as a bank or government. The term cryptocurrency comes from the cryptographic process that the developers have put in place to prevent fraud. These innovations solve the problem of past efforts to create pure numerical values: how to prevent people from copying their keys and trying to use them twice.

Individual units of crypto can be called coins or tokens depending on how they are used. Some are trading rooms for goods and services, some are profitable stores, and some are designed to help run computers that work more financially.

One of the ways cryptocurrencies are created is through a process called mining using Bitcoin. Mining can be a very complex process in which IT solutions make it difficult to determine the exact extent of network changes. As a gift, the owner of the computer can receive a new cryptocurrency. Different cryptocurrencies are used in many ways to generate and distribute tokens, and many cryptocurrencies have less environmental impact.

For many people, the easiest way to get cryptocurrency is to buy it from an exchange or another user.

» Learn more: What is Blockchain and how does it work? back to the top
2. How to buy cryptocurrency
Buying cryptocurrency involves 4 easy steps.

1. Decide where to buy
There are many ways to buy cryptocurrency, but the easiest way for beginners to get into it is probably the middle ground. Intermediary exchanges act as a third-party supervisor, giving consumers confidence that they are getting what they pay for. These exchanges typically sell cryptocurrencies at market value and make money by advertising many of their services. If you are more familiar with traditional brokerage money, there are many online brokers that offer access to cryptocurrencies as well as trading products. Online brokers reviewed by NerdWallet include Robinhood, Webbull, SoFi Active Investing, and TradeStation. If you are looking for an exchange that only works in the cryptocurrency world, find an exchange that trades exchanges. Although these platforms, such as Coinbase, Gemini and Kraken, do not provide access to key assets such as commodities and contracts, they often offer a better choice of cryptocurrencies and a crypto storage option based on multiple platforms.

»Are you investing in cryptocurrency? Here we pick the best cryptocurrency exchanges and platforms.

Centralized exchanges are easy to use, but given the amount of cryptocurrency flowing through them, they can also be attractive targets for hackers.