What Is Cryptocurrency? The Complete Beginner’s Guide to Digital Assets in 2025

Cryptocurrency is decentralized digital money built for use over the internet. Bitcoin, launched in 2008, was the first cryptocurrency — and it’s still the largest, most influential, and best-known today. 

Since then, cryptocurrencies like Ethereum, Tether, and Solana have exploded in popularity, offering new ways to store value, transfer funds globally, and build new financial systems without banks or governments in control.

Here’s a quick overview:

• Decentralized: Cryptocurrencies are not issued or controlled by governments or banks. They’re managed by global peer-to-peer networks using open-source software.
• Blockchain-backed: Every transaction is secured and recorded on a blockchain — a public ledger distributed across thousands of computers.
• Borderless and fast: Crypto allows near-instant, low-cost transfers of value across the world, 24/7.
• Growing market: In Dec 2024, global crypto market capitalization tops at US$3.7 trillion, a massive jump from US$200 billion just five years ago.
• Singapore penetration: In Singapore, crypto ownership remains strong, with around 26% of adults reportedly owning cryptocurrencies as of late 2025 according to survey.

In this guide, we’ll break down exactly how cryptocurrency works, the different types of crypto, risks to watch for, and how you can get started safely.

What Is cryptocurrency?

Cryptocurrency, often called crypto, is a form of digital money that exists purely online. Unlike traditional currencies such as the Singapore Dollar (SGD) or US Dollar, cryptocurrencies are not issued or regulated by any government or central bank. 

Instead, they are secured by cryptography and operate on decentralized networks of computers — with every transaction recorded permanently on a blockchain.

A blockchain is a public, distributed ledger that acts like an open, tamper-proof record book. Once a transaction is added, it cannot be changed, making the system transparent and secure without the need for banks or payment processors. This underlying technology is what enables cryptocurrencies to function independently and safely across borders.

At its core, cryptocurrency is designed to be the internet’s native money — fast, borderless, secure, and available to anyone with a smartphone or internet connection. 

While you can use crypto to buy goods, pay for services, or transfer funds internationally, many people also treat it as an alternative investment or store of value, similar to how gold has historically been used.

Key features of cryptocurrency

• Decentralization: No single entity, government, or company controls cryptocurrencies. They are operated by distributed peer-to-peer networks.
• Blockchain security: Every transaction is verified and permanently recorded on a blockchain, making it virtually impossible to alter past records.
• Borderless accessibility: Anyone with a smartphone or computer can send, receive, and hold cryptocurrency, regardless of location.
• Low transaction costs: Many crypto transfers cost only a few cents — far lower than international bank fees or remittance charges.
• Fast transaction speeds: Crypto transactions can settle in minutes or even seconds, far quicker than traditional cross-border wire transfers.
• Financial freedom: In countries facing hyperinflation, tight capital controls, or limited banking access, cryptocurrencies offer an alternative way to preserve and transfer wealth.

Unlike traditional bank accounts, your crypto holdings are not tied to any national system. No matter what happens to a government or financial institution, your cryptocurrency remains independently secured on the blockchain.

Cryptocurrency vs. traditional currency

While both cryptocurrency and traditional currency are used to transfer value, their foundations are completely different.

Fiat currencies like the Singapore Dollar (SGD), US Dollar (USD), or Euro (EUR) are issued, regulated, and backed by governments and central banks. They exist physically as notes and coins, and digitally through banking systems. 

In contrast, cryptocurrencies are entirely digital assets secured by cryptography. They aren’t issued by any central authority, nor are they tied to a physical form. Instead, they run on decentralized blockchain networks, where every transaction is recorded publicly and cannot be altered.

Some of the key differences between the two include:

• Control — Central banks can print more money to manage economic conditions, but many cryptocurrencies operate with a fixed or predictable supply. 
• Accessibility — Opening a traditional bank account often requires documents, credit checks, and government IDs. In comparison, anyone with a smartphone and internet access can create a crypto wallet.
• Insurance — traditional currencies stored in banks are usually insured — for example, deposits in Singapore are protected up to S$75,000 per depositor under the SDIC scheme. 

Let’s look at a quick overview of the differences between the two:

How does cryptocurrency work?

Cryptos rely on the mix of blockchain technology, consensus mechanisms, and cryptography to make transactions secure, transparent, and verifiable.

What Is blockchain?

A blockchain is a distributed digital ledger that’s open to the public, unchangeable, and transparent. Every transaction is grouped into a “block,” linked in order to the previous one—forming a continuous chain.

Thousands of independent computers—called nodes—power blockchain networks worldwide. No single entity controls the ledger. 

Instead, transactions get validated through consensus mechanisms, reducing the chance of tampering or failure. And that’s how blockchain ensures security and decentralization.

What is consensus mechanisms?

In decentralized networks like cryptocurrencies, there’s no central authority to verify and approve transactions. Instead, participants must agree on the state of the blockchain — a process called consensus. To achieve this, cryptocurrencies use specific protocols known as consensus mechanisms.

The two most common types are Proof of Work (PoW) and Proof of Stake (PoS). Each has a different way of securing the network, validating transactions, and issuing new coins.

Proof of Work was the original method introduced by Bitcoin, requiring computers to solve complex mathematical puzzles to validate transactions. It's secure but energy-intensive. 

In contrast, Proof of Stake, used by newer blockchains like Ethereum 2.0, selects validators based on the amount of cryptocurrency they hold and are willing to "stake," reducing energy consumption significantly.

Here’s a quick comparison of how they differ:

While both systems aim to maintain trust without a central authority, Proof of Stake is increasingly seen as the future of blockchain, especially in a world that’s prioritizing energy efficiency and scalability.

What is cryptography?

At its simplest, cryptography is the science of protecting information through complex mathematical techniques. In the world of cryptocurrency, it ensures that transactions are secure, wallet addresses are protected, and the network remains resistant to fraud or tampering — without needing a central authority like a bank.

When you send or receive cryptocurrency, cryptography plays several critical roles:

• Securing transactions: Every transaction is encrypted and linked to the sender’s private key, making it virtually impossible for anyone else to forge or alter it.
• Creating wallet addresses: Your public wallet address is generated through cryptographic algorithms, allowing others to send you funds without exposing your private key.
• Maintaining blockchain integrity: Cryptographic hashing ensures that once a block of transactions is confirmed, it can’t be changed without altering every block after it — which would be practically impossible.

A key piece of cryptography used in cryptocurrencies is public-key cryptography. Each user has a public key (like an email address you can share) and a private key (like a password you must keep secret). To send cryptocurrency, you use your private key to sign the transaction, proving ownership without revealing sensitive information.

Another important element is the use of cryptographic hash functions. These functions take transaction data and convert it into a fixed-size string of characters (called a hash). Even a tiny change in the input will result in a completely different hash, helping secure the blockchain from manipulation.

What are tokens and token coins?

Coins are digital currencies that operate on their own native blockchains. Think of Bitcoin (BTC) and Ethereum (ETH) — they run independently, with their own transaction records, security protocols, and network rules. Coins are primarily designed to function as money: they can be used to store value, transfer funds, and pay for transactions within their own ecosystems.

Tokens, on the other hand, are built on top of existing blockchains like Ethereum. Instead of having their own network, tokens rely on the infrastructure of another blockchain. They are created through smart contracts and often represent assets, rights, or access to specific functionalities within a project — far beyond just serving as a medium of exchange.

Here’s a quick breakdown:

What is crypto mining?

Mining is the process by which new digital coins are created and transactions are verified on a blockchain network. 

Mining plays a critical role in maintaining decentralized cryptocurrencies like Bitcoin and Ethereum, ensuring that transactions are accurate, secure, and permanently recorded without the need for a central authority.

At its core, mining involves using specialized hardware and software to solve complex mathematical problems. When a miner successfully solves a problem, they validate a new block of transactions and add it to the blockchain. In return for this work, miners are rewarded with newly minted cryptocurrency — this is how new coins enter circulation.

However, not all cryptocurrencies are mined. Some digital assets are created through other mechanisms like hard forks, where a blockchain splits into two separate paths, or are simply issued directly by developers without the need for mining. These non-mineable tokens often serve as investments, utilities, or governance tools rather than everyday currencies.

How crypto mining works?

Mining is typically done through a decentralized network of computers competing to validate transactions. Here's the basic flow:

• Miners race to solve a cryptographic puzzle using their computing power.
• The first miner to solve the puzzle verifies a block of transactions and earns a reward (new cryptocurrency plus transaction fees).
• The new block is added to the blockchain, making the record permanent and publicly accessible.

This system not only issues new coins but also keeps the network secure by making it extremely costly and impractical for bad actors to alter transaction history.

While technically anyone with a computer and internet access can attempt mining, in reality, mining has become highly competitive and energy-intensive. Success often depends on having powerful mining rigs and cheap electricity, which is why most mining today is handled by specialized companies or large mining pools that combine resources.

For example, Bitcoin mining involves a global "lottery" where thousands of mining rigs compete to solve the next block’s cryptographic puzzle. The first to succeed gets rewarded with newly created bitcoin, which then enters the broader market for users and investors.

Where do cryptocurrencies get their value?

Cryptocurrencies derive their value from a combination of supply, demand, utility, scarcity, and market trust — much like how traditional assets or commodities such as gold or oil are valued.

However, cryptocurrency value is shaped by more than just buying and selling pressure. Several other key factors come into play:

• Scarcity and issuance limits: Many cryptocurrencies have built-in scarcity. Bitcoin, for example, has a hard cap of 21 million coins, making it deflationary by design.
• Utility and use cases: A cryptocurrency's real-world utility — such as enabling smart contracts (Ethereum), facilitating cross-border payments (Ripple), or powering decentralized finance (DeFi) platforms — adds intrinsic value beyond speculation.
• Network effect: The more people, businesses, and applications adopt a cryptocurrency, the stronger its network becomes. Bitcoin and Ethereum have large, established user bases, which boosts confidence and perceived stability.
• Security and decentralization: Strong security protocols and a decentralized structure make cryptocurrencies resistant to censorship, fraud, and single points of failure — qualities that investors and users value highly.
• Market sentiment and trust: Public perception, media coverage, institutional adoption, and broader economic trends (such as concerns over inflation or currency devaluation) significantly impact how cryptocurrencies are valued.
• Innovation and development: Projects that continually innovate, improve their blockchain technology, or expand their ecosystem often see increased value, especially in competitive sectors like decentralized finance, gaming, and tokenized assets.

While some people invest in cryptocurrencies purely for potential price gains, others value their ability to transfer money globally with low fees, hold assets independently of banks, or participate in new digital economies.

Types of cryptocurrencies

The cryptocurrency market today is much more than just Bitcoin. Thousands of digital assets have emerged, each serving distinct purposes beyond just payments or value storage..

Cryptocurrencies are broadly categorized by their core functions: payments, infrastructure development, financial services, decentralized applications, and entertainment. Each type targets specific user needs, industries, or opportunities, often creating new markets along the way.

Here’s an overview of the major types of cryptocurrencies:

1. Payment cryptocurrencies

Payment cryptocurrencies are designed to transfer value quickly and securely without intermediaries like banks. They aim to improve on traditional payment systems by offering faster settlement times and lower fees.

Example: Bitcoin (BTC), Litecoin (LTC), Bitcoin Cash (BCH)

2. Store of value cryptocurrencies

Store of value (SoV) cryptocurrencies are assets designed to preserve value over time, similar to how gold functions in traditional finance. Limited supply and predictable issuance make them attractive for long-term holding.

Example: Bitcoin (BTC)

3. Stablecoins

Stablecoins are cryptocurrencies pegged to stable assets like fiat currencies or commodities. They are widely used for trading, remittances, and protecting value during market volatility.

Examples: Tether (USDT), USD Coin (USDC), DAI

4. Infrastructure cryptocurrencies

Infrastructure coins power blockchain networks that host decentralized applications (DApps) and smart contracts. They form the foundation for much of Web3’s growth.

Examples: Ethereum (ETH), Solana (SOL), Avalanche (AVAX)

5. Financial cryptocurrencies

These cryptocurrencies facilitate financial activities like trading, lending, yield farming, and liquidity provision, often through decentralized finance (DeFi) platforms.

Examples: Uniswap (UNI), Aave (AAVE), Compound (COMP)

6. Privacy coins

Privacy coins are designed to enhance user anonymity by obscuring transaction details like sender identity, receiver address, and transaction amount.

Examples: Monero (XMR), Zcash (ZEC)

7. Service cryptocurrencies

Service cryptocurrencies provide decentralized storage, computing, communication, and identity solutions — enhancing traditional industries through blockchain technology.

Examples: Filecoin (FIL), Chainlink (LINK), Akash (AKT)

8. Media and entertainment cryptocurrencies

These projects reward content creators, power blockchain-based games, and drive metaverse platforms, often using NFTs and play-to-earn models.

Examples: Decentraland (MANA), The Sandbox (SAND), ApeCoin (APE)

How to buy cryptocurrency

In Singapore, you can purchase Bitcoin, Ethereum, and hundreds of other cryptocurrencies through MAS-regulated exchanges.

Steps to buy cryptocurrency in singapore

1. Choose a regulated exchange: Pick a MAS-regulated crypto exchange or trusted platform based on your needs (fees, coins available, ease of use).
2. Create an account: Complete identity verification (KYC) as required by regulations.
3. Deposit funds: Use payment methods like PayNow, FAST, bank transfer, or debit card.
4. Select your cryptocurrency: Choose which coin or token you want to buy based on your goals.
5. Purchase and store safely: Buy crypto and either leave it securely on the exchange or transfer it to your personal crypto wallet for added security.

Read more: Best Crypto Exchange in Singapore

What is a crypto wallet?

A crypto wallet is a digital tool that stores your private keys — the passwords that allow you to access and manage your cryptocurrency on the blockchain. While it’s called a "wallet," it doesn’t technically hold your crypto assets themselves; instead, it protects your keys, which prove ownership of your funds and authorize transactions.

Why crypto wallets matter

A crypto wallet acts as a gateway to your assets stored on the blockchain. Your private keys are what give you full control over your digital money. This makes wallet security critical: anyone who gains access to your private keys effectively gains full control over your crypto.

Types of crypto wallets

There are two types of wallets, each offering a different balance of convenience and security:

• Hardware wallets: Physical devices, like Ledger or Trezor, that store private keys offline. They offer a high level of security by only connecting to the internet when necessary.
• Online (hot) wallets: Software-based wallets that are always connected to the internet, such as apps or web platforms. Examples include MetaMask, Trust Wallet, or exchange wallets like Binance or Coinbase. They are easier to use but more exposed to hacking risks.

Each wallet type comes with trade-offs. Hardware wallets offer strong protection against hacking but can be lost, damaged, or stolen physically. 

Online wallets are more convenient for daily use but require extra security measures like two-factor authentication and careful phishing protection.

NFTs, airdrops, and other crypto innovations

In recent years, innovations like NFTs and airdrops have introduced new ways to create, distribute, and interact with digital assets across blockchain networks.

What are nfts (non-fungible tokens)?

NFTs, or non-fungible tokens, are unique digital assets that represent ownership of items such as digital art, collectibles, music, and in-game assets. Unlike cryptocurrencies like Bitcoin, which are interchangeable with each other, every NFT is one-of-a-kind and cannot be exchanged on a one-to-one basis.

NFTs are secured on blockchains like Ethereum or Solana, ensuring authenticity and scarcity. This has unlocked entirely new markets for digital ownership.

As of April 2025, the NFT market capitalization stood at approximately US$3.4 billion, down from its peak of US$10.8 billion during the height of the NFT boom according to Coingecko.

What are airdrops?

Airdrops are free distributions of cryptocurrency tokens to wallet holders, usually to promote a new project, reward early supporters, or decentralize token ownership.

Some notable examples include:

• Uniswap Airdrop (2020): Eligible users received 400 UNI tokens, valued around US$1,200 at its peak.
• Bitcoin Cash Airdrop (2017): Bitcoin holders received an equal amount of Bitcoin Cash (BCH) following a blockchain split.

While airdrops can offer valuable rewards, they also attract scams. It’s important to stick to reputable projects and avoid clicking on unsolicited links.

Risks of investing in cryptocurrency

While cryptocurrency offers exciting potential for high growth and innovation, it also comes with significant risks that investors need to understand before entering the market. 

Unlike traditional financial products, digital assets operate in a highly volatile, fast-moving environment — and without the same regulatory protections. Awareness of these risks is critical to making informed, cautious investment decisions.

High volatility

Cryptocurrencies are notoriously volatile. It's not unusual for Bitcoin, Ethereum, or other digital assets to experience double-digit percentage swings within a single day. One week, prices might surge to new highs; the next, they could plunge without warning. 

Limited regulation

Compared to traditional finance, the cryptocurrency market remains lightly regulated in many parts of the world. While places like Singapore have introduced clearer frameworks through MAS (Monetary Authority of Singapore), globally, regulatory standards vary widely. This regulatory gap can expose investors to risks like fraudulent projects, manipulated markets, and unreliable platforms.

Security vulnerabilities

Although blockchain technology itself is highly secure, the tools used to interact with cryptocurrencies — such as exchanges, wallets, and apps — can be vulnerable. Hacks, phishing attacks, and wallet breaches remain real threats. Without proper precautions like two-factor authentication, hardware wallets, and secure password management, investors could permanently lose access to their assets.

Scams and fraud

The rapid growth of cryptocurrency has unfortunately also attracted scams. From fake exchange websites and impersonation schemes to pump-and-dump operations, fraudsters target beginners who may not yet know how to spot red flags. Always verify the legitimacy of any platform, wallet, or project before transferring funds.

Regulatory shifts

As governments worldwide take a closer look at cryptocurrencies, sudden regulatory changes can have sweeping impacts. New taxation rules, stricter compliance requirements, or even outright bans could affect market access, liquidity, and pricing. Staying informed about regulatory developments — both locally and internationally — is essential for managing risk.