How cryptocurrency works: blockchain, wallets and seed phrases

Updated: 7 November 2026

In short: Cryptocurrency is digital money whose records are kept not in one bank but in a distributed database — a blockchain — spread across thousands of computers. The best known is bitcoin. Crypto prices swing strongly, which is why people trade them.

How it works

Every transfer is written to the blockchain, and changing a record afterwards is practically impossible. Access to the coins is given by a key — the seed phrase; whoever knows it controls the coins.

Why it is risky

High volatility: tens of percent a day is normal for small coins. "Guaranteed income" scams, phishing sites and hacks. Rules also differ from country to country.

Example: how a transfer works

You send a friend 0.01 BTC. The transfer enters the network, thousands of computers check that you really own those coins and record the operation in the blockchain — a shared ledger that cannot be quietly changed after the fact. A few minutes later your friend sees the coins. There is no intermediary like a bank, but a mistaken transfer cannot be reversed either.

How crypto differs for a trader

The market runs around the clock, weekends included. Volatility is higher than in currencies: bitcoin can move 5–10% in a day, small coins 30% or more. That creates movement but calls for smaller position sizes. Beginners should start with the most liquid pairs — BTC and ETH — and not chase "coins that will go up 100 times".

How not to lose money off the chart

Turn on two-factor authentication on the exchange, do not keep everything there, and never share your wallet recovery phrase. Check the site address before logging in — phishing copies of exchanges are very common. Do not believe "giveaways" in the name of famous people: "send 1 ETH, get 2 back" is always a scam.