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Using cryptocurrency for everyday purchases is getting easier. You can set up a wallet, buy cryptocurrency, and find merchants who accept it.
But it’s easier said than done, right? Let’s walk you through the process before considering the benefits and what could stand in the way.
In This Guide
How Do Cryptocurrencies Work
Cryptocurrencies are virtual tokens used as mediums of exchange. They rely on blockchain technology, a secure digital ledger spread across many computers. This decentralised network speeds up transactions, cuts costs, and is immutable.
These cryptocurrencies represent a range of uses, from peer-to-peer payments (Bitcoin) to automated digital contract platforms (Ethereum) and specialised blockchain solutions (Ripple, Cardano, etc.). Each has its own unique features and community of users.
Unlike traditional money, cryptocurrencies operate independently of government regulation, using cryptographic safeguards. They store and exchange value through blockchain, where miners verify and record transactions.
For example, you need a crypto wallet if a friend sends you Bitcoin (BTC). After you give your friend your wallet address, they initiate the transaction. The Bitcoin network receives the message, and miners verify and process it. Miners compete to solve complex math puzzles (Proof of Work) to create a new block with the transaction and others. This block has a unique code proving the miner’s work.
A miner who solves the puzzle creates a new block with this transaction and others they have verified. This block has a unique code proving the miner’s work (Proof of Work). The miner then shares this new block with the whole network. Nodes (other computers in the network) validate the transactions and the Proof of Work. If correct, they add it to the blockchain. The transaction becomes final and cannot be changed, and you receive the Bitcoin. The miner gets a new Bitcoin and any transaction fees as a reward.
This process ensures that transactions are reliable and no one can cheat the system.
10 Popular Cryptocurrencies
BTC (Bitcoin)
ETH-USD (Ethereum)
USDT (Tether)
BNB (Binance Coin)
SOL (Solana)
USDC (USD Coin)
STETH (Staked Ether)
XRP (Ripple)
TON (TON11419)
DOGE (Dogecoin)
Bitcoin is the pioneer cryptocurrency on which all the others derive their basis. Created in 2009 by Satoshi Nakamoto, it has appreciated over the past decade, from about 400 in May 2016 to about 48,400 in July 2024.
Ethereum is a platform where apps and contracts run without a central authority. It uses ETH (also called Ether) to pay fees for transactions (known as “gas”).
Tether (USDT), or stablecoin, is an Ethereum token tied to the US dollar’s value (known as a stablecoin). It provides stability in cryptocurrency trading and transactions.
BNB, or Binance Coin, is a cryptocurrency launched by Binance Exchange in July 2017. It’s primarily used to pay fees on Binance, participate in token sales, and use the exchange network.
SOL is the digital currency for Solana, a decentralised computing platform that aims to boost blockchain scalability using proof of stake and history. Solana is known for high-speed transactions and low fees, handling as many as 50,000 transactions per second.
USDC is a stablecoin exchangeable 1:1 for US dollars, backed by dollar-denominated assets. Coinbase and Circle created it through the CENTRE Consortium.
Ethereum staked tokens represent a share in Ethereum 2.0’s proof-of-stake network and are used to earn rewards on Ethereum.
Launched in 2012, XRP is a digital asset for fast, low-cost cross-border transactions, settling in 3-5 seconds. It operates on the XRP Ledger, maintained by a global community, and is carbon-neutral and energy-efficient.
Toncoin (TON) is a decentralised layer-1 blockchain. Telegram developed it, but now the currency runs independently and uses proof-of-stake for scalability and reliability.
Initially created as a joke, Dogecoin (DOGE) is a tipping and small transactions crypto. It started in 2013 as a fun alternative to traditional cryptocurrencies, featuring a Shiba Inu meme logo. Unlike Bitcoin, Dogecoin is abundant, with 10,000 new coins mined every minute and no maximum supply.
Benefits of Using Crypto for Everyday Transactions
Inflation protection: Cryptocurrencies have become a haven during inflation and economic stability. Some digital coins protect against inflation as they are fixed in number. For example, only 21 million Bitcoins can ever be in supply.
Fast and cost-effective: Since there are no intermediaries, these transactions are quick and cost-friendly.
Safe and secure: Cryptocurrencies have no central control, preventing manipulation by single entities and offering more secure trading.
Accessible and transparent: Anyone with an internet connection can use cryptos to democratise trade. The blockchain allows anyone to view transactions, ensuring transparent and trustworthy trading.
Portfolio diversification: Trading cryptocurrencies is valuable for diversifying investment portfolios and potentially stabilising returns. However, cryptocurrency’s high volatility can increase portfolio risk if it is heavily invested.
Highly liquidity: Cryptocurrencies can be easily exchanged with traditional currencies on various platforms, facilitating trade. Wallets help investors trade crypto and convert currencies with minimal transaction fees.
Discourages
Legal barriers: Like many countries, the UK needs clear regulations on cryptocurrency use. The legal grey area is one of the most significant obstacles to digital currencies’ wide-scale adoption.
51% attack risk: A majority control of mining power could compromise newer blockchains and disrupt trading.
Energy consumption: Mining consumes significant power, and this could be harmful to the environment.
Lack of policies: The UK lacks both a national policy and clear regulations on cryptocurrency use. Implementing a national policy would provide a framework for cryptocurrencies as alternative financial instruments and offer traders greater freedom in the global financial system.
Final Thoughts
Once considered a wild idea, cryptocurrency has become a staple financial asset. It has moved from a niche technology into a widely accepted financial investment. But, cryptocurrencies face challenges, top of the list is how to regulate their use has also fueled public scepticism about its widespread adoption. With so many benefits in our day-to-day transactions, they are worth the risk. Now that you know how cryptos work and the benefits and risks associated with them, would you try them? Pick a broker here now and start trading cryptos.