🎓 Prepared by students from Boğaziçi University

What is Cryptocurrency?

Cryptocurrency is digital money built on blockchain technology, using cryptography to validate transactions without a bank. Bitcoin, Ethereum and other digital assets let people store and transfer value peer-to-peer.

Short answer

Cryptocurrency is digital, decentralized money secured by cryptography and blockchain — no bank needed. Users store coins in digital wallets and trade on exchanges.

How a Cryptocurrency Transaction Works

1
User initiates
Sender creates a transaction using their private key
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2
Network validates
Miners or validators check the transaction
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3
Block formation
Transaction is grouped into a new block
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4
Chain links
Block is added to the blockchain; transaction is final

Step-by-step worked examples

Alice sends 0.5 Bitcoin to Bob using his public address. How does the network confirm this?

Alice uses her private key to sign the transaction.
The network broadcasts it to thousands of nodes.
Miners verify Alice has 0.5 BTC and include it in a block.
Once the block is mined, the transaction is final and irreversible.

What happens if two people try to spend the same Bitcoin twice?

The first valid transaction (earliest timestamp) is recorded in the blockchain.
The second attempt fails because the Bitcoin is already assigned.
The network rejects double-spending — this is the key innovation of blockchain.

An investor buys 1 Ethereum at €2000 and sells at €3000. What is the gain?

Profit = Sale price − Purchase price = €3000 − €2000 = €1000.
Return % = (€1000 / €2000) × 100 = 50%.
Note: This ignores transaction fees and taxes (which reduce actual profit).

Flashcards

Quick quiz

Q1.What technology secures cryptocurrency transactions?

Correct answer: A. Cryptocurrency relies on cryptographic math and distributed blockchain ledgers, not banks.

Q2.Can a Bitcoin transaction be reversed?

Correct answer: B. Blockchain transactions are immutable — once confirmed, they cannot be undone.

Q3.What is the main risk of holding cryptocurrency?

Correct answer: B. Crypto is highly volatile and digital wallets can be hacked if not secured properly.

Q4.Which is NOT a type of digital asset?

Correct answer: C. Treasury bills are government bonds, not cryptocurrency or blockchain-based digital assets.

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Common mistakes

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Cryptocurrency is anonymous — no one can trace it. — Correct: Crypto is pseudonymous; transactions are linked to wallet addresses and can be traced on the blockchain.

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Bitcoin is the only cryptocurrency. — Correct: Thousands of cryptocurrencies exist: Ethereum, Litecoin, Cardano, etc.

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Losing your private key is recoverable. — Correct: Private keys are permanent — losing them means permanently losing access to your coins.

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Cryptocurrency prices only go up. — Correct: Crypto is highly volatile and can crash sharply; historical gains don't guarantee future returns.

FAQ

What is the difference between cryptocurrency and blockchain?

Blockchain is the technology (a distributed ledger); cryptocurrency is one use of blockchain (digital money). Blockchain has other uses like supply-chain tracking.

How do I buy and store cryptocurrency?

Buy on an exchange (Coinbase, Kraken) using your bank account. Store in a digital wallet (hardware wallet for security, software wallet for convenience). Never share your private key.

What causes cryptocurrency price volatility?

News, regulation changes, market sentiment, adoption rates, and limited supply. Crypto markets are young and less regulated than stocks, making them more volatile.

Is cryptocurrency legal?

Legality varies by country. Most allow ownership and trading but regulate exchanges. Some ban it entirely. Always check local laws before investing.