Explaining cryptocurrency to a child

In this world, one of the most important things for everyone is money, how to get it? and how to save it? Cryptocurrency is such a revolution in our current era which has revolutionized all the financial institutions in the world. Nowadays, cryptocurrencies are becoming more mainstream and With approximately 2.5 billion people having access to the Internet and mobile phones, these digital currencies are likely to become everyday objects.


Also, there are people who are associated with these currencies and are probably wondering what to define these currencies.

What is Cryptocurrency

In simpler words, “Cryptocurrency is a digital currency that is meant to be a medium of exchange”. You just see the real-world currency it is similar to that but the difference is, it has no physical appearance. There are more than 1600 cryptocurrencies available, but some of the popular include; Bitcoin, Litecoin, Ethereum, Z-Cash, Shiba Inu. There is going to be plenty more to come in the upcoming years.

Creation of 1st cryptocurrencies:

In 2009, a man named Satoshi Nakamoto developed the first cryptocurrency, bitcoin. Now, people need to see that there is another type of money, which is not traditional, you can use it and take advantage of it. It’s very difficult to hack or destroy the bitcoin system because it is protected by cryptography.

Some Features of cryptocurrency are:

  • There is a limit of units that how many units can exist. For example, In bitcoin, there is a limit of 21 million. When this limit reached, no more bitcoins can be produced.
  • You easily confirm the transfer of funds. Now, a hashing algorithm that bitcoin can use makes it very easy for users to determine whether the transaction is valid or not.
  • They operate independently of the bank’s order central authority. They work in decentralized manners.
  • Allow new units to be added only after certain conditions are met. For example for bitcoin only after the block has been added to the blockchain, will the miner be rewarded the bitcoin, and this is the only way a bitcoin be generated.

What makes cryptocurrency so special:

  • There are no transaction costs if you use a digital wallet you will know if you transfer money from wallet to bank account you will lose some amount of money
  • You have 24 hours of access to money. You can’t walk up to the bank at 4 am in the morning and say that u want to withdraw some amount of money
  • There are no limits on purchases and withdrawals
  • There is freedom for anyone to use for example if you want to open an account in the bank you must do some paperwork and documentation for it but in cryptocurrency, there is no paperwork or anything else like it
  • In cryptocurrency, international transactions are faster. In general, if you transfer money from one place to another, it takes one or half-day but with cryptocurrency, it takes a couple of seconds.


“Cryptography is a method of using encryption and decryption to secure communication in the presence of third parties with ill intent. Now this refers to a third party who wants to steal your data”

Cryptography usually requires:

A computational algorithm (like SHA256), which is the hashing algorithm that bitcoin uses, public key(it is like the digital identity of the user that the user share with everyone), private key (which acts as a digital signature of the user which he keeps hidden)

Now let’s talk about a normal bitcoin transaction:

  • Firstly you have the transaction details, these details who you want to send it to, and how much bitcoin you want to send.
  • Then it passes through the hashing algorithm for bitcoin we use the (SHA256) algorithm.
  • The output that you obtain passes through the signature algorithm with the user’s private key now this is used to uniquely identify the user.
  • This output is then distributed across the network for people to verify. This is done by using the sender’s public key. The people who verify the transaction check whether it’s valid or not are known as miners.
  • Now after this is done the transactions and several others are added to the block-shaped and it can’t be changed again.
Normal Bitcoin Transaction

Disadvantages of Cryptocurrencies:

  • No refund Policy: There is no policy to return the coin. If someone accidentally sends funds to the wrong wallet address, the coin cannot be returned by the sender.
  • Sensitive to hackers: No doubt cryptocurrencies are very secure, but exchanges are not that secure. To operate their user Id properly, most exchanges store the wallet data of users. So this is the way, hackers can steal the data of users and access many accounts.

Thank you for giving your time🧭and read it.
Be happy😊 Stay Blessed

Love Development:) Computer System Engineer to be;