What Is Cryptocurrency – Complete Beginner’s Guide to Digital Money

Basic Explanation of Cryptocurrency 

Cryptocurrency is pretty complex in what it is, but think about it like a regular currency. It has some kind of value that can be used and transferred between people and parties, but doesn’t physically exist like paper money. 

In general, the value of a given cryptocurrency is determined by the basic economic principles of supply and demand. Because it’s not like paper money, it isn’t backed by any central bank or reserve, making it have no intrinsic value and decentralized. 

This might sound like no one is keeping track of who actually owns what, but that information is recorded on the blockchain, an encrypted network acting as a public ledger for record keeping transactions between users. In this way, using crypto is truly peer to peer, there’s no third party facilitating the transaction, like when you use Venmo or Paypal. Those platforms still use your bank and fiat currency to conduct the transaction.   

While it’s easy to think of it like digital money, that’s only one of cryptocurrencies potential uses, and is not like using your bank account over the internet. Money from your bank account is backed from a reserve or central bank, and its value tends to be more stable than crypto. 

Since crypto’s value is largely determined by supply and demand, and that is affected by a lot of factors, including the quality of the underlying blockchain tech, how much of it exists, how many people are using it, how they use it, and regulations. 

How Does Cryptocurrency Actually Work?

There’s a lot that goes into making a cryptocurrency usable, so to make it clear we can break it up into a few parts. 

Blockchain

Think of blockchains like highways with directions and rules on how to get to certain places. Made of different programs, blockchain has a database of instructions for accessing, using and storing information on its ledger. 

For blockchain to work, it has to be distributed among participants, making it peer to peer. Any transaction on the chain is encrypted and permanently recorded on a block, storing data on who owns the currency, how much of it, and when the transaction happened with a unique identifier, making it impossible to alter or fake the record. 

Even though the record is public on the network, that does not mean the actual identities of the participants are revealed. Blockchain only records the identity of the devices themselves. Plus, all of this recorded information is encrypted, making blockchain an ideal platform for anonymity over traditional banking methods. 

This is the most basic explanation, but there’s more to learn for understanding blockchain. 

Transactions, Confirmations, and Network Fees

With crypto being a digital asset, it's important for blockchains to ensure the record is straight on transactions conducted using their network. Any time a transaction is conducted, the encrypted instructions are sent to the entire network regarding its data and record. 

This means that a new block must be created and then have its data verified by the rest of the network to ensure the record is not altered. 

This is automatically done through a system called mining, or a consensus mechanism, using the network of devices on the blockchain to prevent corruption from false information.

If someone tries to alter the data, the rest of the network can compare the encryption and prevent the data from being accepted into the network. Once the data is validated through mining, it is added to the rest of the blockchain, confirming the transaction. 

Any time a new transaction is introduced, the previous ones must be reconfirmed by the network to make sure the history is still valid. The requirements for a transaction to be considered “confirmed” vary from blockchain to blockchain, since some networks are more efficient than others at the confirmation process and only need to see six valid blocks for confirmation, or more. 

While using blockchain can be fast, that doesn’t mean the transaction is literally instant. The record of transactions are left in a queue (called a mempool) until a miner validates it, and blocks can take varying times to confirm depending on the blockchain’s technology. 

Users also have to consider network fees when using blockchain for transactions.

Miners are paid in crypto as compensation for validating the transaction, and these fees can vary depending on the network congestion (how large the queue is), as well as the size and complexity of the transaction. In general, the more a user is willing to pay, the faster the confirmation process will be. 

By and large, blockchain is still faster than traditional digital banking methods, and banks are trying to figure out how to integrate the tech into their own processes.  

Mining Vs Staking Blockchains

Mining is the oldest way of validating transactions on the blockchain with automated, resource intensive miners solving algorithms to confirm transactions (this is why GPUs are in high demand to power the hardware miners run on). 

Over time, algorithms utilized by the blockchain have gotten increasingly harder to solve, requiring even more power and resources for the confirmation process. Despite all of this, miners have continued to verify and add transactions to blockchain in competition against each other, keeping networks decentralized over their existence without any singular miner doing all of the verification. 

Staking is another way for blockchains to validate transactions. 

As a consensus mechanism like mining, multiple holders of a network's currency are randomly chosen to stake their own assets to confirm the validity of a block through voting before its added to the larger blockchain. Holders, also known as validators, need to actually own a certain amount of crypto to be chosen, but have less costs than using miners. Their main incentive for validating blocks comes from the chance to earn more of their blockchain’s crypto. 

This form of validation has become a popular alternative due to concerns about energy consumption used by miners for computing and its emphasis on using community consensus. However, there is a fear of the hypothetical fifty one percent attack, where a user can buy up the majority of crypto on a blockchain to control the validity of transactions and manipulate where they are sent to. This is more likely to happen on blockchains much smaller than any of the ones you will see widely mentioned and used. 

Crypto vs Traditional Currency

We briefly went over some differences between crypto and traditional (fiat) currencies, but let's get specific about how those differences work, because this can affect your experience when using online casinos. 

Fiat currency is what we use on a daily basis and is considered “legal tender” with its value backed by a government, not another asset (like gold or other commodities). It can be used and recognized as a medium of exchange and store-of-value. 

Established crypto currencies, like Bitcoin, are being recognized as such, but are reliant on who adopts it and how. This is in part because of the volatility associated with particular currencies. 

On the other hand, Fiat currency, barring inflation, holds one to one value over time because of their legal backing from government and central banks. Since these entities have control over that supply, fiat is considered to be centralized. Still, the value of fiat can be affected by how much money is printed and injected into a country's economy. 

Most crypto currencies are not backed by these entities, so their volatility can come in large swings, both good and bad, for crypto owners. 

Remember, cryptocurrencies don’t have "intrinsic value”, instead their value is determined by supply and demand from users who are willing to exchange fiat into crypto. This is what makes them decentralized in their nature. Blockchains have protocols in their architecture that time the release of new coins into their network over time, which will affect the available supply. This can make others reluctant to accept crypto as mediums of exchange and stores of value, even if they can be used as such, and some argue that limited supply implies value. 

This is not helped by the fact that governments offer asset protection and insurance for fiat banks’ customers, whereas crypto users don’t have real recourse in the case of their crypto currency’s value crashing or network completely blacking out (an event that is highly unlikely to happen because of decentralization). 

Because of the volatile value of some crypto currencies, many casinos and players prefer using certain types of crypto over others for conducting transactions, which can limit your accessibility and affect things like wagers, winnings, and bonuses. 

Fiat currency has been highly regulated for a long time, and only recently have lawmakers begun to approach how they regulate crypto as digital assets. 

Some countries outright ban their users from exchanging and using certain types of crypto, and enforce strict policies on what they do allow. Leading authorities like the US and EU are enforcing Anti-Money Laundering practices on the use of crypto due to their ideal conditions for malfeasance, leading to exchanges and casinos requiring “Know Your Customer” (KYC) verifications from their users. 

One of the major innovations crypto and blockchain has brought is user control. Since blockchain is a decentralized network it is truly peer to peer, unlike online banking and popular digital payment methods, which are subject to oversight acting as third parties for transactions. 

Crypto adds a layer of security for players by eliminating middle-men and the ability to validate their data while participating in the consensus mechanisms of the network. Plus, barring laws, no one is actually prohibited from accessing and using blockchain, meaning users all over the world can have access to digital transactions. 

Main Types of Cryptocurrency in Casinos

Cryptocurrency is a really broad term that entails a spectrum of different coins carrying a different purpose. 

Remember, a cryptocurrency is different from the even broader crypto asset, it's a specific type of asset. Cryptocoins are considered assets native to its particular blockchain while maintaining its decentralized status. There are a few main types of coins you’ll encounter. 

Payment coins 

The oldest and most popular type of coins to make use of blockchain technology, these are used for transactions as mediums of exchange and are considered to hold value by their users while operating on a decentralized platform. Since they function as a store of value, crypto users choose them over fiat currencies for ease of access and transferability with lower overhead for storage and limited supply, this supply being limited by the blockchain’s protocol for minting new coins. Popular types of payment coins include Bitcoin (BTC) and Litecoin (LTC).  

Stablecoins 

Stablecoins are a subset of payment coins, but backed by a single or multiple “real world” assets, like a government's fiat currency. They are designed to mirror the fiat currency they are based on with a one to one value. Because of this, they tend to be way less volatile in price to other payment coins, making them a popular option for casino players. Stablecoins are more regulated and have to be backed by these real world assets, usually in the form of reserves with audits on their available supply. For traders and users, stablecoin represents a middle ground for mitigating more financial risk but still having access to decentralized platforms. The largest stablecoins include Tether (USDT) and USD coin (USDC). 

Privacycoins 

If stablecoins are the middleground, privacycoins are the extreme of crypto. Another subset of payment coins, they offer some key benefits. While most cryptocurrencies are transparent by design, privacycoins and their blockchain are built to reduce visibility and traceability on the blockchain while increasing privacy and anonymity. There are few ways these currencies achieve this, like creating a new address every time a user conducts a transaction and allowing users to share the same signature for a transaction, making it harder to identify the source and recipient. Coins like Monero (XMR) are popular for utilizing these methods. 

The legality of privacy coins are shifting, with some jurisdictions allowing them, regulating them, or outright banning them. A lot of major crypto exchanges have stopped offering these types of coins as a result. 

What About Tokens?

Cryptocurrencies and tokens are used interchangeably, making their differences and use pretty confusing for users. While tokens are considered assets, like currencies, they are built on top of the pre-existing blockchain technology and coin. 

Technically tokens are a form of cryptocurrency, but are dependent on the existence of the coin to function. Their use is much broader than just medium of exchange and store of value, they can perform a variety of functions to improve the usability of the blockchain. 

Just like payment coins, there are subsets of tokens used to automate smart contracts, provide access to services, record ownership of digital assets, and act as securities for investments. 

You might be familiar with Non-fungible tokens (NFTs), which are used to represent ownership of digital assets. Ethereum (ETH) was the first blockchain to be built with the usage of tokens through apps. While ETC uses Ether as its currency, it heavily relies on smart contract technology to power tokens for things like automation and access. 

Storing Crypto

You’ll often hear that in order to store your crypto, you will need a crypto wallet. 

Let’s clear something quickly: Cryptowallets are just a tool to access your cryptocurrencies, not where your currency is actually stored (on the blockchain). Instead, they generate and store the keys needed to access currency and other assets on the network. 

Losing your keys means losing your wallet, which means losing access to your assets. A wallet also allows you to send assets between other users’ wallets after using your keys to confirm the transaction. It's just easier to think of wallets like real world wallets in that they store keys, not the currency itself. 

There’s three main types of wallets you’ll see available. 

Hot Wallets 

These wallets are apps that require an internet connection for storing and using your private keys. They’re really convenient for most users, making transactions easier to conduct.

Cold Wallets 

Considered the more secure alternative to hot wallets, these are methods that hold a user’s private and public keys offline, either physical or digital. Most crypto owners use cold wallets for storing large amounts of assets over longer periods of time. 

Hardware Wallets 

These are a type of cold wallet that uses a physical device (like a USB) to store users keys for different networks while still remaining offline. Most hardware wallets will come with a user interface to allow interaction with an exchange and blockchain in a separate secure environment.  

Custodial vs Noncustodial Wallets 

These main types of wallets can fall under two specific categories based on who actually holds the keys in the wallet. 

Custodial wallets are wallets with keys that are owned and managed by a third party, making the chance of losing said keys less likely to occur.

Noncustodial wallets place responsibility of managing keys on the user. Since no one but the user is managing the keys, there’s more responsibility, but more security and freedom for utilizing assets whenever and however is seen fit. 

This is a basic overview of wallets crypto users have available to them. We have more in depth guides on the different types of wallets, and tutorials on storing and managing your funds. 

How Do You Buy Cryptocurrency?

Before you can even reap the benefits of blockchain, you need to convert fiat currency into cryptocurrency. Remember, while fiat can be used digitally, it is not native to a blockchain. While you can acquire bitcoin through mining or decentralized peer to peer (P2P) services, the most popular method is buying crypto through an exchange.

Exchanges let users trade all kinds of assets, but are typically used for exchanging fiat for crypto, or trading one cryptocurrency for another. They act as the marketplace between buyers and sellers of crypto, matching two parties together based on an agreed price. Keep in mind, since crypto’s value can be volatile and dependent on various factors, the exchange rate for trading is subject to fluctuation. 

Fiat to crypto exchanges offer “on-ramping” services, letting customers use traditional banking methods to purchase crypto, whereas crypto to crypto exchanges are strictly for trading digital assets. Some major exchanges are a combination of the two, giving users flexibility and more options for trading. Also keep in mind exchanges may not offer trading of certain currencies at all. 

Make sure you research what an exchange actually offers before you sign up. As part of the sign up process, regulated centralized exchanges will require user verification through documents like a legal ID and proof of residence. 

An exchange is a platform for buying and trading crypto, wallets are a separate platform used to actually access and move those assets. 

While some exchanges will offer their own custodial wallets, you may set up and use a separate wallet from the exchange depending on your security and privacy needs. 

From there you will be able to buy crypto from a trader, usually coming with a fee for the transaction. The fees can vary and depend on the size of the transaction, conversion rates, and gas fees. Exchanges can also put on a spread, or the difference between market price of the asset and the actual price the asset was sold for, on the exchange rate between two different crypto currencies. Once the trade is confirmed the crypto is deposited and stored at your address on the blockchain as a record. 

Using exchanges is how most online gamblers go about purchasing crypto since they directly own the assets. While regulated exchanges are centralized, there are also decentralized exchanges that use smart contracts to conduct transactions between users, which can be a more private, albeit less safe (these exchanges are uninsured) alternative.  

Don’t confuse exchanges with crypto brokerages, which serve different purposes and have a more intermediary function. 

Brokers buy crypto from exchanges at competitive prices for the customer and then hold assets, albeit for a fee. They may also offer management for crypto portfolios. While reputable brokerages have access to highly specialized currencies, the only assets you can typically trade directly are crypto futures. 

You might see digital service providers like Venmo and Paypal offer the ability to purchase and hold crypto. This is actually misleading, unfortunately. 

Even if you buy crypto in this fashion, the service provider still owns it, with no user access for basic utilities like wallets and keys, or the ability to withdraw funds. Think of this like an “IOU” from the service to the user. Online gamblers shouldn’t bother using this method as there’s no way to deposit crypto on online casinos (providers like Venmo and Paypal don’t allow crypto transactions to businesses). 

If you’re an online casino player using crypto and want to prevent issues like this, learn how to properly buy cryptocurrency. 

How is Cryptocurrency Used at Online Casinos?

We’ve gone over why and how crypto is used generally, but you probably want to know how you, the player, can use it for online gambling. With the acceptance of more wallets and currencies, you can really personalize your experience using crypto depending on what you value. 

Because of crypto's usefulness, casinos have integrated blockchain technology for depositing and withdrawing funds. 

From their wallet, players can transfer accepted cryptocurrencies to a casino, with transaction times taking less than traditional fiat methods. This is especially important since using fiat internationally can take days or a week to be processed and actually deposited into an account. Withdrawals benefit from this as well, since blockchain can validate and complete transactions in mere hours, sometimes minutes. 

Since transactions happen directly between you and the casino, the lack of third parties means that geographical restrictions that stem from typical banking practices are removed, giving players more freedom and accessibility for conducting transactions. Fees tend to be much lower compared to fiat as well, making use even more beneficial for crypto players. 

Plus, the ease and speed of transactions means you can get in on the action much faster and from anywhere in the world if you have an internet connection (and are legally allowed to play). 

Using crypto has also made transactions more secure. Since blockchain permanently records transactions, they can’t be altered or changed with its own validation methods, deeply limiting the potential for fraud or the need for a third party to ensure security. Not to mention, payments can’t be reversed, meaning casinos can’t conduct scams like charge-backs. 

Part of security means retaining privacy, something blockchain does much better than fiat. If players don’t want to share personal information with a casino, they can find casinos that don’t require any verification, just a wallet and basic account information. Wallets don’t actually tell casinos anything about the user, just their address from where transactions come from. This is important if players are wary of issues like identity theft from data leaks. 

Blockchain has also affected how games work for online casinos at a fundamental level. 

“Provably fair games” are exclusive to crypto based casinos, using blockchain technology and smart contracts to determine the outcome of games while letting players verify for themselves  that the outcome wasn’t manipulated by the casino. Compared to traditional RNG based games, these types of games give players more transparency and build trust with online casinos. While not everywhere quite yet, they are becoming increasingly popular and can be found in games like crash, keno, plinko, and more traditional games like blackjack, slots, and roulette. 

Is There Risk Using Cryptocurrency For Online Casinos?

Like anything else on the internet, crypto and gambling come with risk. 

Depending on the type of currency you use, you may have funds that don’t match what you deposited or withdrew on your account due to volatility (This is why stablecoins are a popular option for reducing that issue). In other cases, casinos might offer bonus games for crypto users, but they might be nullified if the currency falls in value and doesn’t match the wagering requirements. 

Due to the volatile nature of some crypto, you should consider owning these assets as a potential financial risk since there’s potential for big price swings. 

Besides volatility there's more risks involved. 

Casinos with poor customer support are often signs of potential scams, and they can be host to phishing schemes. There’s also a risk of losing funds if you don’t send your deposit to the correct network, casinos will certainly not fund your account after sending crypto to the wrong wallet. When withdrawing, some casinos may impose wait times or KYC verification leading to delays, and uploading personal information means you're susceptible to being part of a data leak. 

If you value absolute privacy then a no-KYC casino may be a better option, but be aware these casinos tend to be unlicensed and unregulated. Make sure you learn how to recognize scams on crypto casinos. 

You should also keep in mind legal risks. Even though a casino is licensed that does not mean you’re automatically legally allowed to play. Legality and accessibility will vary from country to country, so besides making sure casinos accept players from your jurisdiction, verify your jurisdiction allows playing. A lot of casinos will reserve the right to freeze and withhold funds if they recognize a player illegally accessing their site. 

The same legal check goes for the use of crypto. Despite its decentralized nature, more governments are committing to oversight and strict regulations around its use, and some countries outright banning it. This legality is also quickly evolving making it a complex picture, but an important one to keep up to date with. 

This leads me to a really important piece of advice: Read the terms of service (TOS) carefully on every online casino before you deposit and use any cryptocurrency. 

Vague wording or unclear terms is a perfect opportunity for bad operators to abuse TOS in their favor and leave players empty handed. The easiest way to mitigate risk is to perform due diligence on casinos before playing. As a player, you’ll have a lot of options to choose from.  There’s no need to settle for risky options when you can learn how to choose safe crypto casinos. 

Conclusion

Now that you know what cryptocurrency is, you’re aware of the exciting potential it has, especially for online casinos. The next step is learning how to buy crypto so you have funds to play. This is only a basic overview, and there’s always more to learn in the world of crypto.