What is Cryptocurrency and How Does It Work?

What is Cryptocurrency and How Does It Work?

Category: Beginner Basics Difficulty: Beginner Reading Time: ~5 minutes

Introduction

You may have started paying attention to "cryptocurrency" because a friend mentioned Bitcoin, saw a token surge in the news, or wanted to deposit some USDC into MC Markets to start trading. Regardless of your starting point, there's one thing you need to understand first: what's the actual difference between cryptocurrency and the money in your bank account?

This article starts from the most fundamental concepts, covering the definition of cryptocurrency, how it operates, and the main types, helping you build a complete foundational understanding.

1. What is Cryptocurrency?

Cryptocurrency is a digital asset that runs on blockchain technology. It uses cryptography for security and is maintained by a distributed network of computers worldwide. No single institution (such as a central bank) can control it.

Compared to traditional fiat currencies, there are three fundamental differences:

Different issuance methods — Fiat is printed based on central bank policy decisions; cryptocurrency is produced by code following fixed rules. Bitcoin's total supply cap is 21 million coins, and no one can issue more.

Different record-keeping — Banks use internal databases to record your balance, and only the bank can see it; cryptocurrency transaction records are written on a public blockchain that anyone can check.

Different transfer paths — International bank transfers go through the SWIFT system, typically taking 1-3 business days; cryptocurrency is completed directly on a peer-to-peer network, usually settling within minutes.

Simple summary: Decentralized, immutable, publicly transparent, and pseudonymous — these four words capture the core characteristics of cryptocurrency.

2. How Does It Work?

Without a central bank managing affairs, cryptocurrency operates through four coordinated mechanisms:

Blockchain ledger — All transaction records are stored on a globally shared ledger. The network packages transactions within a period into "blocks" and chains these blocks in chronological order. Bitcoin produces a block approximately every 10 minutes, while Ethereum is approximately every 12 seconds.

Cryptographic signatures — Each transaction requires the holder to sign with a private key, and the network then verifies it with the corresponding public key. Without the private key, you cannot move assets. (The secure management of private keys is crucial; see "What is a Crypto Wallet?")

Consensus mechanism — Who has the right to write new blocks to the ledger? This is determined by the consensus mechanism. There are currently two main types: Proof of Work (PoW), where miners compete for bookkeeping rights through computing power, exemplified by Bitcoin; and Proof of Stake (PoS), where validators obtain bookkeeping rights by staking tokens, exemplified by Ethereum.

Peer-to-peer network — Transactions are transmitted directly between global nodes without going through central servers. The overall operation is unaffected if any single node goes offline.

3. Main Types of Cryptocurrency

Major coins — BTC, ETH, SOL, etc. They have independent public chains, high market cap rankings, and widespread institutional adoption. These three are also the main deposit and withdrawal cryptocurrencies supported by MC Markets.

Stablecoins — Cryptocurrencies pegged to the US dollar with extremely low price volatility. USDC is issued by Circle and regularly publishes reserve audits; USDT is issued by Tether and has the widest circulation. MC Markets' contract accounts and vault are settled exclusively in USDC.

Altcoins and meme coins — The general term for everything other than major coins. Meme coins (such as DOGE, SHIB) are primarily driven by community sentiment, with extremely high price volatility and significant risk of going to zero. MC Markets perpetual contracts focus on major underlying assets and do not offer meme coin contracts.

4. Why Do You Need to Select a Network When Depositing?

The same token can be issued on multiple chains. Taking USDT as an example: TRC20 runs on the Tron chain, ERC20 runs on the Ethereum mainnet, and there are also versions running on Arbitrum. The address formats of these three chains are different, and the networks are not interoperable.

Key principle: The sending network must exactly match the network displayed by the receiving platform. If you choose incorrectly, funds will enter the wrong chain, and the platform cannot assist in recovery. MC Markets primarily supports Arbitrum One for deposits and withdrawals because of low fees, fast confirmations, and the platform's on-chain reserve proof is also deployed on Arbitrum.

5. Operating Logic on MC Markets

The entire fund flow is divided into four steps: Deposit (transfer from external wallet, assets credited to spot account) → Transfer (USDC in spot account instantly transferred to contract account for free) → Trade (spot buying or contract opening) → Withdraw (initiated from spot account, withdrawal fees as shown on the page).

Quick Review

Cryptocurrency — Digital assets running on blockchain, decentralized, immutable, publicly transparent

Four major mechanisms — Blockchain ledger, cryptographic signatures, consensus mechanism, peer-to-peer network

Types differences — Major coins (BTC/ETH/SOL), stablecoins (USDC/USDT), altcoins, each with different functions and risks

Network selection — Sending network must match receiving platform when depositing; incorrect selection cannot be recovered

Platform flow — Deposit → Transfer → Trade → Withdraw, contract trading accepts only USDC margin

Risk Warning

Cryptocurrency trading involves significant market risks, including the possibility of extreme price volatility and loss of principal. Once confirmed, on-chain operations are irreversible. The platform rules described in this article are subject to MC Markets' official documents; any updates will follow the latest announcements. Please only participate in trading with funds you can afford to lose.