Crypto 101: Where Does My Money Actually Go?
I write about digital finance regulation and the future of money. This series is for everyone who has ever felt locked out of that conversation.
The post that started this
A few weeks ago, someone in a Stanford alumni group posted a question that stopped me mid-scroll.
“Can someone explain what crypto actually is? I keep hearing about it everywhere and I don’t want to get scammed.”
I’ve spent the last few weeks writing about stablecoin regulation, the tug of war between traditional banking and digital finance, and what regulatory frameworks like the GENIUS Act and MiCA mean for the future of money. But that post reminded me of something important. Most conversations about crypto skip several steps. You tune into a podcast on crypto. They assume a foundation that most people simply don’t have.
So let’s build it. From the beginning.
Bitcoin is a crypto asset. But not all crypto assets are Bitcoin.
Bitcoin was the first -- created in 2009 by someone using the pseudonym Satoshi Nakamoto, whose real identity remains unknown to this day. What followed was an entire universe of digital assets built on similar principles but with different designs, different purposes, and different rules. Ethereum, stablecoins, tokens -- all crypto assets. None of them Bitcoin.
Think of it this way. Bitcoin is to crypto assets what the iPhone is to smartphones. The first of its kind, still the most recognized, but no longer the only one that matters.
The Financial Stability Board, which coordinates financial regulation across major economies, defines crypto assets broadly as private digital representations of value that depend on cryptography and distributed ledger technology. That definition covers thousands of assets. Bitcoin is one of them.
So what is a blockchain?
Every time you use a bank, there’s a ledger somewhere recording your transactions. Your bank holds that ledger. They control it. You trust them to maintain it accurately.
A blockchain does the same job -- recording transactions -- but with one fundamental difference. Nobody controls it. The ledger is distributed across thousands of computers simultaneously. Every transaction is recorded on all of them at once. To fake or alter a transaction you’d have to change thousands of records simultaneously, which is computationally almost impossible.
That is the foundational promise of crypto. A record that doesn’t depend on trusting any single institution.
So when I buy Bitcoin, where does my money go?
This is the question underneath most conversations about crypto. And the answer surprises most people.
There is no Bitcoin company. No headquarters. No CEO receiving your payment. When you buy Bitcoin, here is what actually happens.
You go to an exchange -- think Coinbase, Kraken, or Binance. This is the shop. The exchange matches you with someone who wants to sell Bitcoin. You pay them. The exchange takes a fee for facilitating that transaction. That fee is the exchange’s business model.
Your Bitcoin then sits in a wallet. A wallet isn’t a physical thing. It’s a set of cryptographic keys -- essentially a very long password -- that proves the Bitcoin belongs to you. You can hold your own wallet, or you can leave your Bitcoin on the exchange, which holds it on your behalf.
The transaction itself gets processed by miners. These are people running powerful computers that verify your transaction is legitimate and record it permanently on the blockchain. In return they receive newly created Bitcoin and small transaction fees as payment for their work.
So the money flows like this: you pay the exchange, the exchange finds you a seller, miners process and verify the transaction, and the record of your ownership is written permanently across thousands of computers worldwide.
No company received your money. No single person is in charge. That is either the most reassuring or the most unsettling thing about this system, depending on how you look at it.
Scarcity by design: why Bitcoin has a hard limit and Ethereum doesn’t
Here is something most people don’t know about Bitcoin. There will only ever be 21 million of them.
That number isn’t arbitrary. It was written into Bitcoin’s original code by Satoshi Nakamoto in 2009 and cannot be changed. Not by a company, not by a government, not by a vote. It is a rule enforced by the network itself.
As of late 2025, approximately 19.94 million Bitcoin have already been mined -- nearly 95% of the total supply. Only about 1.06 million remain to be created, released gradually as rewards to miners over the coming decades. The last Bitcoin is projected to be mined sometime around 2140.
And here is the detail that makes the scarcity story even sharper. Between 2.3 and 4 million Bitcoin are estimated to be permanently lost -- locked in wallets whose passwords have been forgotten, on hard drives thrown away, belonging to people who died without passing on their keys. They exist on the blockchain. They just can’t be accessed by anyone. Ever.
Which means the real effective supply is already lower than 21 million and quietly shrinking.
This is why people compare Bitcoin to gold. Gold is scarce because geology made it that way. Bitcoin is scarce because mathematics made it that way. No central bank can print more of it. No government can dilute it. The supply is fixed, transparent, and verifiable by anyone in real time.
Now meet Ethereum. Same category, fundamentally different philosophy.
Ethereum has no hard supply cap. New Ether -- the currency of the Ethereum network -- is created continuously as rewards for validators who process transactions. The rate at which new Ether enters circulation can be adjusted by the network’s developers and community over time. It has been adjusted before and could be again.
This might sound like a weakness compared to Bitcoin’s elegant scarcity. But it reflects a deliberate design choice. Ethereum was not built primarily to be a store of value. It was built to be a programmable platform -- a foundation on which developers can build financial applications, contracts that execute automatically, and entirely new kinds of organizations.
Think of it this way. Bitcoin is digital gold. Something you hold because its supply is mathematically finite and its value might appreciate over time. Ethereum is closer to a global computer. Something you use to build and run things on top of.
That distinction matters enormously for what comes next. Because most of the innovation in crypto -- the things people discuss on podcasts, the things regulators are scrambling to keep up with -- is being built on Ethereum, not Bitcoin.
So when I buy Ether on Kraken, where does my money go?
Same basic logic as Bitcoin, with one important difference in who processes your transaction.
The seller gets the largest share -- there is a person or institution on the other side of your trade who owned that Ether and just sold it to you. Kraken takes a trading fee, typically between 0.1% and 0.26% depending on your account. Validators-- not miners -- process and record your transaction and earn a small fee for doing so. And nobody called Ethereum receives anything. There is no Ethereum Inc collecting a cut.
The validator difference matters. Unlike Bitcoin miners who compete using expensive computing power and electricity, Ethereum’s network is secured by validators who lock up their own Ether as financial collateral -- a minimum of 32 Ether each. If they process transactions honestly they earn rewards. If they cheat, the network automatically destroys a portion of their stake. The system makes dishonesty more expensive than honesty. No central authority required.
One more thing about Ethereum: your Ether can work while it sits
Once you own Ether you can choose to stake it. This means lending it to a platform like Kraken, which pools it with other customers’ Ether, uses it to help run validator nodes, and pays you a share of the rewards in return. Think of it like a savings account. Your money doesn’t just sit there -- the bank puts it to work and pays you interest. Staking works the same way, currently returning somewhere between 3% and 4% annually on Ethereum.
But there is one thing worth knowing before you do it. When you stake through an exchange you are handing them control of your Ether. They hold it. They run the operation. If that platform fails, your staked Ether is caught up in the collapse. That is a risk we will come back to in Part Three.
Why does any of this matter if you never buy a single coin?
Because Bitcoin and Ethereum together represent almost 80% of the total crypto asset market value, and the stablecoin market has now surpassed $230 billion. These are no longer numbers that exist only inside crypto circles. They intersect with the dollar, with banking regulation, with the payments systems most of us use every day.
The rules governing this space are still being written -- by regulators in rooms most people don’t have access to, about systems most people don’t yet understand.
That is changing. Starting with this.
What comes next
You now know what Bitcoin is, what a blockchain does, who processes your transaction, why scarcity is built into Bitcoin’s code, and why Ethereum was designed differently. That is the foundation.
But people aren’t just buying Bitcoin and Ether anymore. They’re building things on top of them. Entire financial systems without banks. New forms of governance without governments. Applications that could -- depending on who you ask -- either democratize money or concentrate it in new ways.
That’s Part Two.
Sources
Financial Stability Board, Crypto-assets and Global Stablecoins, 2025
IMF-FSB, G20 Crypto-asset Policy Implementation Roadmap, October 2024
IMF, Crypto Assets Monitor, May 2025
Satoshi Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System, 2008