Crypto Basics
A plain-language tour of how cryptocurrencies work, why blockchains matter, and the building blocks you must understand before trading.
What is a cryptocurrency?
A cryptocurrency is a digital token issued and tracked on a blockchain — a shared database maintained by many computers. No central party can change balances without network consensus.
- Bitcoin (BTC): First cryptocurrency. Focused on being a scarce digital asset and payment rail.
- Ethereum (ETH): Adds programmable contracts, enabling apps, NFTs, and stablecoins.
- Stablecoins: Tokens pegged to currencies (e.g., USDC, USDT) that simplify on-chain payments and trading.
How blockchains work (in brief)
- Ledger: Every transaction is recorded in blocks that are linked chronologically.
- Consensus: Miners/validators ensure only valid transactions are added. Bitcoin uses Proof of Work; Ethereum now uses Proof of Stake.
- Addresses: A public identifier where assets live. You control an address if you hold its private key.
- Irreversibility: Once confirmed, transactions cannot be undone. Triple-check details before sending.
You do not need to be a developer to trade, but understanding the basics prevents avoidable mistakes.
Wallets
Wallets store the cryptographic keys that prove ownership of your assets. They can be software or hardware.
- Custodial: Exchange or app holds your keys. Easier to start, but you rely on the provider’s security.
- Non-custodial: You hold the keys (e.g., hardware wallet, browser extension). Requires careful backup.
Wallet checklist:
- Write down the recovery seed offline. Store two copies in safe locations.
- Enable all available security (PIN, passphrase, hardware factor).
- Practice sending small test transactions before moving large amounts.
Exchanges & fiat ramps
To acquire or sell crypto with traditional money, you typically register with an exchange or broker.
- Centralized exchanges (CEX): Coinbase, Binance, Kraken. Offer onboarding, liquidity, but require KYC and custodial deposits.
- Decentralized exchanges (DEX): Uniswap, dYdX. Trades settle on-chain; you keep custody but interact with smart contracts.
- Fiat on-ramps/off-ramps: Services that convert bank transfers or cards to crypto and back.
Security warning: Only keep trading capital on exchanges. Move long-term holdings to a wallet you control.
Common asset categories
- Layer-1 protocols: Native blockchains (BTC, ETH, SOL).
- Layer-2 scaling: Networks built on top of layer-1s (Polygon, Arbitrum).
- Utility tokens: Power a specific app or service.
- Stablecoins: Pegged to fiat; often used for trading pairs.
- DeFi governance: Tokens for decentralized finance protocols (AAVE, UNI).
Always research what gives a token value, how supply is managed, and who controls upgrades.
Safety fundamentals
- Enable multi-factor authentication on every exchange account.
- Beware of phishing: bookmark official URLs, double-check email senders, never share seed phrases.
- Use hardware wallets for significant holdings; keep firmware up to date.
- Track taxes from day one. Each trade or transfer may have reporting obligations in your region.
- Never invest money you cannot afford to lose. Treat crypto as high-risk.
Next steps
- Work through the Trading Fundamentals guide.
- Set up a practice wallet and document your security plan in a checklist.
- Visit the Glossary whenever a new term appears.