Guides / Beginners Guide To Cryptocurrency

Beginners Guide To Cryptocurrency

Beginners Guide to Cryptocurrency

Best Site to get Started in Crypto
Best Site to get Started in Crypto
  • Huge international brand
  • Fast and simple deposits by debit card
  • Can also trade regular stocks
  • Much simpler to use than pure crypto exchanges

What is crypto?

When you think of cryptocurrencies you probably will think of Bitcoin. Bitcoin was the first cryptocurrency coin, originally created in 2008. Since then, many more coins have been created such as Ethereum, Litecoin, XRP, Cardano, Iota and lots more you probably haven’t heard of or want to hear about. There are now around 7,000 coins according to coinmarketcap.com which tracks the prices of each of them. All coins except Bitcoin are collectively referred to as “Altcoins”, which simply means alternative coins.

Bitcoin is still by far the most popular, and its combined value (number of coins x coin value) is greater than all the other coins combined.

Cryptocurrency is purely digital, and exists only online.. Cryptocurrencies can be sold, transferred or exchanged for goods and services. There are no physical coins.

Bitcoin and all cryptocurrencies are constantly evolving and improving. Some are already useful, but there are no significant uses in everyday life YET. It's a bit like the internet in the 1990s where there weren’t many sites and it was slow and expensive.

Example:

Right now, you can send any amount of Bitcoin to any other bitcoin user in a matter of minutes for a fee of maybe $10. While this is pretty useless if you are standing in a coffee shop buying a $3 cup of coffee, it’s amazing if you are buying a $500,000 home in Australia.

In the next 5-10 years things may well change dramatically as cryptocurrencies solve a lot of the problems in today’s societies.

Imagine:

Car manufacturers are already working on giving cars their own digital identities and ability to transact on your behalf to pay toll fees, parking, charging and ultimately, when self driving, to charge fees to other passengers and earn you money when you aren’t needing it.

Why are there many Coins?

While Bitcoin is revolutionary, it still has its limitations as we have highlighted and as a result new ideas and technologies have led to new coins such as Ethereum which allows for “programmable money” where essentially you can create a “smart contract” to pay if and only if certain conditions are met at some time in the future. This takes money to a whole other level and opens up so many opportunities for digital finance and decentralised (ie no one controls) applications.

Another example is IOTA which aims to have 0 fees and be infinitely scalable for use with the Internet of Things. They envisage sensors everywhere and a machine economy trading data for micropayments. Maybe your car will be such a machine and will sell data on traffic, empty parking spots, climate, potholes and more and earn you small amounts of money as you drive.

There are many other coins with specific applications in different issues or to solve specific issues, however it is not entirely clear why every problem should need a different coin and we couldn't just use a few coins to cover all of them. This is one reason why many predict 99% of the coins will fail in the long term, although they could still do well in the short term.

There are also many other spam and joke coins where people have got together to create a cool sounding coin, get people to buy it, and then exit themselves with a pot of cash. So its important to thoroughly research and background check the team of any coin you are thinking to invest in.

What gives Cryptocurrency its value?

Take out your wallet and pull out a note (hopefully you have something in there!). It’s just a piece of paper (or plastic) isn't it? It's effectively worthless in its own right. Its value is that other people will give you something for it. While we have grown up to accept this, the reality is that its value is "made up".

The currency we currently used is referred to as "FIAT". This is any form of government issued and government controlled currency such as the British Pound, Euros, the Dollar and many others.

Cryptocurrencies value is also "made up" Its value comes from the fact that people want it, for many different reasons.

They are independent of governments and banks

  • Noone can freeze your account or control your access. You are 100% in control of your money. This brings responsibilities and risk as well as control however
  • With many coins the supply is fixed or known meaning that you do not get inflation. With FIAT currencies governments can and do print more money from time to time to “boost the economy” but in reality it just dilutes and hence devalues the existing supply of the currency as you can’t just print wealth, you just have more pounds/dollars/euros representing the same overall wealth.

They are increasing in price

  • There is great volatility in cryptocurrency prices day or day and week to week but for the stronger projects the trend is upwards. These strong gains attract more and more people who want to get in early like if they had bought Amazon in 2000 say.
  • Even now only a very small proportion of the population own any crypto, and the same goes for banks and investment companies which have been wary of the unregulated nature of the industry to date. This leads many to believe that despite the large gains already, we are still at the beginning for these currencies.

You can use them now

  • We've already mentioned some of the limitations of using crypto right now but that hasn't stopped its adoption growing. Many online retailers now accept it as a form of payment, you can get crypto debit cards to use in many shops, there are Bitcoin ATMs in most cities around the world, and in some countries it's even possible to pay your taxes in crypto (yeah great!)

What’s the difference between Crypto and Banks?

There are many significant differences, some good, some bad, or at least risky if you don’t know what you are doing.

  1. Fiat is controlled by a government and crypto is decentralised, meaning its controlled by many and noone or small group can have overall control.
  2. Crypto is available 24/7 for trading and payments whereas banks are more 9-5 on weekdays, so there is no waiting for the payment to go next day
  3. There is no limit for transfers to crypto, whereas with banks there can be lots of restrictions, delays and paperwork for larger transactions
  4. Anyone can create a crypto account, whereas not everyone can create a bank account. This is particularly true in poorer nations where a large proportion of the population do not have a bank account
  5. Crypto typically has much quicker transfers where as with banks this can take several days especially for international transfers
  6. There are little to no transaction costs with crypto but with banks the fees can be quite high
  7. If you make a mistake sending crypto and send it to the wrong address (account), then the money is gone. Banks may be able to get it back for you
  8. If someone somehow gets access to your private keys/passwords and steals your crypto then there is little chance of getting it back. There’s no fraud department or customer service to call. You can call the police and report the crime but they have no easy way of working out who stole it or getting it back.

So yes many positives but also some risk, especially for beginners. It's estimated that approximately 20% of all bitcoin is now lost. That bitcoin still technically exists, but whoever owns it has lost access to it due to mistakes or forgetting about it back when it was worth very little

Is Crypto a good investment?

You have probably read about coins increasing in value more than 10x 100x or even 1000x what someone paid for it, and also about huge crashes where people can lose 20% in a matter of minutes, and as much as 90% over a few weeks. Consequently its not for the faint hearted and not a good place to store money you aren't prepared to lose.

The technology behind crypto is excellent and undoubtedly some coins will do extremely well in the long term but even if you pick the right ones it will be a bumpy ride up and down and you may despair from time to time if you have invested more than you really should.

In the short terms you will read about and watch all sorts of outlandish claims on social media and youtube based on news, charts or just wild speculation. Noone knows what is going to happen and it's best to make your own decisions.

Some people will say that crypto is a bubble and these virtual coins don't really have value. People said that about the internet too. It feels like Crypto is similar and larger institutions, corporations and governments are getting more and more involved every day.

Am I too late?

The entire value of all crypto at time of writing is roughly 500 billion dollars, with Bitcoin making up about $300 billion of it. That seems like a lot, but when you compare it to other assets it's actually quite small.

Bitcoin is often referred to as digital gold because it can be a store of value (as long as people want it). However advocates believe Bicoin is better than gold because it has a finite supply (more gold is always being dug up), is easily transferable (gold bars not so much), and is easy to store safely (encrypted on blockchain v stored in a vault). So its envisaged that the value of Bitcoin could easily exceed that of gold.

AssetValue
Bitcoin$300 billion
Gold$9 trillion

So even if they met halfway at $5 trillion each, as money moved from gold to Bitcoin that is still a 16x increase and would value Bitcoin at something like $250,000 per coin.

Crypto as a whole also aims to replace money which is valued 34 trillion, and revolutionise the stock market ($65 trillion) so there is plenty of upside there if successful.

These comparisons don't mean crypto will replace these current forms of asset and Bitcoin could fall out of favour as its value is purely that it is in demand. Gold on the other hand has value for jewelry, circuit boards and more to fall back on. However, like Bitcoin, the notes in your pocket have no physical value either and society accepts them just fine.

How do I buy Crypto?

To buy cryptocurrency you need to use an exchange to deposit FIAT, convert to crypto and then work out where you want to store your crypto.

Exchanges

An Exchange is a website a bit like a bank or a broker site but for buying crypto. Some may not accept FIAT in your country and are only for crypto to crypto trades, but others will accept bank transfers, debit cards, even paypal to fund your account in pounds/dollars/euro before you trade for crypto.

There are 100s of exchanges. We have listed some recommended ones in the Exchanges section of the site. The key things to look out for are

  • Do they allow your country
  • Do they accept a payment method you can use
  • Do they sell the coin(s) you want (some only have Bitcoin)
  • Do they have good security
  • What are their fees like (exchanges charge a small fee when you buy a coin)

You are of course not restricted to one exchange you can have as many as you wish, and you may need several if you want a range of different and more obscure coins (Binance has a huge number though). However setting up can take a little time for verification with the need to submit photos of your passport, maybe a selfie, maybe a proof of address, maybe a video. It will vary depending on what transaction limits you need and which exchange you chose. For this reason it's often easier to use your phone to sign up.

Once you have created an account with an exchange and verified yourself, then you will be able to deposit FIAT and this will then show on the site, usually in a section called Wallet which lists Fiat and Crypto balances

From there you can navigate to a Trade section where you need to pick the “pair” you want to trade. This means pick the currency you want to buy and the currency you want to sell. BTC/USD is often used to mean Bitcoin and US Dollars. If you aren't familiar with this we strongly recommend you use our free crypto trading game on the site here which has a similar sort of interface to the exchanges but you are playing with virtual money so there is nothing to lose. You can also win prizes of real crypto if you top the tables of competing traders

Wallets

A Wallet is where you can see and control your crypto. You can think of it like an online account. Usually an app or a website that you access with a password & you will be able to use it to check your balance and send and receive crypto. The wallet does not actually store your crypto - crypto is stored on the blockchain (essentially stored online in encrypted form), and hence if you lose your wallet you haven't lost your crypto, just your access to it, until you are able to setup a new wallet and authorise it to access your crypto using your private keys. Kind of like a device that stores your email address and password but not the emails themselves.

All major exchanges offer wallet services but many people prefer to store their crypto assets in their own private wallet , of which there are many type with differing levels of ease of use and security

Exchange WalletPersonal Wallet
Easy to use. Log into the exchange and its there.A little more complex to use. You have to install the wallet and setup a password and restrict access to the wallet
You rely on the exchange to keep the coins safe. The more reputable ones do typically have strong security andou can mitigate the risk with a strong password and Two Factor Authentication but if the exchange itself is hacked or goes bust you could be out of luck. Some exchanges do claim to insure your funds for thisYou rely on yourself to keep your coins safe. You have your private keys which give you access to your coins through the wallet but if you lose those or if they get stolen because you have a virus on your computer then you are
Its convenient if you want to make regular tradesIts time consuming if you have to move funds back and forth to exchanges to trade and with many coins and exchanges there can be fees on this that erode your holdings
You don't control the coins so it's a bit like a bank. If the exchange decides to lock your account or is down for maintenance, or has stopped withdrawals then you can’t do anything.You are in control and can access your coins whenever you want.

Ultimately the decision depends on how computer literate you are. Keeping small balances for trading on reputable exchanges such as Binance or Kraken may make sense but if you have larger holdings that you are keeping for the long term then its better to hold those yourself & just make sure you have secure backups of your private keys.

Non Custodial Wallets

Wallets that you control are called Non Custodial, compared to custodial wallets where essentially the exchange has custody of your coins.

“In 2017, Clifton Collins, an Irish drug deal, grew a cannabis plot and put his profits into Bitcoin worth roughly 55 million Euros. He stored the Bitcoin in multiple wallets with private keys written on paper and stored with his fishing equipment. Subsequently he was arrested by the police and while being away for 5 years, his landlord cleared his house and threw out his possessions. The crypto has never been recovered.”

There’s lots of jargon about the different types of wallets and you may come across terms like hot wallet, cold storage, paper wallets, hardware wallets and more. Essentially there are 3 ways to store your crypto with different pros and cons

Hot Wallets

Essentially apps that you have on your phone or download onto your computer. These are easy to use, free, convenient but not very secure as they connect to the internet

Hardware wallets

These are devices similar to a USB stick that you buy for about $100 that keep your key offline but allow some of the convenience of online. Essentially they work with a hot wallet but require physical actions by you to click buttons on the device to authorise transactions. This creates a physical level of security as no virus on your computer can press these buttons.

Cold storage

These are totally offline. It could be your keys are written down on paper or engraved into metal. These are technically the safest but you have to create them safely and accurately and then store them safely which isnt so easy.

There is much more information in our Crypto Wallets and Passwords guide, but broadly we recommend

  • Ledger or Trezor hardware wallets if you are storing significant values of crypto
  • Exodus as a easy to use, feature rich software wallet for desktop and mobile for smaller amounts and more frequent transactions

Private Keys

We have discussed using wallets and the need to protect your private keys but what does this mean?

When you setup a wallet the key is generated by the wallet and you are told what it is and told to note it down and keep it safe.

After that you will set a password for convenient day to day access and wont need the private key again

However if you delete or lose access to the wallet you will need to set it up again and your password wont be enough, you will need your private key to identify yourself as the owner of the wallet.

Private keys can come in many forms but usually they are one of

A long sequence of letters and numbers

E9873D79C6D87DC0FB6A5778633389F4453213303DA61F20BD67FC233AA33262

A list of up to 24 words sometimes called recovery words or a seed phrase

witch collapse practice feed shame open despair creek road again ice least

Some wallets use one, some the other but the important thing is that you keep it safe and secure, ideally stored in a password protected file and copied to several devices in case of loss or failure of one.

Getting Started

So if you think this might be for you then its time to do some more research

  1. Read up about the top crypto coins and some cryptocurrency guides
  2. Pick a crypto exchange and open an account. Our exchange search tool allows you to find exchanges based on your country, deposit method and the coin your want
  3. Have a look round the exchange but first do a bit of practice trading in our crypto competition until you are comfortable
  4. When you are ready deposit and trade
  5. Either leave the coins on the exchange or set up a wallet to store. First time you withdraw to the wallet, make sure you send a small test amount just to be sure. If it arrives safely then you can move the rest.
  6. Relax while you watch the coin value go up more than down (hopefully)
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