This article was last updated on June 10, 2022
Cryptocurrencies, or crypto for short, are virtual and digital currencies that typically exist on a blockchain network. This is a sort of digital ledger that uses complex cryptographic techniques to ensure the security of the different cryptocurrencies and assets on it. Cryptos are also decentralized, meaning that they can operate completely autonomously and without the need for a central governing body. While they are very popular and useful, cryptocurrencies are also a very complicated technical asset. As a result, we created this guide to crypto for beginners to help you get the hang of cryptocurrencies.
Table of contents
- What Are Cryptocurrencies?
- Why Are Cryptos Important?
- Crypto Mining For Beginners
- The Crypto Market For Beginners
- Investing In Crypto For Beginners
- Crypto Appraisal For Beginners
- Crypto Marketplaces For Beginners
- Crypto Wallets For Beginners
- Securing Crypto Assets For Beginners
- Closing Thoughts On Crypto For Beginners
What Are Cryptocurrencies?
As we mentioned, cryptocurrencies are a form of digital and virtual currency that exists online. The first one ever created was Bitcoin, which launched in 2008. In most cases, they utilize what is known as a decentralized blockchain to operate. This revolutionary technology was developed by Bitcoin’s anonymous creator, known only by the pseudonym Satoshi Nakamoto.
A blockchain can be described as a digital ledger that runs on a network of computers all over the world. These are provided by volunteers who take on the task of maintaining the network and validating transactions. In exchange, they receive monetary compensation.
The blockchain contains a record of all transactions made on the network, updated in real-time. This is highly encrypted and backed up by each computer in the network. However, information on all transactions is readily available and fully visible for all to see. Since each computer holds a backup of the data, it is virtually impossible to compromise the system.
While the transactions themselves are visible to everyone, the involved parties are not so easily known. When it comes to cryptocurrencies, all users are usually anonymous. Instead of requiring your personal information and identification, cryptocurrencies will assign a long alphanumeric address to each user. This gives them a layer of privacy that is unavailable with conventional banking methods.
Why Are Cryptos Important?
Cryptocurrencies promise to unseat banks as the main means of storing and exchanging money. Through their network, cryptos can facilitate transactions much more quickly and efficiently. Furthermore, because they are decentralized, cryptocurrencies can operate without the need for physical locations. This eliminates the need for offices and the rest of the infrastructure that traditional banks use. This means that less money is needed to run the network, which means lower fees for users.
Many privacy advocates also praise cryptocurrencies for their anonymous system. Because everyone on the network is represented by an alphanumeric address, no identification is required. This means that your personal data remains private and cannot be accessed by bad actors, corporations, or governments.
Crypto Mining For Beginners
Cryptocurrencies are created through a process called “mining“. This is performed by the people who maintain the blockchain network. By contributing their computing power, they participate in a sort of race to solve a mathematical problem. The first to do so verifies the transaction and receives compensation in the form of newly-minted coins.
Technically, everyone with a computer and internet connection can participate in this. However, as the number of participants increases, so does the difficulty of validating the problem before everyone else. As a result, increasingly more computing power is required.
Nowadays, miners will usually join so-called “pools“. These allow miners to pool their resources in order to successfully surpass competitors. When a pool verifies a transaction, it splits the compensation among its members relative to their contributed resources.
Because the price and popularity of cryptocurrencies have skyrocketed over recent years, industrial-level miners have appeared. These are large operations that invest millions in hardware. Such parties have significantly raised the difficulty and barrier to entry for mining. Because mining requires copious amounts of computing power, it is difficult to earn a profit as a smaller operation.
The Crypto Market For Beginners
While the main purpose of cryptocurrencies like Bitcoin is to serve as a digital currency for online transactions and payments, they are also a good store of value. As such, a large crypto market has emerged online. This works very similarly to the forex market and investors use it for trading and exchanging various cryptocurrencies. The crypto market is also decentralized and is operational 24/7. This means that you can buy and sell cryptos at any time of day.
As the size of this market has grown significantly, many people have made it their profession to trade on it. An entire multi-billion dollar industry has arisen that has taken the financial world by storm. Naturally, this has also created opportunities for traders who exploit various inefficiencies through advanced techniques like crypto arbitrage to make a profit. However, the crypto market is in many ways simpler than conventional ones and more accessible for beginners.
Investing In Crypto For Beginners
As an exciting new technology, cryptocurrencies have become an incredibly popular investment choice. That, coupled with their high value, makes them attractive for investors of all calibers. Not only do they have great promise as a means of storing and transferring funds, but they have also become a popular commodity in their own right.
However, when it comes to investing in cryptocurrencies, there are enough options out there to make your head spin. There are numerous ways that you can go, each with its own pros and cons. Here, we will discuss the different types of cryptocurrencies and what each entails.
Bitcoin is the original cryptocurrency. Launched in 2008, the currency uses the proof-of-work consensus to maintain its network and keep it secure from bad actors. Since its inception, Bitcoin has become the most popular and most valuable cryptocurrency by a long shot. While its price has fluctuated over the years, it reached a record high of $68,789 in 2021.
While the price of Bitcoin has never been stable by conventional standards, it can be considered as one of the safer bets in the world of cryptos. Although there have been several significant dips in value, the price of Bitcoin has generally gone up. As the first cryptocurrency, Bitcoin has also had the most time to spread in the financial world. Today, it is the most heavily invested-in crypto, with major banks and financial institutions adding it to their portfolios. This has increased its legitimacy and given it wider mainstream appeal.
Because of its widespread adoption, Bitcoin is also the most widely accepted cryptocurrency when it comes to payments and integration. This adds great value to it as it makes it much more than just a store of value to be bought and sold as a commodity. This makes it a good entry point into the world of crypto for beginners.
The second most popular cryptocurrency, Ethereum, is another great option that provides a more stable investment opportunity. Launched in 2015, Ethereum seeks to improve on Bitcoin’s utilization of decentralized technology by adapting it for additional uses. Apart from serving as a digital currency, the Ethereum network can be employed for various other applications.
One of Ethereum’s strongest features are smart contracts. These are automated programs that exist on the blockchain. Their purpose is to execute and control actions in accordance with pre-set parameters. Anyone can create such smart contracts that they can then use to automate various processes and eliminate uncertainty between parties that don’t necessarily trust one another.
As the second-most valuable cryptocurrency, Ethereum is another relatively safe bet when considering an investment. While there have certainly been dips, those have not been more than 50% of the value. Furthermore, such drastic downswings are very rare and have occurred only a handful of times. Although a 50% drop in value might be significant in the traditional financial world, it is commonplace with cryptos where even 100% swings can be seen on a daily basis.
Alternative cryptocurrencies, or altcoins for short, are all cryptocurrencies and tokens other than Bitcoin. While this does include Ethereum, many argue that it should now be excluded from the group, as it has grown enough to be considered its own category. Whatever the case, altcoins remain the largest subsection in the world of crypto.
Because the term is so broad, it can refer to anything from the aforementioned Ethereum to incredibly obscure cryptos that are valued at a fraction of a cent. All of these present a diverse market that is ripe with investment opportunities. However, due to the sheer number of projects, there is quite a large amount that end up going under.
While the failure rate is somewhat high, investing in what is known as “penny cryptocurrencies” can be relatively safe if done in moderation. So long as you invest only as much money as you are comfortable losing, trading in such cryptos should be risk-free. However, because these are often valued at fractions of a cent, investments as little as $10 can go a long way if the project is successful. This makes them a good stepping stone toward larger investments in crypto for beginners.
As you might have guessed by the name, stablecoins are designed to have a stable price. This will usually be pegged to another cryptocurrency, a fiat currency, or a publicly-traded commodity. As such, they aim to combine the convenience of cryptocurrencies with the reliability of fiat money. Alternatively, they can be created to self-regulate by increasing and decreasing the available supply of coins depending on the current demand. Because cryptos often fluctuate in value, this is one way to combat that and maintain purchasing power.
However, because stablecoins always aim to have the same price, they are not a good investment if you are looking to profit off of trading them. Instead, they can be a good way to diversify your holdings and protect your capital from outside forces. This is especially true for economies where inflation is prevalent, and there is not much stability in the local currency. Stablecoins are also a good way for beginners to get into crypto without the threat of wild fluctuations.
Lastly, there are meme coins. These are a type of altcoin; however, they are themed after various online MEMEs. Most often, they are intended as a joke and have little more than sentimental value for those who buy them. The most prominent example of a meme coin is the infamous Dogecoin which is based on the popular Doge internet meme.
However, as was the case with Dogecoin, what started out as a joke became very real. Although Dogecoin’s creators made the token as a means of mocking the wild speculation and oversaturation of the crypto market, it itself became a prime example of speculation. In May 2021, the crypto skyrocketed in value to reach an all-time high of almost $0.70 per coin. While this might seem insignificant, it is quite a monumental rise, considering that five months prior to that, the price of Dogecoin was $0.0046.
As such, meme coins have proven to be an excellent gateway into the world of crypto for beginners who make a small investment as a joke and end up with a large profit. Some have even become so-called “meme millionaires“. Check out our price predictions for the Shiba Inu meme coin and see if you want to get in on the action.
Crypto Appraisal For Beginners
Before choosing which cryptocurrency to invest in, you must consider a number of important factors. These are paramount to gauging the viability of any given crypto project and determining whether it will succeed. Things to look out for include features, attributes, creators and affiliates, goals, and more.
Here are some of the main characteristics to watch for:
Strong Development Team
A good development team is a great indicator of a project’s potential. Ideally, there will be one or several highly-prominent members on board. Such public personalities will provide legitimacy and attract a user base from their own established group of fans and followers. A familiar face on the team is also a great reassurance for backers as the project becomes more than a faceless organization.
If the members of the development team are well-established programmers with a portfolio of quality products to back them up, then the quality of this project will likely be high as well. Make sure to check who is involved in the development process and their track record.
Clear Roadmap and Goals
A good crypto project will always have a clearly outlined plan and realistic goals. You can usually find these in the project’s whitepaper. This is a long document that extensively explains the project’s goals, how and when they will be achieved, and the problems that it is trying to solve.
A good whitepaper will contain a clearly outlined roadmap and targets that are realistic. Make sure that it is not vague or promising unrealistic results with little facts to back this up. A well-thought-out plan means that the developers will have a good structure to operate within. This will provide them with support later down the line as the project grows. This way, they can remain focused and not diverge as new challenges arise.
Communication With The Community
One of the biggest red flags when looking at a crypto project is a team that does not actively engage with the community. When developing such a project, it is important for the creators to provide regular updates and stay in touch with backers. Weekly or monthly events such as AMAs, Q&As, and roundtables are a great way for the development team to let the community know how the project is going.
Being transparent about the development process is also a good way to treasure the community of any project and make sure that members stick around. This is especially important during long sprints when the team does not push any updates. Keeping the community appraised during such times will eliminate any doubt about the development team’s commitment and the future of the project.
In most cases, the crypto projects that succeed the most are those that seek to address real issues through new technology. This will, again, be outlined in the project’s whitepaper. When choosing a cryptocurrency to invest in, try to go for one that is not a simple cash-grab. If the goals of the project are to solve a problem in any given industry by utilizing innovative technology, then the chances of it succeeding are much greater.
Otherwise, the currency would have no inherent value. As such, trading in this kind of asset is pure speculation and cannot be predicted or evaluated realistically.
Coins that meet all of these requirements quickly become viral hits among investors. Even those that have a value of less than a cent can end up making their holders millions. One such example is Shiba Inu, which enthusiasts expect to reach 1 cent.
Crypto Marketplaces For Beginners
Just as there are millions of different cryptocurrencies out there, so too are there thousands of marketplaces and exchanges. Naturally, some are more trustworthy and reliable than others. There are many factors to consider when picking out a platform where you want to buy and sell your cryptos. Some of the most important factors include fees, spread, volume, number of supported cryptos, accepted payment methods, minimum and maximum requirements, and many more.
Below, we have listed some of the best marketplaces where you can safely and easily buy cryptocurrencies:
Binance is by far the largest crypto exchange in terms of trading volume. It offers access to an unparalleled catalog of over 300 different cryptocurrencies. As such, it is one of the best exchanges for people looking to invest in smaller or more obscure crypto projects.
Binance also has a diverse portfolio of features that give users the ability to take advantage of unique opportunities. These include a launchpad for new projects, NFTs, various derivatives, staking options, peer-to-peer trading, savings accounts, margin trading, and much more. All of this makes Binance a one-stop shop for crypto enthusiasts.
The platform accepts a wide variety of payment methods with support from banks across the globe. Depending on the services you will be using, you can deposit via bank transfer, card payment, and several e-wallets. Meanwhile, the P2P platform supports over 50 different payment methods, including PayPal, International Wire Transfers, Yandex Money, and many more.
Finally, Binance also provides several crypto-centric financial services to its customers. These include a VISA debit card, loans, and a proprietary payment system. All of these use the cryptocurrencies in your Binance wallet and allow you to use them for everyday payments and purchases.
Crypto.com is another of the larger crypto platforms out there. In fact, the company behind it has been so successful that Crypto.com bought the naming rights for Staples Centre back in 2021.
While a bit more limited, Crypto.com’s features list is still fairly diverse. Users can trade over 150 cryptocurrencies, NFTs, and derivatives on the platform and utilize leverage. Additionally, various financial and DeFi services are also available. These include a VISA debit card, staking options, crypto loans, and token swaps or farming.
When depositing on Crypto.com, you will have much more limited options. While crypto deposits are easy enough, using fiat money is a bit trickier. The platform has dedicated fiat wallets that are compatible with AUD, CAD, EUR, GBP, USD, and BRL. You can deposit any of these via a bank transfer.
Etoro is one of the most popular online trading platforms currently in the space. While it mainly focuses on financial assets like stocks, Forex, and commodities, it does also offer crypto trading. With over 17 million users and commercials featuring celebrities like Alec Baldwin, eToro is the market leader in many countries.
Since eToro is not a crypto-centric platform, it has significantly fewer available cryptos. There are a little over 100 coins for you to choose from, but these do include some of the most popular cryptos out there. Coins like Bitcoin, Ethereum, Bitcoin Cash, Ripple, Litecoin, Dogecoin, Shibe Inu, and more are all available on the platform. However, that is the full extent of eToro’s crypto services. The website does not have any other features like DeFi, staking, or peer-to-peer trading.
Meanwhile, eToro is just as friendly for crypto users as it is for those that use all of its other services. The platform is famous for its 0% commission fees and extensive copy trading system. The former of these allows you to copy the moves made by experienced and prominent investors on the platform. There are also plenty of accepted payment methods. These include debit and credit cards, PayPal, Neteller, Skrill, Rapid Transfer, iDeal, Klarna, Bank Transfers, and more. Although availability might vary depending on your location, there will usually be a good number of options.
Crypto Wallets For Beginners
While some of the larger crypto platforms offer built-in wallets for you to store your assets in, others do not. This means that you will have to set up a third-party wallet and manage all of your coins through that. Security is also sometimes a concern with built-in wallets, as websites are susceptible to compromise.
Here are some of the safest and most reliable crypto wallets for you to consider:
Binance Chain Wallet
Binance Chain Wallet is the popular crypto platform’s proprietary wallet. Available on both desktop and mobile, it gives users access to Binance Chain, Ethereum, and all related assets. Through its seamless integration with the overarching Binance platform, the wallet allows you to easily and quickly trade the wide selection of cryptos available on the exchange.
It is exactly this strong synergy with the larger Binance ecosystem that gives the wallet its appeal as a great starter for beginners in the crypto world. Because everything is on the same platform, it is easy for newcomers to sign up and manage their assets without needing to deal with too many apps.
MetaMask is one of the most popular crypto wallets for Ethereum and ETH-based assets. It is available for both desktop and mobile devices and features a simple UI and convenient form-factor. On desktop, MetaMask is available as a browser extension, while on mobile, it has a dedicated app for iOS and Android. The supported browsers are Chrome, Firefox, Microsoft Edge, and Brave. All of this makes MetaMask very accessible and a great crypto wallet for beginners.
If you are really concerned about security, then Trezor might be the right choice for you. This physical crypto wallet provides “cold storage” for your keys. What this means is that in order to access your wallet and assets, you first will need to connect a physical authenticator to your computer or smartphone. You can then use this to approve transactions and access private keys. Because the wallet stores your information offline, it is not susceptible to online attacks.
Currently, the wallet supports over 1000 different cryptos tokens and continues to add more to the list on a regular basis. Moreover, Trezor has recently partnered with MetaMask to provide NFT support for users. This means that you can use cold storage for your NFTs as well as your cryptocurrencies.
Securing Crypto Assets For Beginners
Once you have bought and stored your cryptocurrencies, there is another crucial step that needs to be considered- securing them. Because cryptocurrencies are a fully digital asset that is also completely anonymous, they are a prime target for theft and scams. This is only emphasized by the fact that not all people who invest in cryptocurrencies have a sufficient level of computer literacy to sure up their holdings.
Here are some steps and best practices that you should always implement when dealing with cryptocurrencies and other digital assets:
Keep All Of Your Private Keys Secure
Your private keys are the most important thing to secure. They are what grants access to any currencies or other assets you might have in your portfolio. If these get compromised, it is difficult to prove any theft because of cryptos’ anonymous nature.
Best practices dictate that you should have these stored in a secure place and not share them with anyone. Ideally, an offline storage method is best. This can include a physical wallet like the one we mentioned earlier. Such devices provide extra steps of authentication and make it more difficult for bad actors to gain access.
A more affordable alternative that is available to anyone is a simple piece of paper. Writing down your keys on a piece of paper is a great way to keep them in “cold storage” without having to splurge on an authenticating device. However, make sure to keep it safe and remember where it is. Making several copies might be a good idea, as losing your keys will mean that you won’t be able to access your wallet.
Because there is no central authority and cryptos are anonymous, it is impossible to gain entry to a wallet without the key, and no one will be able to help you with this if you lose or forget your access keys.
Maintain Multiple Wallets
Maintaining multiple crypto wallets is a good way to spread your capital around and minimize the potential damage in case of a breach. While it might be a bit more complicated to have several wallets, each with its own address and keys, it is definitely worth it. If you only have one wallet, then you are risking all of you are placing all of your crypto assets in one place, which makes them more vulnerable.
Having multiple wallets creates compartments that are independent of each other. This way, if hackers compromise one, only the assets within are vulnerable, while the rest remain secure. Because wallets are most often free to set up, this won’t end up costing you any extra money.
Be Wary Of Scams
Because the crypto space is such a young and tech-reliant market, it has become a prime target for scammers. From cyberattacks to phishing scams, bad actors of varying degrees are trying to get access to people’s crypto wallets. These are some of the most common scams to watch out for:
Phishing is one of the oldest internet scams. By using social engineering, hackers will send fake emails to targets. While these emails might look like they are from a genuine source like a bank or crypto exchange platform, they actually hold malicious links. In most cases, they will instruct you to follow a link in order to change your password or something similar. However, by doing so, you are unwittingly surrendering your account details to the hackers. As such, you should always be vigilant when receiving such emails.
Investment scams are investment opportunities that promise quick returns and high profits. As such, they might sound too good to be true, which they are. In most cases, the supposed business or new technology does not actually exist. Here, the organizers will quickly gather what investments they can and suddenly disappear. Such scams are also called “rug pulls“. Because cryptos are anonymous, it is near impossible to track and prosecute such criminals.
Cloud mining scams are another type of investment opportunity. These gather investments for a supposed mining operation and, again, promise large profits. However, such platforms often embellish the hardware they possess and rarely deliver on their promises. While cloud platforms are a legitimate way to mine cryptocurrency, it is important to ensure that the one you are using is legitimate and trusted.
Secure Your Personal Devices And Employ Best Practices
When it comes to cyber security, one of the biggest weak points are people’s personal devices. Weak passwords and reliance on internet services are among the main causes of breached accounts. In order to combat this, make sure that all of your devices that have access to crypto wallets are thoroughly secured.
Make sure that you use unique passwords for each one of your accounts and don’t reuse the same ones. Additionally, all important passwords should be at least 15 characters long and include upper and lower-case letters, numbers, and symbols. Also, make sure not to rely on password management systems for important passwords like the ones for your financial accounts. While handy, such management services are susceptible to compromise and can lead to you losing a lot of money if you are not careful.
Closing Thoughts On Crypto For Beginners
Although it might seem daunting at times, cryptocurrencies are a great new way for investors of all experience levels to diversify their portfolios. In many ways, cryptos have actually leveled the playing field as even the most seasoned investors have little technical knowledge and understanding. This puts them on the same level as everyday retail investors and gives tech-savvy users an advantage.
While it can be difficult for beginners to get a hang of crypto, with enough time and persistence, anyone should be able to learn. This is no different than conventional financial markets, which also require a deep level of business and economic understanding. Crypto’s accessibility is perhaps best characterized by the multiple teenage entrepreneurs who have made thousands on the market.