Crypto Basics: Bitcoin, Ethereum, Wallets and Risk
By AllConvertor · · 2 min read
Cryptocurrency is digital money secured by cryptography and recorded on a shared public ledger called a blockchain. It has attracted both enthusiasts and sceptics. This guide covers the essentials so you can understand the terms, spot the risks and follow prices with a clear head. It is educational, not financial advice.
How a blockchain works
A blockchain is a database copied across thousands of computers. Transactions are grouped into blocks, each block contains a cryptographic hash of the previous one, and altering old data would break the chain. Network rules, called consensus mechanisms, decide who adds the next block. Bitcoin uses proof of work, while Ethereum uses proof of stake.
Bitcoin vs Ethereum
- Bitcoin (BTC) was launched in 2009 as peer-to-peer digital cash and a store of value, with a fixed supply cap of 21 million coins
- Ethereum (ETH) launched in 2015 and supports smart contracts, which are programs that run on the blockchain and power applications, tokens and decentralised finance
- Stablecoins aim to track an asset such as the US dollar, and are widely used for trading and transfers, but they carry issuer and reserve risk
Wallets and keys
A crypto wallet stores the private keys that prove you own your coins. Hot wallets are connected to the internet and convenient for small amounts, while cold wallets such as hardware devices keep keys offline for better security. Your recovery phrase, usually 12 or 24 words, can restore your wallet. Anyone who has it controls your funds, so never share it, never type it into a website and store it offline.
Understanding volatility
Crypto prices can move 10 percent or more in a single day. A coin that gains 50 percent and then falls 50 percent leaves you 25 percent down, because percentages apply to a changing base. Only invest money you can afford to lose, and avoid borrowing to buy.
Common risks and scams
- Exchange failures or hacks, which is why self-custody is popular for long-term holdings
- Phishing sites and fake wallet apps
- Giveaway and impersonation scams promising to double your coins
- Pump-and-dump tokens with little real use
- Tax obligations, which vary by country and may apply to selling, swapping and sometimes spending
How to track crypto prices
- Open a crypto price tracker and search for the coin you want to follow.
- Compare price, 24-hour change and market capitalisation, which shows the total value of all coins in circulation.
- Convert amounts into your local currency with a currency converter to understand the value in familiar terms.
- Treat short-term charts with caution, and look at longer timeframes to see the bigger picture.
Prices displayed by trackers are indicative and may differ from what you get on a specific exchange after fees and spreads.