In short
- A cryptocurrency is a digital token whose ownership is recorded on a blockchain, a shared ledger no single company controls.
- Bitcoin, Ether and stablecoins such as USDT behave very differently and carry different risks.
- Whoever controls the private key controls the coins: lost keys and mistaken transfers usually cannot be reversed.
- Prices are highly volatile, and protections for investors are weaker than in regulated stock or bank accounts.
What a blockchain is
A blockchain is a record of transactions that is copied across thousands of computers. New transactions are grouped into blocks, and each block is linked to the one before it, so changing old records would mean redoing all the work that came after. Because many independent participants keep copies and follow the same rules, no single bank or company is needed to confirm who owns what.
Different blockchains reach agreement in different ways. Bitcoin uses proof of work, where miners spend electricity competing to add the next block. Ethereum switched to proof of stake in 2022, where validators lock up Ether as a deposit they can lose if they cheat.
Coins, tokens and stablecoins
| Type | Examples | What it is |
|---|---|---|
| Native coins | Bitcoin (BTC), Ether (ETH), TRX | The built-in currency of a blockchain, used to pay transaction fees |
| Tokens | Governance and utility tokens | Assets created by software running on an existing blockchain |
| Stablecoins | USDT, USDC | Tokens designed to hold a steady value, usually one US dollar, backed by reserves held by the issuer |
Bitcoin was the first cryptocurrency and is often compared to digital gold because its supply is capped. Stablecoins such as USDT are used mainly to move dollars between exchanges and to park value without leaving the crypto system.
Wallets and keys
You do not hold crypto inside a wallet in the way you hold cash. The coins stay on the blockchain; a wallet stores the private key that proves you can move them. Most wallets back up that key as a recovery phrase of 12 or 24 words.
- Custodial: an exchange or app holds the keys for you. Convenient, but you depend on that company staying solvent and honest.
- Self-custody: you hold the keys, for example in a hardware wallet. Nobody can freeze your coins, but nobody can recover them if you lose the phrase.
How people buy and trade crypto
Most people buy crypto on a centralised exchange, which works like a broker: you deposit money, trade, and either leave the coins there or withdraw them to your own wallet. Decentralised exchanges let people swap tokens directly from their wallets using smart contracts. Some traders also use crypto derivatives such as futures, which add leverage and can liquidate a position quickly.
Before using any exchange, check whether it is registered or licensed where you live and what happens to customer assets if it fails. The collapse of FTX in November 2022 showed that customer funds on an exchange can be frozen or lost. Our guide to checking a trading platform lists what to look for.
Why prices move so much
Crypto has no earnings or interest payments to anchor its value, so prices depend heavily on demand, sentiment and liquidity. Bitcoin has fallen by more than 70% from its peak several times, and smaller coins can lose almost all of their value. News about regulation, large holders selling or exchange problems can move prices sharply within hours, and because the market never closes, those moves can happen while you sleep.
The main risks
- Volatility: prices can halve in weeks.
- Irreversibility: a transfer sent to the wrong address or the wrong network usually cannot be undone.
- Platform risk: exchanges can be hacked, freeze withdrawals or go bankrupt.
- Scams: fake exchanges, fake investment apps and "recovery" services are common. See how to spot crypto scams.
- Regulation and tax: rules differ by country and are changing. In many countries, selling or swapping crypto is a taxable event.
Working out gains and losses
Trading fees are charged on both the buy and the sell, so a coin has to rise by more than the total fees before you break even. Our crypto profit calculator shows the real result after fees on any trade.
Is cryptocurrency investment different from trading?
A cryptocurrency investment usually means buying and holding for months or years, while trading means buying and selling around shorter price moves. Both carry the same underlying risks: large price swings, platform failures and irreversible mistakes. Neither is made safer by a confident video or a friend's success story.
Frequently asked questions
Is cryptocurrency legal?
Owning crypto is legal in most countries, but rules for exchanges, advertising and taxation vary widely, and a few countries restrict it heavily. Check the rules where you live.
What is the safest way to store crypto?
For long-term holdings, many people use a hardware wallet and keep the recovery phrase offline in a secure place. Whatever method you choose, never share the recovery phrase with anyone.
Can crypto transactions be reversed?
Generally no. Once a transaction is confirmed on the blockchain, it cannot be cancelled by a bank or support team. Always double-check the address and network before sending.
Sources
- U.S. FTC: What to know about cryptocurrency and scams
- Bitcoin whitepaper