The crypto market is a dynamic space that may seem daunting at first. Use this summary of our Crypto for Beginners course to recap the fundamentals of cryptocurrency and consolidate your understanding of what crypto is, how it works, and the components of a well-informed approach to investing in the market.
What is crypto and how does it work?
Cryptocurrency is digital currency based on a distributed network called a blockchain.
Unlike fiat currencies, which are controlled by a central authority (such as a bank), crypto operates on a decentralised, peer-to-peer system in which transactions are recorded using cryptographic encryption.
Anyone with internet access can send or receive cryptocurrency, making crypto an accessible, immutable and highly secure method of exchange.
Crypto market capitalisation
Despite the differences between traditional finance (TradFi) and decentralised finance (DeFi), the crypto industry has adopted some traditional metrics to assess the value of various cryptoassets. Market capitalisation, for example, allows investors to gain insight into the relative size and value of a cryptocurrency.
Cryptocurrencies typically fall into one of three categories:
- Large cap cryptocurrencies: market cap of over $10 billion
- Medium cap cryptocurrencies: market cap between $1 billion and $10 billion
- Small cap cryptocurrencies: market cap lower than $1 billion
Coins and tokens
Different types of coins and tokens offer different opportunities for investors to engage with the crypto market.
| Coins | Tokens |
|---|---|
| Primary function is to be used as a digital currency or store of value | Diverse range of functions, from representing ownership to enabling access to services |
| Self-sufficient networks built on independent blockchains | Reliant upon the infrastructure of existing blockchain platforms |
| Gain value based on their own scarcity, utility and adoption | Derive value from the success of projects on the network they operate within |
Safe Storage
Without a central authority to protect their assets, crypto investors must understand how to keep their crypto secure by using a crypto wallet. There are various different types of wallets to choose from, but all operate using the same three elements to facilitate the connection between a user and their crypto:
| Public address | A wallet’s unique identifier, specifying the target destination or sending address for crypto transactions. |
| Public key | Proves ownership of crypto by verifying that an individual is the owner of the public address. |
| Private key | Acts as the password needed to interact with a wallet. |
Decentralised finance (DeFi)
DeFi describes a decentralised financial system that encompasses a wide range of blockchain-based financial instruments, including:
- Decentralised exchanges
- Lending and borrowing protocols
- Opportunities for passive investment (such as staking and yield farming)
DeFi now exists as an alternative to mainstream finance, and is one of the most important elements regarding the mainstream adoption of crypto.
Managing your portfolio with an investment strategy
A well-thought out investment strategy is a tool for investors to safeguard their assets from risk, and optimise their portfolio for returns.
A good investment strategy should combine insights from both fundamental and technical analysis to monitor market conditions, understand trends and identify patterns in price movements.
- Fundamental analysis relies on “real-world” information such as whitepapers, company reports, global news stories or market sentiment.
- Technical analysis relies on data from crypto charts to see patterns and make predictions about future price movements.
Crypto Fear and Greed Index
The Crypto Fear and Greed Index is an indicator that measures the mood of the market, and the emotions of the investors influencing it.
Investors can use it to identify market trends, understand how others are trading, and better time their own market entry or exit.
The Index categorises crypto market sentiment from “extremely fearful” to “extremely greedy”, with a value between 0 – 100.
Final thoughts
Now that you have completed the Crypto for Beginners course and understand the fundamentals of cryptocurrency, you are well-poised to start your investment journey. Consider taking a second look at any of the articles, test your knowledge or make your first crypto investment now!
QUESTION 1 OUT OF
This information is for educational purposes only and should not be taken as investment advice, personal recommendation, or an offer of, or solicitation to, buy or sell any financial instruments.
This material has been prepared without regard to any particular investment objectives or financial situation and has not been prepared in accordance with the legal and regulatory requirements to promote independent research. Not all of the financial instruments and services referred to are offered by eToro and any references to past performance of a financial instrument, index, or a packaged investment product are not, and should not be taken as, a reliable indicator of future results.
eToro makes no representation and assumes no liability as to the accuracy or completeness of the content of this guide. Make sure you understand the risks involved in trading before committing any capital. Never risk more than you are prepared to lose.
ASIC disclaimer: eToro AUS Capital Limited ACN 612 791 803 AFSL 491139. Crypto assets are unregulated and highly speculative. There is no consumer protection. You risk losing all of your capital. Refer to our Terms and Conditions. See full disclaimer
EU Disclaimers:
Spain: Investments in crypto-assets are not regulated. They may not be appropriate for retail investors and the full amount invested may be lost. It is important to read and understand the risks of this investment, which are explained in detail at this link
France: Cryptoassets investing and custody are offered by eToro (Europe) Ltd as a digital asset service provider, registered with the AMF. Cryptoasset investing is highly volatile. No consumer protection. Tax on profits may apply.
Rest of EU: Cryptoasset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.