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 decentralized, 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 capitalization
Despite the differences between traditional finance (TradFi) and decentralized finance (DeFi), the crypto industry has adopted some traditional metrics to assess the value of various cryptoassets. Market capitalization, 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 |
Keeping your crypto safe
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. |
Decentralized finance (DeFi)
DeFi describes a decentralized financial system that encompasses a wide range of blockchain-based financial instruments, including:
- Decentralized 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 optimize their portfolios 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 categorizes 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 communication is for information and education purposes only and should not be taken as investment advice, a personal recommendation, or an offer of, or solicitation to buy or sell, any financial instruments.
This material has been prepared without taking into account any particular recipient’s investment objectives or financial situation and has not been prepared in accordance with the legal and regulatory requirements to promote independent research. Any references to past or future 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 publication.