A Beginner's Guide to Crypto
Crypto can sound like another language. This simple guide explains the basics without the hype, jargon or tech overwhelm.
What Is Cryptocurrency?
Cryptocurrency, often shortened to crypto, is a type of digital asset. It can be transferred online without using physical notes or coins. Different crypto assets have different purposes, and their prices can rise or fall very quickly.
Crypto is high risk. Never use money you cannot afford to lose.
The Basics in Plain English
Blockchain
A blockchain is a shared digital record of transactions. Once information is added and confirmed, it is difficult to change.
Coins and Tokens
Bitcoin is one example of a crypto coin. Other crypto assets may be called coins or tokens. They are not all the same and can have very different uses and risks.
Exchanges
A crypto exchange is an online platform where people may buy, sell or swap crypto. Before using one, research the company carefully, check its fees and security, and never rely only on social-media recommendations.
Wallets
A crypto wallet helps you access and manage your crypto. Some wallets are controlled by a platform, while others give you personal control through private keys or a recovery phrase.
Understanding Crypto Wallets
Software Wallet
An app or program used on a phone or computer. It is convenient, but your device and login details must be kept secure.
Hardware Wallet
A separate physical device designed to store access to crypto offline. It can offer extra protection but must be purchased and set up carefully.
Custodial Wallet
A platform looks after access to the crypto for you. This may be easier for beginners, but you are relying on that company's security and ability to let you access your assets.
Never share your password, private key or recovery/seed phrase with anyone. A legitimate support person will never ask for your recovery phrase. Anyone who has it may be able to take your crypto.
Before You Do Anything
- 1 Learn the basics before spending money.
- 2 Research the crypto asset and platform independently.
- 3 Use a unique password and turn on two-factor authentication.
- 4 Begin with a very small amount if you decide to proceed.
- 5 Double-check wallet addresses and networks before sending.
- 6 Keep accurate records of every purchase, sale, swap and transfer.
Crypto transfers can be difficult or impossible to reverse. A small test transaction may help you check the details before sending a larger amount.
Crypto Scam Red Flags
- Unexpected investment messages from strangers
- Promises of guaranteed profits or unusually high returns
- Pressure to act immediately
- Celebrity endorsements that cannot be verified
- Someone asking you to move crypto to a 'safe' wallet
- A platform demanding extra payments before allowing a withdrawal
- Anyone asking for your password, private key or recovery phrase
- A stranger offering to trade or manage crypto for you
- Fake websites or apps designed to look like known platforms
If something feels wrong, stop. Do not send more money in an attempt to recover what you have already paid.
Remember Your Records
In Australia, buying, selling, swapping, gifting or otherwise disposing of crypto may have tax consequences. Keep records of your transactions, fees, dates and Australian-dollar values. Check current information from the Australian Taxation Office or speak with a qualified tax professional.
Crypto Words Made Simple
Blockchain
A shared digital record of transactions.
Wallet
A tool used to access and manage crypto.
Exchange
A platform where crypto may be bought, sold or swapped.
Private Key
Secret information that provides control over crypto.
Seed or Recovery Phrase
A set of words that may restore access to a wallet. It must always remain private.
Gas or Network Fee
A fee charged for processing some blockchain transactions.
Stablecoin
A crypto asset designed to track another asset, often a currency such as the US dollar. Its value is not guaranteed.
Volatility
Rapid and sometimes extreme price movement.
Check Before You Invest
Crypto assets are complex, highly volatile and commonly targeted by scammers. Take your time, check who you are dealing with and be prepared for the possibility of losing what you invest.
Learn First. Decide Later.
There is no need to rush. Understanding the basics and knowing how to protect yourself matters more than following online hype.
This guide provides general educational information only. It is not financial, investment, legal or tax advice. Cryptocurrency is high risk and may result in the loss of your money. Always do your own research and consider seeking advice from a qualified professional.