What is crypto?

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Crypto is a decentralised digital form of money that employs cryptography for privacy and security. Crypto operates on a technology called blockchain, which is a distributed ledger that records all transactions across a network of computers. Cryptocurrencies have gained significant popularity over the past decade, serving as a means of transferring value globally, facilitating online transactions, and, in some cases, enabling the development of decentralised applications and smart contracts. Their potential for financial inclusion, privacy, and innovation has sparked widespread interest and investment in the world of finance and technology.

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How many cryptocurrencies are there?​

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Bitcoin, Ethereum, XRP, Tether, Cardano. These are all probably cryptocurrencies you’ve heard of or know something about. While they’re among some of the most well-known and largest cryptocurrencies in the market today, it’s assumed there are over 20,000 different cryptos available, with more being created every day. 

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What is Bitcoin?​

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Bitcoin was the first decentralised digital currency created in 2009. It operates on a blockchain, a public ledger, using cryptography to secure transactions. Bitcoin can be bought, sold, and transferred without the need for intermediaries like banks. Its limited supply of 21 million coins and decentralised nature contribute to its appeal and popularity. Since its inception, Bitcoin has gone on to become the largest and most popular cryptocurrency in the market today.

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Crypto coins vs crypto tokens

 

While the terms are often used interchangeably, there’s a distinction between coins and crypto tokens. Crypto coins have their own blockchain network where they are the native currency. Crypto tokens on the other hand are built on top of an existing blockchain. Tokens can have various functionalities and a wider range of use cases. Both coins and tokens can be bought and sold much the same way.

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How much do I need to get started investing in crypto?

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Almost all crypto platforms have a minimum amount you can invest. This is the lowest amount of money an investor can add to their account, and use to buy things like Bitcoin. In the UK, this generally ranges anywhere between £1-£50, but can be more with certain providers. We've created a comparison of crypto platforms and their minimum deposits, so you can find this information easily in one place.

 

Where can I buy crypto?

 

There are several platforms investors can use to access crypto. Most commonly, users trade crypto from some form of exchange, which can either be a DeFi exchange or a CeFi exchange. In the UK, there is increasing regulation concerning crypto so it is important you only use providers that comply with any regulatory requirements.

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DeFi vs CeFi​

 

In the context of crypto, decentralised Finance (DeFi) refers to financial services built on blockchain, allowing peer-to-peer transactions without intermediaries. Centralised Finance (CeFi) involves linking the crypto world with traditional financial systems that have centralised control, such as banks and listed companies. DeFi is open, transparent, and accessible to anyone, while CeFi relies on centralised institutions for financial operations and ultimate control.

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Why is crypto so popular?​

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There are several possible reasons crypto is popular with investors. Some people see crypto as the future of finance, while others see them as a worthy potential investment opportunity, worthy of contributing some portfolio diversification. Others see potential real-world use cases of crypto and the underlying technology it is built on, which may be pivotal in the future, leading to price appreciation. It’s probably fair to say a lot of its popularity however is somewhat driven by FOMO (fear of missing out). This is never a good reason to make any decision, nevermind an investing one, and risking real money in the process - so be sure to make up your own mind if crypto is at all suitable to you, before making any decisions

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What are some of the risks of crypto?

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Investing in cryptocurrencies comes with several risks, investors should consider before entering the cryptocurrency market. These include: 

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Volatility

Cryptocurrency prices can be highly volatile, leading to significant and rapid fluctuations. This volatility can result in both substantial gains and losses.

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Regulatory Risks

Regulatory environments for cryptocurrencies are evolving, and changes in regulations can impact the legality and acceptance of cryptocurrencies, affecting their value and use.

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Security Concerns

Hacking and fraud are prevalent risks in the cryptocurrency space. Exchanges and wallets are susceptible to cyberattacks, potentially leading to the loss of funds.

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Lack of Investor Protection

Unlike traditional financial markets, cryptocurrency markets often lack the investor protection mechanisms provided by regulatory bodies, making investors more vulnerable to fraud and misconduct.

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Technology Risks

Cryptocurrencies are based on complex technology, and issues such as software bugs, network failures, or upgrades can impact the reliability and functionality of the underlying blockchain.

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Market Sentiment

Cryptocurrency prices can be influenced by market sentiment, social media, and speculative trading, leading to rapid and unpredictable price movements.

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Liquidity Risks

Some cryptocurrencies may have lower liquidity, making it challenging to buy or sell large amounts without significantly impacting the price.

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Adoption Risks:

The success of certain cryptocurrencies depends on widespread adoption and acceptance. Factors affecting adoption, such as technological developments or competition from other cryptocurrencies, can impact investment outcomes.

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Is crypto legal? 

 

Legal standards vary greatly from country to country. Cryptocurrencies are permitted in several countries, under certain circumstances such as the US, Canada, UK, and Japan. Make sure to be crystal clear on the legality and regulatory environment when it comes to crypto, which platform you use, and how you intend to use it, before risking any money.

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Choosing a crypto provider

Before choosing a potential crypto provider, here are some things you may want to look into and consider.

Fees and costs: Make sure you’re aware of any trading fees, inactivity costs, spreads, and anything else that will impact how much it will cost you to trade how you want to.

Transparency: Proof of reserves, information access, and anything else that shows the provider you’ll potentially trade with is upfront and open with customers about their activities and business practices.

Regulation and reputation: Ensure they abide by appropriate regulatory requirements when it comes to operating in certain jurisdictions and when providing access to certain asset types.

Asset offering: Make sure the assets and instruments you want to buy and sell are available on the provider in question. Each provider tends to offer slightly different assets and instruments, so make sure you’re buying what you think you are.

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Is crypto right for me?

 

It may not be. Deciding whether or not crypto is right for you depends on factors such as your financial goals, experience level, and risk tolerance. Be sure to be fully aware of the complexities of crypto before risking any real money. It’s always a good idea to have ample savings and an emergency fund in place, before considering trading or investing your money in any asset, as you could lose everything you invest.

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Summary 

 

Interested in learning more about crypto and the world of investing but don’t know exactly where to start? We would always recommend practising without any real money before you start. Try the Pluto demo (no real money) environment on the free Pluto app. 

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