Frequently Asked Questions

Cryptocurrency is digital or virtual money that uses cryptography for security and operates on decentralized networks called blockchains. Unlike traditional currency issued by governments, crypto is not controlled by any central authority. Bitcoin, created in 2009, was the first cryptocurrency, and thousands more have since been created including Ethereum, Solana, and Cardano.

To buy cryptocurrency: 1) Choose a reputable exchange like Coinbase, Kraken, or Binance, 2) Create an account and complete identity verification (KYC), 3) Add a payment method such as bank transfer or debit card, 4) Place an order for your chosen cryptocurrency. Most exchanges let you start with as little as $10-20. Always start small while learning.

Bitcoin (BTC) is the first and most valuable cryptocurrency, created in 2009 by the pseudonymous Satoshi Nakamoto. It's designed to be digital money that can be sent anywhere in the world without banks or intermediaries. Bitcoin has a fixed supply of 21 million coins, making it scarce like digital gold. It uses proof-of-work mining for security.

Ethereum (ETH) is the second-largest cryptocurrency and a programmable blockchain platform. Unlike Bitcoin which is primarily digital money, Ethereum enables developers to build decentralized applications (dApps) using smart contracts. It powers most DeFi protocols, NFT marketplaces, and thousands of tokens. Ethereum transitioned to proof-of-stake in 2022.

A crypto wallet is software or hardware that stores your private keys—the passwords that prove you own your cryptocurrency. Hot wallets (apps like MetaMask) are connected to the internet and convenient for frequent use. Cold wallets (hardware devices like Ledger or Trezor) store keys offline and are more secure for large holdings.

A seed phrase (recovery phrase) is a 12-24 word sequence generated when you create a wallet. It can restore your entire wallet if your device is lost or damaged. NEVER share your seed phrase with anyone—anyone who has it controls your funds. Store it offline in multiple secure locations, and never enter it on any website.

Blockchain is the technology underlying cryptocurrencies. It's a distributed digital ledger that records all transactions across a network of computers. Each block contains transaction data linked to the previous block, forming a chain. This structure makes it nearly impossible to alter historical records, providing transparency and security without central authority.

Cryptocurrency technology itself is secure, but user practices determine safety. Risks include: losing access to your wallet, exchange hacks, scams, and price volatility. Protect yourself by using strong passwords, enabling 2FA, storing large amounts in hardware wallets, never sharing your seed phrase, and only investing what you can afford to lose.

In most countries, yes. Cryptocurrency is typically treated as property for tax purposes. You may owe capital gains tax when selling, trading, or spending crypto for profit. Mining and staking rewards are often taxed as income when received. Keep records of all transactions and consult a tax professional familiar with crypto in your jurisdiction.

DeFi (Decentralized Finance) refers to financial services built on blockchain without traditional intermediaries like banks. DeFi applications let you lend, borrow, trade, and earn interest on crypto assets through smart contracts. Popular DeFi protocols include Uniswap, Aave, and Compound. While offering new opportunities, DeFi carries risks including smart contract bugs and market volatility.

NFTs (Non-Fungible Tokens) are unique digital assets verified on a blockchain. Unlike Bitcoin where each coin is identical, each NFT is one-of-a-kind. NFTs can represent digital art, music, collectibles, virtual real estate, and more. They've enabled creators to sell digital work directly to collectors with built-in royalties on secondary sales.

Staking involves locking up your cryptocurrency to support a proof-of-stake blockchain's operations. In return, you earn rewards (similar to interest), typically 3-15% annually depending on the network. Staking helps secure the network and validate transactions. Your funds may be locked for a period, and rewards vary based on network conditions.

Crypto prices are influenced by supply and demand, market sentiment, regulatory news, technological developments, macroeconomic factors (inflation, interest rates), whale movements (large holders buying/selling), exchange listings, and social media buzz. The market operates 24/7 and can be highly volatile, with significant price swings in hours or even minutes.

Coins operate on their own blockchain (Bitcoin, Ethereum, Solana are coins). Tokens are built on top of existing blockchains—most tokens run on Ethereum using the ERC-20 standard. For example, USDC stablecoin and Uniswap's UNI are Ethereum tokens. The distinction matters for understanding how different cryptocurrencies work technically.

Key security practices: 1) Use unique, strong passwords for each exchange, 2) Enable 2FA with an authenticator app (not SMS), 3) Store large holdings in a hardware wallet, 4) Never share your seed phrase, 5) Verify URLs before entering credentials, 6) Be skeptical of unsolicited messages promising returns, 7) Keep software updated, 8) Use a dedicated device for crypto if possible.