Crypto Basics FAQ

Cryptocurrency is digital money that runs on a blockchain — a shared, tamper-resistant ledger maintained by a network of computers rather than a bank. Because no single company or government controls the ledger, transactions can be sent between people directly, worldwide, at any hour.

A blockchain is a database shared across thousands of computers that records transactions in linked blocks, each cryptographically tied to the one before it. This chaining makes past records extremely hard to alter, since changing one block would require redoing every block after it on a majority of the network at once.

Bitcoin is the first and largest cryptocurrency, launched in 2009 by the pseudonymous Satoshi Nakamoto. It has a fixed maximum supply of 21 million coins and is secured by proof-of-work mining, which is why it is often described as digital gold or a store of value.

Bitcoin is designed mainly to store and transfer value, with a capped 21 million supply. Ethereum is a programmable blockchain that also runs smart contracts, powering apps like DeFi, NFTs, and stablecoins, and its native coin Ether pays for those computations.

A crypto wallet is software or a device that stores the private keys needed to access and move your coins. The wallet itself doesn't hold the coins — the coins live on the blockchain — it holds the keys that prove you own them and let you sign transactions.

A private key is a secret code that proves ownership of the crypto at a given address and authorizes transactions from it. Anyone who has your private key controls your funds completely, which is why it must never be shared — losing it usually means losing access to the coins permanently.

A seed phrase is a list of 12 or 24 ordinary words that acts as the master backup for a wallet, able to regenerate every private key inside it. Written down and stored offline, it lets you recover your funds on a new device, so anyone who sees it can also take everything.

A public address is a string of letters and numbers that works like an account number others use to send you crypto. It is safe to share, unlike your private key, and is usually derived from the private key through one-way cryptography that cannot be reversed.

A hot wallet is connected to the internet — a mobile app or browser extension — which is convenient for frequent trading but more exposed to hacks. A cold wallet stores keys offline, usually on a hardware device, which is far safer for long-term holdings but less convenient.

Gas fees are the payments made to a blockchain network to process a transaction such as a transfer or a token swap. They go to the validators who confirm the transaction, and they rise when the network is busy because users compete to have their transactions included in the next block.

A stablecoin is a cryptocurrency designed to hold a steady value, almost always pegged to a fiat currency like the US dollar. Traders use stablecoins such as USDT and USDC to hold value or move between positions without cashing out to a bank.

Staking means locking up a proof-of-stake coin to help secure its network, in exchange for rewards paid in that same coin. It is broadly the proof-of-stake equivalent of mining, though staked coins are usually locked for a period and can't be traded freely until unstaked.

Mining is the process where computers compete to solve a hard mathematical puzzle for the right to add the next block of transactions to a proof-of-work blockchain, earning newly created coins as a reward. It secures networks like Bitcoin but consumes significant electricity.

A coin is the native asset of its own blockchain, such as Bitcoin on the Bitcoin network or Ether on Ethereum. A token is built on top of an existing blockchain using smart contracts — most tokens run on chains like Ethereum or BNB Chain rather than having a chain of their own.

Market cap is a coin's current price multiplied by its circulating supply, giving the total value of all coins in circulation. It is the standard way to compare the relative size of cryptocurrencies, since price alone is meaningless without knowing how many coins exist.

An altcoin is any cryptocurrency other than Bitcoin, a term short for alternative coin. It covers everything from major projects like Ethereum and Solana to thousands of small tokens, so the label says nothing about a coin's quality or size on its own.

A smart contract is code stored on a blockchain that runs automatically when set conditions are met, without a middleman. It powers things like token swaps and lending, but because the code executes exactly as written, any bug in it can be exploited and is usually irreversible.

Decentralized means no single company, person, or government is in control; the network is run collectively by many independent participants. This is meant to remove single points of failure and censorship, though in practice projects vary widely in how decentralized they truly are.

A confirmation is each new block added after the one containing your transaction, making it progressively harder to reverse. Exchanges often wait for several confirmations before crediting a deposit, because more confirmations mean the transaction is more deeply and permanently settled.

A fork is a change to a blockchain's rules. A soft fork is backward-compatible, while a hard fork splits the chain into two, sometimes creating a new coin — as when Bitcoin Cash split from Bitcoin in 2017. Forks usually stem from disagreements over a network's direction.

Proof of work is a system where miners spend real computing power and electricity to solve puzzles and secure the blockchain, used by Bitcoin. The energy cost is what makes attacking the network expensive, but it also makes proof-of-work chains power-hungry compared with proof of stake.

Proof of stake secures a blockchain by having validators lock up coins as collateral rather than burning electricity. Validators are chosen to confirm blocks partly based on how much they stake, and they can lose part of their stake for misbehaving, which keeps them honest.

A DEX, or decentralized exchange, is software running on a blockchain that lets you trade directly from your own wallet with no company holding your funds. Trades settle through smart contracts, so you keep custody throughout, but you are also fully responsible for your own security.

A CEX, or centralized exchange, is a company like Binance or Coinbase that holds custody of your funds and matches trades internally. It is usually easier for beginners and offers customer support, but you must trust the company to safeguard your assets and process withdrawals.

Fiat currency is traditional government-issued money such as the US dollar, euro, or Vietnamese dong. In crypto, fiat refers to this ordinary money you use to buy coins, as opposed to cryptocurrencies and stablecoins that live on a blockchain.

A whitepaper is a document a crypto project publishes to explain its purpose, technology, and token design. Reading one is a common first research step, though a polished whitepaper is a claim, not a guarantee, and should be checked against what the project has actually built.

HODL started as a typo for hold and became crypto slang for keeping a position through market ups and downs rather than trading in and out. It reflects a long-term mindset and is community shorthand rather than a formal strategy or technical term.

DYOR stands for do your own research, a standard reminder in crypto that no post, chart, or tool should replace checking facts yourself before acting. It exists because the space is full of hype and scams, and responsibility for decisions ultimately rests with each person.

A bull market is a sustained period of rising prices and optimism, where most assets trend upward and buyers dominate. In crypto these phases can be intense but are usually followed by sharp corrections, so rising prices alone don't indicate that an asset is safe.

A bear market is a prolonged period of falling prices and negative sentiment, where selling pressure dominates and many assets lose much of their value. Crypto bear markets can last months or years, and are often when weaker projects fail while stronger ones consolidate.

Volatility measures how sharply and quickly a price moves up or down. Crypto is far more volatile than stocks or bonds, with double-digit percentage swings in a single day being common, which means both potential gains and potential losses are unusually large.

No. Once a cryptocurrency transaction is confirmed on the blockchain, it is effectively permanent and cannot be undone by any company or support team. This is why sending to a wrong address or falling for a scam usually results in an unrecoverable loss.

Most cryptocurrencies are pseudonymous, not anonymous. Transactions are tied to wallet addresses rather than names, but they are permanently public on the blockchain and can often be traced back to real identities through exchanges that verify who their customers are.

KYC, or know your customer, is the identity-verification process regulated exchanges require before you can trade or withdraw. It typically involves submitting a government ID and is meant to prevent fraud and money laundering, which is why fully anonymous trading is limited on major platforms.

An airdrop is a distribution of free tokens to wallet holders, often to reward early users or promote a new project. While some are legitimate, airdrops are also used as bait in scams, so you should never connect your wallet to an unfamiliar site to claim one.

A token swap is exchanging one cryptocurrency for another, usually through a DEX or exchange in a single transaction. On decentralized exchanges the swap is executed by a smart contract using liquidity pools, and a fee plus possible slippage applies to each trade.

Liquidity is how easily a coin can be bought or sold without moving its price much. A liquid market has plenty of orders near the current price, so normal trades barely disturb it, while a thin, illiquid market can swing sharply on even a modest order.

Slippage is the gap between the price you expected and the price you actually got when a trade filled. It appears most on illiquid coins or large orders, and most exchanges let you set a maximum tolerance that cancels the trade if the market moves past it first.

A satoshi is the smallest unit of Bitcoin, equal to one hundred-millionth of a coin (0.00000001 BTC), named after Bitcoin's creator. It lets people transact in tiny fractions, since a single whole bitcoin is worth far too much for everyday small amounts.

Total supply is the number of coins that currently exist, including locked or reserved ones, while circulating supply counts only those freely trading. Max supply is the hard cap a coin can ever reach — Bitcoin's is 21 million, while some coins have no cap at all.

No. Cryptocurrencies are divisible into small fractions, so you can buy a tiny portion of a coin like Bitcoin rather than a whole one. This means the headline price of a coin doesn't determine whether you can afford to own some of it.

A blockchain explorer is a public website that lets anyone look up transactions, addresses, and balances on a blockchain in real time. Because blockchains are transparent, explorers let you independently verify that a payment went through without trusting any single party's word.

A gas limit is the maximum amount of computational work you allow a transaction to consume, protecting you from runaway costs. Simple transfers need little gas, while complex smart-contract interactions need more, and setting it too low can cause a transaction to fail.

This phrase means that if you don't control the private keys, you don't truly own the crypto — you're trusting whoever does, such as an exchange. It became a mantra after several exchanges collapsed, freezing or losing customer funds that users assumed were safely theirs.

The legality of cryptocurrency varies by country: some fully permit it, some restrict specific uses, and a few ban it outright. Rules also change over time, so this is general information only and you should check the current laws in your own jurisdiction before trading.