Cryptocurrency Quetions
Answers to the most popular crytpo questions
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What is cryptocurrency?
Cryptocurrency is digital money that runs on public blockchains—shared databases secured by cryptography. Most crypto networks aren’t controlled by a single company or government, which is why you’ll hear “decentralized.” The best‑known examples are Bitcoin and Ethereum.
What is the point of crypto?
Crypto enables peer‑to‑peer value transfer on the internet without traditional intermediaries. That can reduce settlement times and fees, enable programmable payments, and unlock new use cases like decentralized finance (DeFi), cross‑border transfers, and digital collectibles.
What does “blockchain” actually do?
A blockchain batches transactions into blocks and links them with cryptographic proofs. Because many independent nodes verify the same ledger, it’s extremely hard to alter history. Different chains make different trade‑offs for speed, cost, and security.
What is a crypto wallet?
A wallet is software or hardware that stores and uses your private keys so you can send and receive crypto. It shows your addresses (public keys) and balances on chain. There are two broad types: hot wallets (connected to the internet) and cold wallets (hardware or paper, kept offline).
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- Hot wallets: mobile/desktop/browser extensions (easy to use, higher online risk).
- Cold wallets: hardware devices or air‑gapped methods (best for long‑term storage).
- Seed phrase (recovery phrase): 12–24 words that can recreate your wallet. Never share it and store it securely offline.
How do I buy crypto safely?
Use a reputable exchange, enable strong 2FA, start small, and understand fees. Prefer bank transfers or trusted payment rails, double‑check addresses before sending, and consider dollar‑cost averaging (DCA) to reduce timing risk.
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- Complete identity verification (KYC) and set withdrawal allow‑lists.
- After purchase, consider moving long‑term holdings to self‑custody (hardware wallet).
- Beware of unsolicited “support” messages and fake apps/URLs.
What are gas fees?
Gas is the network fee paid to process your transaction on a blockchain. Fees fluctuate with network demand and the complexity of your action. They are separate from any exchange trading fees.
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- Busy networks = higher fees and slower confirmations.
- Layer 2 networks can reduce fees by batching transactions.
- Some wallets let you choose a fee level (slow/average/fast).
Centralized exchange (CEX) vs decentralized exchange (DEX): what’s the difference?
A CEX matches buyers and sellers and holds custody of user funds. A DEX lets you trade from your own wallet via smart contracts and liquidity pools. CEXs offer convenience and fiat on‑ramps; DEXs offer self‑custody and open access but require more care.
What is a seed phrase and why must I never share it?
Your seed phrase can recreate your wallet and all its funds. Anyone who knows it can move your assets. No legitimate support agent will ever ask for it.
How do I read a blockchain transaction?
Use a block explorer (e.g., for Bitcoin or Ethereum) and paste your address or transaction hash. You’ll see status, confirmations, fees paid, and the addresses involved. Explorers are read‑only—never enter a seed phrase there.
What are NFTs?
Non‑fungible tokens represent unique digital items (art, membership, tickets). They live on a blockchain and can include programmable rights like royalties or access. Value is driven by utility, provenance, and community—not guaranteed.
How do I avoid common crypto scams?
Never share your seed phrase; beware of fake “airdrop” claim sites, impersonators in DMs, and too‑good‑to‑be‑true yields. Verify URLs, use official links, and test with a tiny transaction first.
Why is crypto so volatile and how do I manage risk?
Crypto trades 24/7 and is driven by liquidity cycles, narratives, and regulation. Manage risk with position sizing, DCA, diversification, and a long‑term plan. Only invest what you can afford to hold through large swings.
How do I start investing in crypto?
Create an account with a reputable exchange or broker, complete identity verification, fund your account, and buy supported assets. Start small, understand fees, and consider using recurring buys to reduce timing risk. Not investment advice.
How much of my portfolio should be in crypto?
It depends on your risk tolerance and time horizon. Crypto is highly volatile. Many beginners start with a small single‑digit percentage and rebalance periodically. Only invest what you can afford to hold through large drawdowns.
Which cryptocurrencies should I consider?
Focus on assets with clear purpose, strong security, liquidity, and broad adoption (e.g., Bitcoin for store‑of‑value, Ethereum for smart contracts). Diversify rather than chasing low‑cap hype. Research token supply, roadmap, and who secures the network.
What is a crypto ETF and how does it work?
A crypto ETF lets you get price exposure through a traditional brokerage account. The fund holds the underlying asset or uses derivatives, and shares trade on stock exchanges. ETFs simplify access but still carry market and tracking risks. Review the prospectus and fees.
Should I stake, lend, or “earn” yield on my crypto?
Staking helps secure proof‑of‑stake networks and pays protocol rewards; lending/earn programs lend your assets to others. Yields vary and risks include lock‑ups, slashing, smart‑contract bugs, counterparty failure, and regulatory changes. Understand how yield is generated before opting in.
Are cryptocurrencies secure?
Major networks use modern cryptography and large validator/miner sets, making the ledger itself hard to forge. Most losses happen from phishing, exchange breaches, smart‑contract exploits, or user mistakes. Use strong passwords, hardware‑based 2FA, withdrawal allow‑lists, and beware of links and DMs.
What’s the difference between custodial and self‑custody wallets?
Custodial wallets (on exchanges) hold keys for you—convenient but you rely on the provider. Self‑custody wallets give you the private keys (seed phrase). You gain control but must securely back up your seed and protect your device. Many investors use a mix.
Can my account be hacked? How do I protect myself?
Yes—through phishing, SIM swaps, malware, or leaked passwords. Protect yourself with a password manager, unique strong passwords, app‑based or hardware 2FA, device hygiene, and by never sharing your seed phrase. Consider a hardware wallet for long‑term holdings.
Are stablecoins always stable? What is a “depeg”?
Stablecoins aim to track assets like the U.S. dollar. Some are fully reserved; others use algorithms or crypto collateral. A “depeg” is when market price drifts from the target. Always understand the backing, attestations, and redemption mechanics before holding large amounts.
Is crypto taxable?
In many countries, crypto is taxed like property: selling, trading, or spending can create capital gains/losses; earning rewards or airdrops may be income. Keep records and consult a qualified tax professional in your jurisdiction.
What is Bitcoin halving and why does it matter?
Roughly every four years, Bitcoin cuts block rewards in half, reducing new supply issuance. Halvings don’t guarantee price moves, but they change the supply/demand dynamics that traders watch closely.
Proof‑of‑Work vs. Proof‑of‑Stake: what’s the difference?
Proof‑of‑Work secures the network with energy‑intensive mining. Proof‑of‑Stake secures it with economic stake—validators lock tokens and can be penalized (slashed) for misbehavior. PoS reduces energy use and enables faster finality, with different trade‑offs.
What are Layer 2 networks?
Layer 2s (e.g., rollups and payment channels) process transactions off‑chain or in batches and post proofs to a base chain, improving speed and cost while inheriting base‑layer security. Examples include optimistic and zero‑knowledge rollups on Ethereum and payment channels like Lightning for Bitcoin.
What are CBDCs and how do they affect crypto?
Central Bank Digital Currencies are digital versions of national currency issued by central banks. They may modernize payments but are permissioned systems. They can coexist with public cryptocurrencies, which remain open networks anyone can build on.
What is tokenization of real‑world assets (RWA)?
Tokenization represents things like treasuries, real estate, or invoices as on‑chain tokens, enabling fractional ownership and 24/7 settlement. Legal structure, custody, and compliance are key considerations.
What is an airdrop and how do I avoid scams?
Projects sometimes distribute tokens to users (“airdrop”). Real airdrops never ask for your private key or seed. Beware of fake claim sites and “support” DMs. If in doubt, don’t connect your wallet.
