The short version
- A cryptocurrency is a token recorded on a blockchain, a shared ledger kept by many computers instead of a bank.
- Unlike a share, a coin has no profits or dividends behind it, so its price rests on demand alone.
- Whoever controls the private key controls the coins, and mistakes or thefts are usually irreversible.
This guide explains how crypto works for readers whose starting point is the stock market. We cover blockchains, wallets and exchanges, the main kinds of token, the costs, a note on crypto-linked payment cards and the specific risks that make crypto so unlike a share or fund. As everywhere on KyvoInvest, nothing here is a recommendation to buy any coin.
The ledger at the centre
A cryptocurrency is an entry on a blockchain: a record of who holds what, copied across thousands of computers around the world. New transactions are grouped into blocks, checked by the network according to fixed rules and added to the chain. Once a block is buried under later ones, rewriting it would require overwhelming computing power or stake, which is what makes the record hard to tamper with.
No bank sits in the middle. If you send a coin, the network itself confirms the transfer. That is the appeal for supporters, and also the source of the main risks: there is no customer service desk to reverse a mistake.
Proof of work and proof of stake
Blockchains need a way to agree on which transactions are valid without a central referee. Bitcoin uses proof of work: computers compete to solve a puzzle, and the winner adds the next block. It is secure but uses a lot of electricity. Ethereum and many newer networks use proof of stake, where participants lock up coins as a deposit and are chosen to confirm blocks; if they cheat, part of the deposit can be taken away. Both designs aim for the same result, a record that is extremely costly to rewrite, but they differ in energy use, in who can take part and in how new coins are issued.
Coins, tokens and stablecoins
- Native coins such as Bitcoin and Ether are the built-in currency of their own blockchain and pay its transaction fees.
- Tokens are created on top of an existing blockchain, often by a company or project, and can represent almost anything, from access to an app to a claim on a pool of assets.
- Stablecoins such as USDT are tokens designed to hold a steady value, usually one US dollar, backed by reserves held by the issuer.
For a share investor the key contrast is this: a share entitles you to part of a company's profits. Most crypto-assets entitle you to nothing except the token itself. Their price depends on how much others want them, which is why daily moves of 5% or 10% are not unusual.
Wallets and keys
Crypto is controlled by private keys, long secret numbers usually backed up as a 12- or 24-word recovery phrase. A wallet is software or a small device that stores those keys and signs transactions.
- With a custodial arrangement, such as leaving coins on an exchange, the exchange holds the keys and you hold a claim against the exchange.
- With a self-custody wallet, you hold the keys yourself. Nobody can freeze your coins, but nobody can recover them if you lose the recovery phrase or someone tricks you into revealing it.
No legitimate exchange, wallet provider or support agent will ever ask for your recovery phrase. Requests for it are one of the clearest scam signals; see our scam guide.
How crypto works when you buy it
Most people buy through a centralised exchange or an app that offers crypto alongside shares. You deposit money, place an order, and the platform credits your account. Costs usually include a trading fee or a spread built into the quoted price, a charge for card payments, and a network fee if you withdraw coins to your own wallet.
Spreads can be large on "instant buy" buttons. In an illustrative case where the all-in cost is 1.5%, a $500 purchase buys $492.50 worth of crypto, so the price must rise about 1.5% just to get back to where you started. Our crypto profit calculator shows the effect of fees on both the purchase and the sale.
What is a crypto Visa card?
A crypto Visa card is a payment card, usually issued by a card company working with a crypto platform, that lets you spend a crypto balance wherever the card network is accepted. At the moment of purchase, the platform sells some of your crypto and the shop receives ordinary money. Mastercard-branded versions work the same way.
Before using one, it is worth understanding three things. First, the platform, not the card network, holds your crypto, so its safety depends on that platform. Second, conversion fees and spreads apply on each purchase and can be hard to see. Third, in many countries, including the UK and US, spending crypto counts as disposing of it for tax purposes, which can create a taxable gain on a routine purchase. Cashback paid in a platform's own token adds exposure to that token's price.
Volatility, maths and memory
Large swings do not cancel out. In an illustrative case, $1,000 that falls 60% becomes $400; a 60% rise from there takes it only to $640. Crypto markets have been through several falls of that size. Anyone holding crypto alongside a share portfolio should size the position so that a very large fall would be survivable.
Regulation and protection
Rules are tightening but remain patchy. The EU now licenses crypto-asset service providers under its MiCA regulation, and other countries have registration or licensing regimes of their own. Even so, crypto held on an exchange generally does not enjoy the same compensation schemes that protect client assets at regulated stockbrokers. If an exchange collapses, customers can wait years to recover a fraction of their holdings. Our checklist for choosing a platform explains what to look for.
Tax basics
Tax treatment depends on where you live. Many tax authorities treat selling, swapping one coin for another and spending crypto as disposals that may create a capital gain or loss. Keep records of every purchase and sale, including dates, amounts and fees; rebuilding them later is painful.
Traps aimed at new buyers
New crypto users are a favourite target for fraud. Fake exchange apps, "support agents" who contact you after a public complaint, giveaways promising to double any coins you send, and new tokens promoted in chat groups all appear regularly. A simple rule covers most of them: never send crypto to someone who contacted you first, and never share a recovery phrase. Our scam guide covers the patterns in more depth.
Where crypto fits for a long-term investor
Some investors keep crypto out of their plans entirely. Others treat a small slice as a speculative holding that could go to zero, kept separate from money meant for retirement or a house deposit. Whatever you decide, decide it before the price has moved sharply, not in response to it.
Reader questions
Is crypto the same as a share?
No. A share is legal part-ownership of a company with a claim on its profits. Most crypto-assets carry no such claim, so their value depends on demand for the token itself.
Can a crypto transaction be reversed?
Generally not. Once a transfer is confirmed on the blockchain it cannot be undone by anyone, which is why sending to a wrong address or a scammer usually means the money is gone.
Are crypto payment cards safe to use?
The card itself works like any payment card, but your balance sits with the crypto platform behind it, conversion fees apply, and spending crypto may be a taxable event where you live. Check who issues the card and who holds your funds.
Sources
- UK Financial Conduct Authority, ban on the sale of crypto-derivatives to retail consumers
- European Union, Markets in Crypto-Assets Regulation (MiCA)
- HM Revenue & Customs, Cryptoassets Manual