Cryptocurrency for Beginners: A Comprehensive Guide for Newcomers

In recent years, cryptocurrency has gained immense popularity, attracting the attention of both investors and everyday people. However, its meaning and the process of working with it remain complex and unclear to many. In this article, we will explore the basics of cryptocurrency, its origins, types, methods of acquisition, storage, and usage, and touch on issues of legality and security.  

What is Cryptocurrency?  

Cryptocurrency is a digital currency based on blockchain technology. Unlike traditional fiat currencies such as the dollar or euro, cryptocurrency has no physical form and is not controlled by central banks. Key characteristics of cryptocurrency include:  

- Decentralisation: The absence of a central governing body.  

- Security: The use of cryptographic methods to protect transactions.  

- Transparency: All transactions are recorded in a public ledger – the blockchain.  

Where Does Cryptocurrency Come From?  

Most cryptocurrencies are created through a process called mining. Mining involves solving complex mathematical problems to confirm transactions and add new blocks to the blockchain. Miners are rewarded with new coins.  For more details, see the previous article on Mining.

What Are Altcoins?  

Altcoins (from "alternative coins") refer to all cryptocurrencies besides Bitcoin. Following Bitcoin's success, numerous other cryptocurrencies emerged, each with different goals and functions. Some of the most well-known altcoins include:  

- Ethereum: A platform for creating smart contracts and decentralised applications.  

- Litecoin: Designed for faster and cheaper transactions compared to Bitcoin.  

- Ripple: Focused on facilitating fast international payments.  

What Are Stablecoins?  

Stablecoins are cryptocurrencies pegged to the value of fiat currencies, such as the US dollar. Their purpose is to reduce the volatility inherent in most cryptocurrencies. Examples of stablecoins include:  

- Tether (USDT): Pegged to the US dollar at a 1:1 ratio.  

- USD Coin (USDC): Also pegged to the dollar and backed by a consortium of companies.  

What Are NFTs?  

NFTs (Non-Fungible Tokens) are unique digital tokens representing ownership of a specific asset or content, such as artwork, music, or virtual real estate. Unlike regular cryptocurrencies, NFTs are non-fungible and possess unique characteristics.  

How to Buy Cryptocurrency  

There are several ways to acquire cryptocurrency, and the optimal choice depends on your goals, experience, and preferences.  

●       Crypto Trading Platforms or Crypto Exchanges  

Crypto trading platforms are specialised online platforms where users can buy, sell, and exchange cryptocurrencies. They operate similarly to traditional stock exchanges, allowing users to place buy or sell orders for assets.  

Popular trading platforms, such as Bybit, offer a wide range of cryptocurrencies, including Bitcoin, Ethereum, altcoins, and stablecoins. They also provide various trading tools, such as limit orders, margin trading, and futures.

International platforms like Kraken or Coinbase are well-known, but may not be licensed by local regulators, such as the South African Finacial Sector Conduct Authority (FSCA). Opt for trusted local brokers like BROKSTOCK, which provide user-friendly interfaces to buy and sell crypto CFDs, low fees, and partnerships with major financial institutions like Standard Bank and Binance.

Avoid unlicensed or dubious platforms, as many are fraudulent. Conduct thorough research and verify any financial services provider with the FSCA before transferring money. Test the broker’s customer service by calling or emailing.

However, before using a trading platform, consider the following:  

- Fees: Each platform charges fees for transactions, deposits, and withdrawals. These may vary depending on trading volume and withdrawal methods.  

- Regulation and Security: Reliable platforms use two-factor authentication and modern systems to protect against cyberattacks.  

- Verification Process: Many platforms require identity verification (KYC - Know Your Customer) to increase deposit and withdrawal limits and prevent fraud.  

- Deposit Methods: Typically, bank transfers, credit/debit cards, and deposits via other cryptocurrencies are available.  

●       P2P Platforms  

P2P (peer-to-peer) platforms allow users to exchange cryptocurrency directly without intermediaries. Platforms like HTX enable users to choose sellers and buyers based on their ratings and transaction terms.  

Advantages of P2P platforms:  

- Wide range of deposit and withdrawal methods (bank transfers, e-wallets, cash payments, etc.).  

- Ability to negotiate the most favourable rates directly with other users.  

- Minimal or no fees.  

Risks:  

- Potential for fraud – always check seller ratings and read reviews.  

- Delays in payment confirmation from buyers or sellers.  

- Possible bank account freezes due to suspicious transactions.  

●       Crypto ATMs  

Crypto ATMs are physical devices resembling traditional ATMs, allowing users to buy cryptocurrency with cash or bank cards. They are convenient for beginners as they require no registration or verification.  

How crypto ATMs work:  

- Select the cryptocurrency you want to purchase (e.g., Bitcoin or Ethereum).  

- Insert cash or pay with a bank card.  

- Provide your crypto wallet address to receive the funds.  

- Confirm the transaction and wait for completion.  

Disadvantages of crypto ATMs:  

- High fees (up to 10% - 15% of the purchase amount).  

- Limited selection of cryptocurrencies.  

- Limited availability.  

●       Crypto Exchange Offices

Crypto exchange offices are offline services that allow users to exchange fiat money for cryptocurrency quickly and vice versa. Unlike crypto trading platforms, exchanges operate at fixed rates and often do not require any registration or verification. However, they operate in a “grey zone” and do not comply with legislation.

Advantages of crypto exchanges:  

- Simplicity and ease of use.  

- Fast transactions without complex procedures.  

- Suitable for cryptocurrency beginners.  

Disadvantages:  

- Exchange rates and fees may be higher compared to trading platforms.  

- Limited selection of cryptocurrencies.

- Risk of encountering unreliable service providers – always check reviews and ratings. 

- Participation in illegal operations at your own risk.  

Before purchasing, research the platform, compare exchange rates, fees, and payment methods, and take precautions to protect your assets.  

Where to Store Cryptocurrency?  

Secure cryptocurrency storage is crucial, as unlike bank accounts, losing access to your crypto wallet means irreversible loss of funds. There are various storage methods, each with its advantages and disadvantages.  

●       Online Wallets  

Online wallets (hot wallets) are software wallets accessible via web browsers or mobile apps. They are convenient for frequent use and quick transactions. Many are integrated with trading platforms, simplifying trading and exchanges.  

Advantages:  

- Easy access from any device.  

- Support for multiple cryptocurrencies.  

- Ability to exchange, purchase, and stake coins directly within the app.  

Disadvantages:  

- Higher risk of hacking, as wallets are constantly connected to the internet.  

- Technical errors in the service could lead to loss of funds.  

- Requires strong cybersecurity measures: secure passwords, 2FA, and backups.  

●       Hardware Crypto Wallets  

Hardware crypto wallets are physical devices designed to securely store cryptocurrency offline. They provide an extra layer of protection by keeping private keys isolated from internet-connected devices, making them highly resistant to hacking attempts. These wallets are ideal for long-term storage of digital assets, offering a balance between security and accessibility. Users can connect hardware wallets to computers or mobile devices when they need to sign transactions, ensuring their keys remain safe from online threats. Popular examples include Ledger and Trezor.  

Advantages:

- Maximum Security: Private keys are stored offline, protecting them from hackers, malware, and phishing attacks.  

- Protection Against Cyber Threats: Immune to viruses and unauthorised access when not connected to the internet.  

- Recovery Options: Funds can be recovered using a seed phrase if the device is lost or damaged.  

- Support for Multiple Cryptocurrencies: Most hardware wallets support a wide range of digital assets.  

- User Control: Users have full control over their private keys, unlike custodial wallets.  

Disadvantages:

- Cost: Hardware wallets typically range from $50 to $200 or more, making them less accessible for some users.  

- Inconvenience for Frequent Transactions: Less suitable for active trading due to the need to connect the device for each transaction.  

- Risk of Physical Loss or Damage: If the device is lost or damaged without a backup, access to funds may be lost.  

- Learning Curve: Requires some technical knowledge to set up and use effectively.  

- Dependence on Manufacturer: Users must trust the manufacturer’s security practices and firmware updates.  

Hardware wallets are widely regarded as one of the safest options for storing cryptocurrency, particularly for long-term holders who prioritise security over convenience.

●       Paper Wallets  

A paper wallet is a physical document (usually printed) containing private and public keys. It is considered one of the most secure storage methods if kept in a safe location.  

How to create a paper wallet:  

- Use a wallet generator.  

- Print the private key on paper.  

- Store it securely, such as in a safe.  

Advantages:  

- Fully offline storage, eliminating the risk of cyberattacks.  

- No reliance on the internet.  

Disadvantages:  

- Losing the paper means losing access to funds.  

- Paper can degrade or fade over time.  

- Inconvenient for regular transactions.  

The choice of storage method depends on your needs. If you actively trade and conduct transactions, online wallets are more convenient. For long-term storage, hardware or paper wallets are better. Regardless of your choice, always keep backup copies of your keys and follow security precautions.  

Where Can You Spend Cryptocurrency?  

In South Africa, the use of cryptocurrency is limited – according to legislation, it can only be stored and exchanged, but using it to pay for goods and services is prohibited. However, in several other countries, cryptocurrency is accepted as a means of payment.  

Countries Where Cryptocurrency Payments Are Accepted  

- United States: Many companies, including Microsoft, Tesla, and some restaurant chains, accept Bitcoin and other cryptocurrencies.  

- Canada: Several shops and restaurants accept cryptocurrency and crypto ATMs are available.  

- Japan: Cryptocurrency is recognised as a legal payment method, and many shops accept Bitcoin.  

- Germany: Some online retailers and services accept cryptocurrency.  

- El Salvador: The first country to adopt Bitcoin as an official currency.  

 Where Can You Pay with Cryptocurrency?  

- Online shops: For example, Overstock, Newegg, and Shopify.  

- Restaurants and cafés: In major cities worldwide, some establishments accept cryptocurrency.  

- Travel and hotels: Some airlines, hotels, and travel services allow payments in Bitcoin and other cryptocurrencies.  

- Gaming platforms: Steam (previously), Xbox, and several blockchain games.  

Before paying with cryptocurrency, ensure the seller accepts it and consider potential fees and exchange rate differences.  

Legality of Cryptocurrency  

The legal status of cryptocurrency varies by country. In some nations, it is fully legalised and regulated, while in others, it is banned or restricted. It is essential to familiarise yourself with the laws of the country where you plan to conduct transactions before using or investing in cryptocurrency.  

Cryptocurrency Scams  

The cryptocurrency space attracts not only investors but also scammers. Due to its anonymity and decentralisation, numerous types of fraud exist, potentially leading to significant financial losses. Below are some common scams and how to avoid them.  

Common Scams  

- Phishing: Fraudsters create fake websites mimicking legitimate platforms to steal login details and private keys.  

- How to avoid it: Verify website URLs, use two-factor authentication, and avoid suspicious links.  

- Ponzi Schemes: Fraudulent projects promise high returns with minimal investment, paying old investors with new investors' funds until the scheme collapses.  

- How to avoid them: Be sceptical of guaranteed high returns, research projects thoroughly, and avoid schemes without a clear business model.  

- Scam ICOs: Some startups conduct token offerings without a real product or business plan, collecting funds before disappearing.  

- How to avoid them: Research the team, read whitepapers, and check if the project is registered in official databases.  

- Social Engineering: Scammers impersonate well-known figures or offer fake investment opportunities or giveaways.  

- How to avoid it: Never send cryptocurrency to strangers, verify official sources, and be wary of offers that seem too good to be true.  

To protect yourself from scams:  

- Use reputable platforms to buy, store, and exchange cryptocurrency.  

- Never share private keys, passwords, or seed phrases, even with official representatives.  

- Prioritise cybersecurity: use strong passwords, enable two-factor authentication, and keep software updated.  

- Research projects before investing, reviewing their documentation and development teams.  

- Stay vigilant and avoid falling for pressure tactics or promises of unrealistic profits.  

Disclaimer:

Investing in cryptocurrencies involves substantial risks including high volatility, lack of regulation, security threats, technological vulnerabilities, market manipulation, liquidity concerns, legal uncertainty, absence of guarantees, limited recourse, and unpredictable future developments. Investors must conduct thorough research and seek professional advice before engaging in cryptocurrency transactions. These instruments are available exclusively as CFDs (Contracts for Difference). BROKSTOCK SA (Pty) Ltd. Trading as BROKSTOCK. An authorised Financial Services Provider - FSP 51404, T&Cs and Disclaimers are applicable: https://brokstock.co.za/