A beginner’s guide to crypto trading

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Cryptoassets have become a familiar topic in recent years, often discussed in the news and among investors. 

In partnership with Coinbase

While the technology can seem complex, the basics are easier to grasp than many expect. 

This guide introduces what cryptoassets are, how they work and why people invest in them, focusing on the three largest: Bitcoin, Ethereum and Tether.

What are cryptoassets?

A cryptoasset is a form of digital asset that exists online. Unlike pounds or dollars, it is not issued by a central bank. 

Instead, it is managed through a decentralised network of computers. Transactions are recorded on a blockchain, which is a shared public ledger. 

The idea is to allow people to transfer value directly without needing a bank or payment company as an intermediary.

How do they work?

At the heart of most cryptoassets is blockchain technology. When someone sends a payment, the transaction is verified by computers around the world using cryptography. 

Once confirmed, it is added to the chain of records that cannot easily be altered. This system aims to provide transparency and security.

Different assets use variations of this technology. Bitcoin, created in 2009, was the first and is still the most widely recognised. 

Ethereum introduced smart contracts, which are self-executing agreements coded on the blockchain. 

Tether, by contrast, is known as a stablecoin, designed to maintain a steady value by being linked to the US dollar.

The three biggest cryptoassets

1. Bitcoin (BTC)

Bitcoin remains the largest cryptoasset by market value. Supply is capped at 21 million coins, which has helped shape its reputation as a scarce asset. Its price, however, is known to be volatile.

2. Ethereum (ETH)

Ethereum is the second biggest cryptoasset. It goes beyond payments by allowing developers to build applications on its blockchain. 

These include decentralised finance services and digital collectibles known as NFTs. Since September 2022, Ethereum uses a proof-of-stake system, which is significantly more energy-efficient than the proof-of-work system used by Bitcoin.

3. Tether (USDT)

Tether is the largest “stablecoin” and the third biggest cryptoasset overall. Unlike Bitcoin or Ethereum, it is designed such that its value is meant to stay close to one US dollar. 

This stability (while not guaranteed) makes it popular for investors who want to move money quickly in and out of markets without returning to traditional currencies.  

However, stablecoins carry risks. Their value depends on the issuer’s reserves and management, and there is no absolute guarantee that they will always maintain their peg. Investors should also be aware of regulatory and operational risks associated with stablecoins.

Why do people trade?

There are several reasons why people choose to trade cryptoassets. Some are attracted by the potential for high returns, especially given the price surges seen in Bitcoin and Ethereum in the past. 

Others are interested in the technology and the possibilities it opens up for finance and beyond. Stablecoins such as Tether appeal to those who want to hold digital value without the same level of volatility.

At the same time, trading in crypto carries significant risks. Prices can change quickly, and the market is not as heavily regulated as traditional finance. For beginners, it is important to research carefully and consider the risks before investing.

This article was produced in partnership with Coinbase.

Information is provided for informational purposes only and is not investment advice. This is not a recommendation to buy or sell a particular digital asset or to employ a particular investment strategy.