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Dear subscribers,

Most people start their web3 journey by buying cryptocurrencies. In this guide, we’ll explain like I’m five:

What is a cryptocurrency?
Why should I own crypto?
Which crypto should I get?
Where can I buy crypto?
How can I buy crypto?
Bonus: How can I earn interest on my crypto?

What is a cryptocurrency?

Cryptocurrency is digital money that’s stored on a blockchain.

You can send and receive crypto...

...without middlemen such as banks extracting fees
...without revealing your personal information
...at any time to anyone in the world in minutes
...in fractional shares (e.g., you can send 0.00000001 bitcoin)

However, you do need to...

…pay network fees (e.g., Ether gas) which can be as high as bank fees
…deal with large price fluctuations
…be wary of scams and phishing attempts

That’s why it’s important to get educated.

Why should I own crypto?

You probably have your hard-earned savings in the stock market, real estate, or a bank account. Short term, owning crypto is like being on a rollercoaster. Just look at the price of Bitcoin, the most popular cryptocurrency:

Bitcoin historical corrections from all time highs — Source: Coinmarketcap

Long term, however, there are several arguments for owning crypto:

1. Crypto is a good investment long term

Let’s look at three popular cryptocurrencies - Bitcoin, Ethereum, and USDC.

Bitcoin is the best performing asset of the past decade:

It’s also the 5th largest “company” in the world with a market cap of $1.2 trillion:

Ethereum is the 2nd most popular cryptocurrency and has grown even faster than Bitcoin in the last five years:

USDC is a stablecoin that's pegged to the US dollar (e.g., 1 USDC = $1). If you put your USDC in a crypto interest account, you can earn 10%+ APY. Due to its stable price and high yield, USDC is an attractive investment for institutional investors looking for less risk.

That's not to say that stablecoins don't have any risk at all. We'll cover them more in the last section of this guide.

2. Crypto is a hedge against the traditional financial system

The traditional financial system has several drawbacks:

Inflation is a real risk. For example, US inflation is at 6% as of November 2021. If you have your money in a bank savings account earning 0.5% APY, then you're losing 5.5% every year. Bitcoin is a particularly good hedge against inflation because it's capped at 21M coins vs. governments that can always print more fiat currency.
Banks might not have your best interests in mind. Banks extract high fees, don’t work on the weekends, and could compromise your personal information (e.g., JP Morgan).
Banks aren’t available to everyone. 1.7 billion people don’t have a bank account (World Bank). 2/3rds of these people have a phone and might own crypto as their first financial asset.
Source: World Bank

Nobody knows what cryptocurrency prices will be like in the future. However, if cryptocurrencies continue to appreciate in value, they could stunt the growth of more traditional assets (e.g., gold, real estate) long-term.

That’s why it’s a good hedge to own some crypto long-term. Read more about why you should own Bitcoin as insurance.

3. Crypto is needed to get things done

You can use crypto to:

Send money to anyone in the world with minimal fees.
Buy a growing list of goods and services.
Build and use decentralized apps that let people support creators, participate in communities, play games, and more.

Crypto is quickly becoming a utility in addition to an investment. At some point, you might need to hold some crypto just to participate in the economy.

What cryptocurrency should I buy?

The global cryptocurrency market is $2.7T (November 2021). The top currencies are:

Bitcoin | BTC (41% market share) launched in 2009 to be a “peer-to-peer electronic cash system” (whitepaper). Today, many people use Bitcoin as a store of value.
Ethereum | ETH (19%) launched in 2013 to let anyone “write smart contracts and decentralized apps (dapps)” (whitepaper). Eth has the largest dev ecosystem in crypto.
Binance | BNB (3%) launched in 2017 and moved to its own blockchain in 2020. You can use BNB to pay for fees on Binance, the world’s largest exchange.
Tether | USDT (2%) is a stablecoin that’s pegged to the US dollar but also faces some controversy. Other popular stablecoins include USDC (backed by fiat currency held in reserve) and DAI (backed by other crypto collateral like eth).
Solana | SOL (2%) launched in 2017 to be a “high-performance blockchain” (whitepaper). Solana currently offers higher transaction speeds and lower fees than Ethereum but is less decentralized.

We’re not here to give investment advice, but here are a few tips when choosing a cryptocurrency to buy:

Only invest what you can afford to hold onto long-term (e.g., several years).
Most people start by investing in Bitcoin or Ethereum.
Remember, you can buy fractional shares (e.g., 0.01 Bitcoin).
Consider using dollar cost average or limit buys to account for price fluctuations.
Be careful FOMOing into a new coin. It could go down just as fast as it goes up.

The last point bears repeating. We do not recommend FOMOing into the latest hot token. An example is SQUID token, which lost 99% of its value overnight ($2,861 to $0.0007) as its creators scammed investors out of $2.5M.

Where can I buy cryptocurrency?

Most people buy cryptocurrency through an exchange. When selecting one, consider:

Security: Look for two-factor login, offline asset storage, and insurance for your assets.
Liquidity: Look for high trading volumes, which let you complete transactions faster.
Fees: Look for low transaction, withdrawal, and deposit fees.
User experience: Look for easy-to-use UX both on the web and mobile.
Customer support: Look for a reputation for solid customer support.
Cryptocurrency selection: Look for the cryptocurrencies that you want to hold.
Regional availability: Look for availability in your state or country.

Here are several popular exchanges that meet many of the criteria above:

Binance: The #1 global exchange with low fees, but not accessible in the US.
Coinbase: The #1 US exchange with great security, liquidity, and UX.
Kraken: Offers 50+ cryptocurrencies, great support, and lower fees vs. Coinbase.
Gemini: A popular US-based exchange that offers 10 free withdrawals a month.

The exchanges above are centralized in that you rely on a middleman to handle your wallet and transactions. You can also buy crypto from:

Decentralized exchanges (e.g., Uniswap) that let you swap tokens without middlemen.
Consumer finance and stock brokerage apps (e.g., Cash App, Robinhood) that support both crypto and non-crypto transactions.

If you’re a beginner, we recommend that you start with centralized exchanges. They’re easy to use without having to worry about managing your wallet keys.

How can I buy crypto?

Let’s walk through buying some crypto on Coinbase, the #1 US exchange (link):

Create an account on Coinbase
Select buy on the upper right-hand side.
Select the cryptocurrency that you want to purchase and the amount.
Select your payment method (e.g., bank account).
Confirm your purchase (note that there’s a small transaction fee).

Pretty straightforward, right? Here are a few more tips for buying crypto on an exchange:

Turn on security features: Enable two-factor authentication and whitelist withdrawal addresses. Be wary of phishing attempts from scammers pretending to be the exchange.
Consider the pro version: Exchanges like Coinbase offer a Pro version that looks intimidating to beginners but offer lower transaction fees and advanced trading options like limit buys.
Use dollar-cost averaging: DCA is a strategy where you invest the same amount in set intervals to smooth out crypto price fluctuations. Many exchanges offer a recurring buy feature.
Track your portfolio and taxes across multiple exchanges: Use a platform like CoinTracker to see all your crypto wallets in one place and make your life easier during tax season.

How can I earn interest on my crypto?

Did you know that you can earn passive interest on your crypto at much higher rates than a bank (e.g., 10% APY vs. 0.5% APY)? What’s more - stablecoins such as USDC typically offer the best rates while minimizing price fluctuations.

Popular crypto interest accounts include:

BlockFi: Offers up to 9.5% APY for 10+ cryptocurrencies. Pays monthly (rates).
Nexo: Offers up to 12% APY for 17 cryptocurrencies. Pays daily (rates).
Celsius: Offers up to 17% APY for 14 cryptocurrencies. Pays weekly (rates).
Gemini: Offers up to 8% APY for 20+ cryptocurrencies. Pays daily (rates)

Are these accounts safe?

The platforms above make money by lending out your crypto at even higher rates than they pay you. Here’s the case for using crypto interest accounts:

They offer much better rates than traditional savings accounts. Rates range from 2-10%+ for crypto interest accounts vs. 0.5% for the best bank savings accounts.
They have millions of users and billions of assets under management. These accounts are unlikely to go bankrupt and try to manage risk by only lending out your crypto to trusted borrowers. You can read more about how this works in these deep dives from BlockFi and Celsius.

However, crypto interest accounts are more risky than a traditional savings account:

They are not FDIC insured. Instead, crypto interest accounts try to mitigate risk by asking borrowers to provide collateral for the assets that they’re borrowing.
They have regulatory scrutiny. Coinbase’s crypto interest product was blocked, and US states have issued cease and desist orders for BlockFi’s accounts.
They typically don’t let you withdraw crypto instantly. Instead, it could take a few days or weeks to withdraw your crypto from your account.

How much you want to put in these accounts depends on your risk tolerance.

Another way to earn from your crypto is through staking (e.g., using your crypto to help confirm other blockchain transactions). We’ll cover staking in our upcoming DeFi learning path.

Want to learn more?

We’ve now published a complete “Intro to web3” learning path for curious beginners:

Web3 concepts at 10,000 feet
Cryptocurrencies (this post)
Crypto wallets

If you own some cryptocurrency and have a wallet to hold them, you’re now ready to dive into our learning paths for DeFi, NFTs, and DAOs. Subscribe below and join our community, let’s create these guides together.

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Curious Beginner's Guide to Cryptocurrencies

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