Key takeaways
- Ten terms are enough to understand the main things that happen when you buy, hold and send crypto.
- The crypto itself is recorded on a blockchain. Your wallet holds the keys, and whoever has the private key or the seed phrase controls the crypto.
- You can give your wallet address to anyone, but never your seed phrase.
- Trading costs include the spread and network fees, and the prices of most cryptocurrencies swing a lot.
Contents
Ten terms are enough to understand the main things that happen when you buy, hold and send crypto. They are cryptocurrency, blockchain, crypto wallet, wallet address, private key and seed phrase, custodian and self-custody, network fee, spread, stablecoin and volatility.
Here they are in plain English, in the order that makes them easiest to learn. Each one links to the glossary and to an article that goes into more depth.
1. Cryptocurrency
A CryptocurrencyCryptocurrencyA digital currency secured by cryptography and recorded on a shared ledger, with no bank or government issuing or controlling it. is a digital currency or asset that is recorded on a blockchain rather than in a bank's books. No single party keeps track of the transactions; thousands of computers do it together. Bitcoin is the first and best-known cryptocurrency, but there are now thousands of them.
The krónur in your online bank are also just numbers in a computer, but there the bank keeps the books. With crypto, the ledger is shared and open to everyone. In laws and regulations such as MiCA, cryptocurrencies are called crypto-assets. Read more about cryptocurrency.
2. Blockchain
A BlockchainBlockchainA public ledger where transactions are grouped into blocks, each linked to the one before, so past records can't be altered without it showing. is a shared ledger that records every transaction in a cryptocurrency. Transactions are grouped into blocksBlockA batch of transactions added to a blockchain in one go, together with a reference to the block before it., and each new block is linked to the one before it, forming a chain. On the Bitcoin network, a new block is added roughly every ten minutes on average.
Copies of the chain are kept on thousands of computers, called nodesNodeA computer that runs a crypto network's software, keeps a copy of the blockchain and checks that new transactions and blocks follow the rules.. Picture an account book kept by thousands of people at once. If one of them tries to change an old entry, their book no longer matches everyone else's, and the others reject the change. Read more about blockchains.
3. Crypto wallet
A crypto walletCrypto walletAn app or device that holds the keys to your crypto and lets you receive, store and send it. is an app or device that holds the keys to your crypto. The name is a little misleading, because the crypto itself is never in the wallet. It is recorded on the blockchain, and the wallet holds what you need to use it.
So a wallet is more like a key ring than a purse. It shows your balance, creates wallet addresses and signs transactions when you send. A wallet on a phone or computer is called a hot wallet, while a cold wallet keeps the keys on a device that isn't connected to the internet. Read more about crypto wallets.
4. Wallet address
A wallet addressWallet addressA string of letters and numbers you give out to receive crypto, much like a bank account number. is a long string of letters and numbers that other people use to send you crypto. It does a similar job to your bank account number. You can give it to anyone, because the address alone isn't enough for anyone to take your crypto.
Two things are worth knowing. Transactions on a blockchain can't be reversed, so one wrong character in the address can cost you everything you sent. And each address belongs to a particular blockchain networkBlockchain networkThe blockchain a cryptocurrency or token is recorded and sent on, such as the Bitcoin network or the Ethereum network., so coins sent on the wrong network can be lost. Read how to send crypto to another wallet.
5. Private key and seed phrase
A private keyPrivate keyA secret number that proves you own the crypto in your wallet. Whoever holds the private key controls the crypto. is a secret number that proves you own the crypto at a particular wallet address. Whoever holds the private key controls the crypto, whoever they are.
Most wallets never show you the key itself. Instead you get a seed phraseSeed phraseA list of 12 or 24 words that backs up every key in your wallet, so whoever has the words can restore the wallet and take the crypto., 12 or 24 ordinary words, usually in English, from which all the wallet's keys are derived. With those words you can restore the wallet on a new device if your phone is lost.
A seed phrase is like a master key that opens every door in the house. Never share it with anyone. No legitimate service, whether a bank or a crypto exchange, will ever ask for it. Read more about private keys and seed phrases.
6. Custodian and self-custody
Someone has to look after the private keys. A CustodianCustodianA company that holds crypto and the keys to it on behalf of customers, such as a licensed crypto exchange. is a company that holds them for you, such as a crypto exchange. With Self-custodySelf-custodyHolding the private keys to your crypto in your own wallet, so nobody else controls it but all the responsibility for the keys is yours., you keep the keys in your own wallet and nobody else can reach them.
A custodian is like a bank. It can help if you forget your password, but you have to trust it. Self-custody is like a safe at home. Nobody can freeze what is inside, but if you lose the key, nobody can open it.
When you buy crypto from an exchange, it is usually held in the exchange's custody until you send it to your own wallet. In the EEA, custodians need a licence under MiCA. Read more about custody.
7. Network fee
A network feeNetwork feeA fee paid to a crypto network, not to a bank or company, for including your transaction in a block. is what you pay to get a transaction recorded on the blockchain. It goes to the network, not to the company you are dealing with. On the Bitcoin network, miners receive the fees. On Ethereum the fee is called GasGasThe unit that measures the computing work a transaction or smart contract needs on Ethereum, which sets how high the network fee is., and part of it, the base fee, is removed from circulation.
Think of it as postage on a letter. The fee usually depends on how busy the network is rather than on the amount you send, so sending a little costs about the same as sending a lot. When many people want to send at once, fees rise, and when things are quiet, they fall.
8. Spread
The SpreadSpreadThe difference between the buying and selling price of the same asset at the same time, often used to charge for crypto trades. is the difference between the buying price and the selling price. You buy slightly above the market price and sell slightly below it. The difference is part of what the trade costs you.
You know this from your bank's exchange rates. The bank sells you dollars at its selling rate and buys them back at its buying rate, which is always a little lower. The spread is often built into the price, so it doesn't appear as a separate line on your receipt.
When comparing services, what matters is how much crypto you get for the same amount, all fees included. Myntkaup's fees are on the fees page. Read more about the cost of buying crypto.
9. Stablecoin
A StablecoinStablecoinA cryptocurrency designed to keep a steady price, usually by tracking the US dollar or another currency. is a cryptocurrency designed to keep a stable price, usually one US dollar. The issuer typically holds cash and government bonds against every coin in circulation and promises to redeem it.
A stablecoin is therefore a kind of digital dollar note issued by a company. Trust in it rests on its issuer and the assets behind it. At Myntkaup, USDCUSDCA stablecoin issued by the US company Circle that tracks the US dollar, so one USDC should always be worth about one dollar. is the base currency of every account: the krónur you deposit become USDC, and you buy crypto with USDC.
Keep in mind that stability in dollars is not stability in krónur. If the dollar weakens against the króna, the coin's value in krónur falls too. Read more about stablecoins.
10. Volatility
VolatilityVolatilityHow much and how quickly the price of an asset moves up and down. describes how much and how fast a price moves. The prices of most cryptocurrencies swing far more than shares or currencies. Between November 2021 and November 2022, the price of bitcoin fell by more than 75%, and at other times it has risen just as fast.
The crypto market is a bit like Icelandic weather. It can change a lot in a short time, and forecasts don't get you far. The market is open around the clock, it is smaller than traditional markets, and news moves it quickly. Some people therefore spread their purchases over a longer period, which is called dollar-cost averagingDollar-cost averaging (DCA)Buying the same amount at regular intervals, for example monthly, instead of investing everything at once.. Read why crypto prices are so volatile.
Closing thoughts
These ten terms are the foundation. With them, you understand where your crypto is recorded, who controls it, what trading costs and why the price moves.
When you come across a new word, such as market capitalisationMarket capitalisationThe total value of all units of a coin in circulation, calculated as the price of one unit times the number of units. or StakingStakingLocking up crypto on a proof-of-stake network to help confirm transactions, in return for rewards paid in the same crypto., you will find it in the glossary. Each term there has its own page in plain English. Before you buy, it is also worth reading up on the risks.
