A user’s guide to all you need to know about cryptocurrency

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Is what was once seen as a financial Wild West now mainstream? After all, one in eight of us in Britain own some cryptocurrency, according to YouGov and the Financial Conduct Authority. But should you invest? For every triumph there’s a failure, so if you don’t know your dogecoin from your ethereum, or your bitcoin from your blockchain, here’s a foolproof guide to swotting up.
Crypto is a virtual currency that uses cryptography — a type of digital security — to reduce the number of counterfeit coins being produced. It’s a traded commodity, records of which are stored on the blockchain, which is a distributed ledger of every trade that occurs. The value of all cryptocurrencies traded worldwide is at present more than $3 trillion — or more than twice as much as the entire UK government’s total annual spend. And, for the record, there are lots of cryptocurrencies: one market tracker monitors 2.4 million separate currencies.
The one you’ve likely heard of is the very first: bitcoin, created in 2009 by the mysterious Satoshi Nakamoto. Bitcoin accounts for about 57 per cent of the total crypto market.
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“The growing narrative of bitcoin as digital gold is becoming impossible to ignore,” says Nigel Green, CEO of deVere Group, a financial advisory organisation. “It’s increasingly viewed as a hedge against inflation and a tool for portfolio diversification.”
But bitcoin is far from the only game in town. Ethereum is the next biggest, while there are a range of so-called “meme coins” that piggyback on internet culture. Two such coins are named after a single shiba inu dog that became a meme in the 2010s: shiba inu has a market capitalisation of $14.5 billion (really), but its popularity has been eclipsed by dogecoin, beloved by Elon Musk, which has a collective value of $57 billion.
Despite the perception that crypto trading is a pastime of reclusive teenage boys in their bedrooms, the practice is encroaching on the mainstream. Nearly all of us (93 per cent) are aware of its existence and the 12 per cent of Brits who own some crypto have an average of £1,842.
At one time you had to set up a wallet in which to hold your coins and manually trade with others. Doing so required sending commands via your computer to the wallets, which were identified using a complicated series of letters and numbers. The likelihood of mistyping any individual digit was high. Now there are slick apps that are similar to stock trading ones. Some challenger banks such as Revolut even allow people to trade crypto within their app. You just go to the dedicated crypto section of the app, read and accept the risk warnings it shows you and then you can buy and sell bitcoin just as you would shares in a company.
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“Bitcoin’s rise is not without volatility,” Green admits. “However, for long-term investors the trajectory is unmistakable.” If you forked out £310 or so to buy one bitcoin in May 2016 and held on to it until today, you’d be feeling pretty smug at its 23,720 per cent return. That one bitcoin would now be worth about £74,000.
However, the value of your investment can go down as well as up. Importantly, you’re not covered if everything goes pear-shaped and you get scammed (and many do). That can involve “rug pulls”, where people tout their chosen coin, take your money and run; heists from crypto exchanges, which occur when the companies controlling them are hacked; or such exchanges simply shutting down, as happened to Sam Bankman-Fried’s FTX. The losses can be astronomical: users of the Mt Gox crypto had coins stolen that would now be worth £63 billion.
A third of Brits believe they’d be able to raise a complaint with the FCA if they were hoodwinked but they’re wrong — so buyer beware.
When it comes to bitcoin, the days of making astronomical returns are long gone. And getting in on the ground floor of smaller coins is often … well, a coin toss. Half of all cryptocurrencies have failed, providing no returns to investors. “If it sounds too good to be true, it probably is,” cautions Brett Hillis, a partner at the law firm Reed Smith. He advises steering clear of meme coins that aren’t founded for a reason. “Such coins may be fashionable or desired one day but old news the next.”
You’d probably have a better chance of success than the Welshman James Howells, who believes that £500 million of crypto he owns is stuck on a binned hard drive that’s somewhere in a landfill site. But that doesn’t mean you can’t still get in on the game provided you’re willing to lose whatever you invest. Buy some if you want — just don’t bet the house on it.