Cryptocurrency explained: coins, tokens, stablecoins and exchanges

"Crypto" covers thousands of very different things. Knowing which kind you're looking at is the first step to understanding its risks.

Coins

A coin is the native currency of its own blockchain, such as bitcoin (BTC) on Bitcoin or ether (ETH) on Ethereum. Coins usually pay transaction fees on their network and reward the miners or validators who secure it.

Tokens

A token is built on top of an existing blockchain using a smart contract. Anyone can create one in minutes, which is why there are so many, and why many are worthless or scams. A token's value depends entirely on the project behind it and on whether people want to hold it.

Stablecoins

Stablecoins aim to keep a steady price, usually one US dollar. Most are backed by cash and short-term government bonds held by a company, so you're trusting that company's reserves and honesty. Some have lost their peg in the past. Commodity-linked stablecoins track an asset like gold, or, in the plan for Real BitOil, a barrel of oil.

How prices are set

Crypto prices are set by supply and demand on exchanges, 24 hours a day, every day. Nothing guarantees a price floor. News, regulation, interest rates, hype and large holders selling can all move prices sharply.

Exchanges

• Centralised exchanges are companies that match buyers and sellers and usually hold your crypto for you. Choose ones registered with your regulator.
• Decentralised exchanges (DEXs) are smart contracts you trade with directly from your own wallet. There's no company to call if something goes wrong.

Fees to expect

• Trading fees or a spread between the buy and sell price
• Network fees ("gas") to move crypto on the blockchain
• Withdrawal fees on some exchanges

Fees add up, especially on small, frequent trades.

Market cap isn't the price

Market capitalisation is the price multiplied by the number of coins. A coin priced at a fraction of a cent isn't "cheap" if billions of them exist. Compare market caps rather than prices.