Crypto: What It Is and What Can Go Wrong

Why this matters

This lesson is optional. Crypto is often the first thing people hear about when they start thinking about investing, and it's marketed hard. It's also where some of the most expensive mistakes and scams happen. This lesson puts the risks first. The Crypto and Digital Assets depth track covers how the technology works, how to hold it, and how it's taxed and regulated.

What crypto is

Cryptocurrency is a type of digital currency that generally exists only electronically. Transactions are recorded on a blockchain, a public list of transactions that typically shows amounts and wallet addresses. Crypto is stored in a digital wallet, which can be online, on your computer, or on an external drive.¹ A wallet is controlled by a private key, which works like a digital signature.² Bitcoin is the best known crypto asset, and there are many others.

Most crypto assets aren't backed by a government¹, and most don't produce earnings, dividends, or interest the way businesses and bonds do. The CFTC notes that many digital assets are difficult to value, and that shifts in sentiment, or even a social media comment, can send prices sharply up or down.²

How people own it

• On a crypto trading platform. The platform usually holds the crypto for you.
• In your own wallet. You hold the private key yourself.
• Through an exchange-traded product. Spot bitcoin and ether ETPs trade in an ordinary brokerage account and seek to track the price of bitcoin or ether without you using a crypto platform or wallet. They aren't registered as investment companies, so they don't get all the protections that apply to mutual funds and ETFs, and the SEC still calls bitcoin and ether highly speculative.³