Unless you’ve been living under a rock for the past several years, you no doubt have heard of bitcoin and other cryptocurrencies. But if you’re a newcomer to the world of crypto, trying to wrap your head around how cryptocurrency works can be pretty overwhelming.
To help you understand how crypto works, how to invest in crypto and whether you should invest in crypto, we’ve put together this simple guide to cryptocurrency for beginners.
Keep reading for a jargon-free rundown of all things digital currency.
Cryptocurrency—or crypto for short—is digital currency. It’s completely online, so it doesn’t exist in the form of physical coins and paper notes, and it’s not controlled by a bank, government or any other type of central authority.
You can use cryptocurrency as a form of payment, just like you would regular money, or you can trade it online and try to make a profit in the same way you would when trading stocks.
Cryptocurrency is available as virtual coins or tokens that can be used for peer-to-peer transactions.
It gets its name from the cryptographic techniques used to secure digital currency transactions. Cryptography uses codes to encrypt information so that only the sender and receiver of a message can understand it.
Cryptocurrency also relies on distributed ledger technology in the form of blockchain. A blockchain is a ledger that keeps a record of all transactions in a network, but it’s not controlled by any central authority.
Instead, a blockchain is distributed across all participants in a network. It can be viewed by anyone and can’t be tampered with.
In Canada, you can buy, sell and trade cryptocurrencies on a cryptocurrency exchange. If you’ve ever bought or sold stocks through an online trading platform, you’ll find the user interface of a crypto exchange to be quite familiar.
Some exchanges allow you to buy bitcoin and other cryptos directly with Canadian dollars, Interac e-Transfer, debit card and credit card, among the common payment methods. Other exchanges only support crypto-to-crypto transactions.
Once you buy cryptocurrency, you’ll need to store it in a dedicated crypto wallet. You can store your crypto in a wallet that’s connected to the internet (also known as a hot wallet) for maximum convenience, or you can hold it offline in a hardware wallet (also known as a cold wallet) for maximum security.
To buy and sell cryptocurrencies, you need to have an account with a crypto exchange platform. The ones listed below are all vetted, legitimate trading platforms where you can easily sign up online to start trading crypto:
To make comparing even easier we came up with the Finder Score. Supported coins, account fees and features across 28 cryptocurrency trading platforms are all weighted and scaled to produce a score out of 10. The higher the score, the better the exchange—simple.
As of February 2025, the 10 largest cryptocurrencies by market capitalization are:
If you understand and accept the risks of investing in cryptocurrency, here’s how to get started.
Crypto enthusiasts will tell you that cryptocurrency will form the basis of a new financial system, providing fast and secure peer-to-peer transactions without the need to rely on central banks.
Others are much more skeptical—like investment guru Warren Buffett, who famously referred to bitcoin as “probably rat poison squared.”
To give you a better idea of the pros and cons of cryptocurrency, let’s explore the potential benefits of investing in crypto, then take a look at the traps and risks to watch out for.
With high risk sometimes comes high reward, so investing in crypto provides the potential for big capital gains. The price of bitcoin soared past US$100,000 in 2024, and you only need to look at the historical price charts of some of the world’s biggest coins and tokens to see how much they’ve increased in value over the years.
The fact that you can buy fractions of coins or tokens means you can start investing in crypto with as little as $10. It’s quick and easy to open a trading account with a reputable crypto exchange, and many make it easy to buy digital currency with Canadian dollars and pay by bank transfer, e-Transfer, debit card or credit card.
If most of your money is tied up in traditional investments like stocks, bonds and savings accounts, investing in crypto assets allows you to diversify your portfolio. Diversification is a key strategy to help protect you against market downturns.
Similar to how you might deposit your spare cash into a savings account to earn interest, you can put your crypto holdings to work to provide a source of passive income through what is known as staking. Staking is when you lock your cryptocurrency in a smart contract to help validate blockchain transactions. In return for your contribution, you earn staking rewards. Learn more in our guide to staking.
Cryptocurrencies are well known for their volatility, so it’s possible for the value of your crypto holdings to fall substantially in a short period of time. If you want to invest in crypto, do so with the knowledge that crypto assets are very high risk.
Cryptocurrency exchanges and wallets are at risk of online attacks. In February 2025, crypto exchange Bybit made global headlines when hackers stole around US$1.5 billion worth of assets from the platform.
From fake exchanges and wallets to phishing, Ponzi schemes and malware, the crypto world is rife with scams. You’ll need to do your own research and use your common sense to avoid falling victim to a scam.
Understanding how cryptocurrency works for beginners is quite complex. The old adage that you should never invest in something you don’t understand is worth remembering.
If you put money in a bank account in Canada, most financial institutions offer the security of Canada Deposit Insurance Corporation (CDIC) insurance protection. If you trade stocks, the Canadian Investor Protection Fund (CIPF) provides coverage.
But if you trade cryptocurrency, no such protection exists. The crypto regulatory framework is still being developed, so there’s much less security for investing in cryptocurrency compared to other financial assets.
Any earnings you make trading cryptocurrency are taxable. You’ll need to declare them to the CRA on your personal income tax return and keep detailed records of your trading transactions. Learn more in our Canada crypto tax guide.
Prevent yourself from becoming a victim of fraud or hacking by following these five simple security tips:
Here are some popular strategies worth checking out if you’re interested in cryptocurrency investing for beginners.
This is the simplest approach to crypto investing. The basic approach is to buy a cryptocurrency and hold it for the long-term (or HODL, as it’s referred to in the crypto world). Then, once it has increased in value at a later date, you can sell the crypto at a profit.
Similar to how stock traders like to invest in a wide range of companies and sectors, you might like to invest in a wide range of cryptocurrencies. From peer-to-peer payments to online gaming, file storage, supply chain management and a host of other industries, cryptocurrencies cover a diverse range of sectors. You can also diversify your portfolio by investing in a mix of large-cap and small-cap tokens.
Dollar cost averaging is a strategy that involves making small crypto purchases on a recurring basis. It’s an alternative to making one large purchase and trying to time the market, allowing you to build your investment over time and providing protection against volatility.
Once you’re an experienced crypto investor, you might want to investigate more advanced strategies like day trading.
A marketing strategy that sees a blockchain project distribute coins or tokens to wallet addresses to promote awareness and use of their cryptocurrency.
Short for “alternative coins,” this term is used to describe any cryptocurrency that isn’t bitcoin.
Acronym for “Anti-Money Laundering.” To comply with AML regulations in Canada, cryptocurrency exchanges must verify the identities of users and report large or suspicious transactions to FINTRAC.
The world’s first cryptocurrency and also the largest in terms of market capitalization. It was invented in 2008 as a peer-to-peer decentralized electronic cash system.
A decentralized and public digital ledger that keeps a record of all transactions in a particular cryptocurrency.
Also referred to as cold storage or a paper wallet, a cold wallet is a cryptocurrency wallet that is not connected to the internet. This means that its private keys are stored offline, providing protection against hacking.
An online platform where you can buy and sell cryptocurrency.
A network that is not controlled by a single central entity.
The world’s second largest cryptocurrency in terms of market capitalization. It’s also a decentralized blockchain platform where developers can run smart contracts and applications.
A cryptocurrency wallet that is connected to the internet with private keys stored online. Hot wallets allow for faster transactions and are more convenient to use, but they don’t provide the same level of security as a cold wallet.
Acronym for “Know Your Customer.” Cryptocurrency exchanges must verify the identities of their customers to comply with anti-money laundering regulations.
Short for market capitalization, market cap refers to the total value of a cryptocurrency. It is calculated by multiplying the total number of coins in supply by the cryptocurrency’s current price.
A cryptocurrency inspired by an internet meme, joke, viral trend or pop culture moment.
Acronym for “non-fungible token.” NFTs are blockchain tokens that represent ownership of assets like art, music and other one-of-a-kind collectible items.
A cryptocurrency that has its value pegged to a fiat currency or commodity to help keep its price relatively stable. For example, Tether (USDT) is a popular stablecoin that has its value pegged to the US dollar at a 1:1 ratio.
Cryptocurrency can be complex and confusing, but it doesn’t have to be scary or intimidating. With a little bit of research and a willingness to learn, it’s easy to increase your crypto knowledge and start investing in digital currencies. Just make sure you’re fully aware of the risks involved before parting with any of your hard-earned money.
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