The Rock Cryptocurrency Concepts Explained
Crypto terms get reused loosely, so precision matters. A crypto asset is a broad category, coins and tokens differ, and legal status, custody and finality are separate questions. This page explains the technical vocabulary used across products, from keys and wallets to confirmations, market metrics and central bank digital currency.
Basic concepts
A native coin such as BTC or ETH supplies the unit of account of its own network, whereas a token can be implemented through a smart contract running on an existing network, as Ethereum's token interface standard illustrates. A ticker symbol alone does not identify which network or contract an asset uses, so check the asset's category and backing before acting. Crypto designs vary widely, and features such as Bitcoin's issuance schedule and decentralisation are not universal. A stablecoin aims to hold value relative to another asset, but a peg can fail. Moneysmart's crypto assets guidance explains these distinctions, and using a common token standard does not imply that a token is safe.
Bitcoin as an example system
Bitcoin was described in a 2008 whitepaper and its network launched in 2009, with BTC as its native unit (RBA). For mining, block subsidies and ownership mechanics, see the Bitcoin guide.
Digital form and legal tender
Being digital does not give an asset legal status. Modern fiat currency does not require backing by gold or another commodity, as the RBA's explainer on what money is sets out. Bank deposits are already digital money, yet they differ from native crypto assets. Legal tender refers to a means of discharging debts, and it does not force every shop to accept any particular payment method before a debt exists. Moneysmart notes that crypto, including AUD-denominated stablecoins, is not Australian legal tender.
How crypto works: key terms
These terms describe the mechanisms behind crypto transactions without requiring developer-level detail. A wallet is an interface to accounts, not identical to any single item below (Ethereum).
| Term | Function |
|---|---|
| Hash | A fingerprint derived from data; not encryption |
| Digital signature | Evidence a holder authorised something; does not reveal the key |
| Private key | Secret material used to sign transactions |
| Public key | Supports verification of signatures |
| Address | Public identifier for receiving or spending; format varies by network |
| Recovery phrase | Can derive keys for multiple accounts; keep it secret |
Bitcoin transactions spend unspent outputs and peers validate them independently (Bitcoin developer docs). Recovery phrases can expose several accounts at once, so their theft is a serious risk (Ethereum security).
Blockchain, validation and consensus
Validation and consensus are different ideas. Nodes independently check that transactions and blocks follow the network's rules; consensus concerns which chain or state participants treat as accepted. Bitcoin uses proof-of-work, where miners repeatedly hash block data and expend computational work, and valid-chain selection follows the greatest accumulated proof-of-work rather than a majority vote of nodes (Bitcoin whitepaper). Ethereum instead relies on validators with staked assets for proof-of-stake (Ethereum). Participants need not simultaneously approve every transaction. Proof-of-work chains can be reorganised, and security assumptions and attack types differ across networks. Blockchain security does not prevent key theft, scam authorisation or provider failure.
Transaction status and finality
Different networks describe transaction progress in different ways. The statuses below are network-specific terms rather than one identical sequence that applies everywhere.
| Status | Meaning | Remaining limit |
|---|---|---|
| Pending/broadcast | Seen by peers but not yet included in a block | Inclusion is not assured |
| Included | Recorded in a block | Reorganisation remains possible depending on network and conditions |
| Further confirmations (Bitcoin) | Subsequent blocks deepen the proof-of-work history | Security is probabilistic and rests on assumptions |
| Finalised checkpoint (Ethereum PoS) | Explicit crypto-economic finality | A consensus failure or attack can violate guarantees at a cost |
No fixed number of confirmations or amount of time guarantees a transaction outcome. On Ethereum, checkpoints finalise under supermajority votes and stated assumptions, as the Ethereum proof-of-stake FAQ explains, and inclusion does not always mean successful execution. An exchange order fill or account credit is also distinct from an on-chain transaction, as covered under exchanges.
Wallets, keys and custody
| Arrangement | Who controls signing | Connectivity | Remaining risks |
|---|---|---|---|
| Self-custody software wallet | You hold the keys | Often online (hot) | Malware, phrase theft, mistaken authorisation |
| Self-custody hardware wallet | You hold the keys | Keys offline; online interface used | Phrase theft; signing a bad request |
| Platform custodial account | Provider controls signing | Provider's systems | Provider failure, breach, account access |
A software wallet can be self-custodied and hot at the same time; a hardware wallet can keep signing keys offline while you interact through an online interface (Ethereum security). A platform account means the provider decides storage architecture and controls signing rather than you. An account password is distinct from an on-chain private key: losing a password is not always losing a key, and recovery depends on wallet design, backups or the provider. Losing a device does not necessarily mean lost assets if suitable recovery material remains. Hardware is not an absolute safety guarantee; recovery phrase theft and mistaken authorisation still matter (Ethereum security). Moneysmart notes that software wallets can be self-held or platform-held and that hacks, failure, loss and scams can cause loss (Moneysmart). For platform accounts, see the account guide.
Smart contracts and tokens
A smart contract is deployed code that executes under network rules; it is not an automatic legal guarantee, and deployment does not equal an audit. Tokens can carry different rights and functions. ERC-20, for example, specifies a contract interface for balances and transfers on Ethereum, but a standard interface does not establish issuer safety or economic rights (Ethereum). For asset categories, see the markets reference.
Market metrics and fees
| Term | Meaning |
|---|---|
| Market cap | Reference price multiplied by estimated circulating supply |
| Volume | Turnover over a stated past period |
| Bid/ask spread | Gap between the highest bid and the lowest ask |
| Book depth | Orders resting across price levels |
| Slippage | Difference between expected and actual execution, including multi-level fills |
| Gas | Measure of computational effort on Ethereum; the fee is paid in ETH |
Market cap is a valuation, not a pool of cash, and it does not prove that a position could be sold at that price or that an asset is safe. A hypothetical A$2 price across 1,000,000 units gives A$2,000,000 only as an illustrative valuation. Spread, depth and slippage depend on the venue, the time and the size of an order, and the Kraken trading glossary defines these order book terms. On Ethereum, a gas fee depends on both the gas used and the price per unit of gas, not merely the amount of an asset moved, per the Ethereum gas documentation. Network fees also differ from the trading and withdrawal charges a venue applies.
Central bank digital currency
A central bank digital currency is national money issued in digital form directly by a central bank. It is distinct from privately issued stablecoins and from decentralised crypto assets, as the RBA's digital currencies explainer outlines.
Investing, trading and labels
Labels do not change an asset's custody, risks or product rights. Start by distinguishing owned spot holdings, a derivative contract and programme participation. For a step-by-step workflow, see the how-to guide.
Crypto exchanges and custody
Buying a spot crypto asset on an exchange means acquiring exposure to that asset, but the way it is held depends on the product terms. As MoneySmart explains in its guidance on crypto assets, platforms may hold assets in wallets on the client's behalf, with risks including platform hacks, failures, and losing private keys, which can cause asset loss. A spot fill on a centralised exchange does not necessarily create an on-chain transfer to a client wallet; credited holdings and custody depend on the product. Provider custody and self-custody differ, and neither is guaranteed safe. Products, instruments, and financial protections vary. See crypto exchanges and opening a crypto account.
CFD contracts and leveraged exposure
A contract for difference is an agreement with a provider, not ownership of the underlying asset. You trade on price movements, and leverage magnifies losses as well as gains. Costs differ between providers and instruments: spreads, commissions and overnight financing can all vary, so read them from the provider's own contract.
MoneySmart's page on contracts for difference explains how these products work and the risks involved. For a jurisdiction-qualified illustration of leverage, see what are crypto CFDs, and for the trading workflow, read our guide to cryptocurrency CFD trading. Whether CFDs suit a particular trader depends on that trader's circumstances.
Prop programme models and rules
Programme and account-stage models differ across the sector. Some stages are simulated, while others may include live-capital stages. FTMO's technical FAQ explicitly describes fictitious funds and client trades that do not go onto live markets. Advertised balances are distinct from participant-owned cash. Evaluation and programme fees are real costs that may be lost, and rewards are conditional on the agreement. Participation does not remove provider or contract risk.
Exact targets, loss limits and payout requirements depend on the programme version and stage. Read the original agreement before paying. See how crypto prop firms work for the rule sheet and drawdown illustration, and crypto prop firms for provider comparison.
Crypto risks and regulation checks
Crypto trading carries several distinct risks. Prices are volatile. Platform, provider and counterparty risks apply whether you use an exchange, a broker or a prop firm. Private-key risk arises when you hold assets yourself, and execution risk arises when orders fill differently from expected.
Before committing funds, check the legal entity behind an offering, the exact product, the jurisdiction it operates from and the provider's original documentation. Strong branding or the existence of a blockchain does not guarantee safety. MoneySmart's crypto assets page is a useful reference, and our how to trade cryptocurrency guide covers practical order and record-keeping steps.
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