Get Started with Crypto

Bitcoin is a digital currency maintained by a decentralised network of computers rather than a central bank or government.

It has a fixed supply of 21 million coins, and transactions are recorded on a public ledger that allows funds to be sent directly between parties, peer-to-peer, without intermediaries.

Bitcoin is the original cryptocurrency and remains the largest by market capitalisation and trading volume. For that reason, it's the conventional starting point in most introductions to the space - including this one.

A cryptocurrency wallet is where you store your cryptocurrency. Unlike a bank account, there's no central institution holding your funds - instead, ownership is recorded on a public ledger called the blockchain, and access is controlled by a private key.

A private key is a cryptographic code that proves ownership and authorises transactions from a wallet. Whoever holds the private key controls the funds - there's no separate login, password reset, or account recovery process tied to an institution.

A hardware wallet stores this private key on a physical device, kept offline rather than on a phone, computer, or exchange. Because the key never touches an internet-connected system, it removes the main way private keys are typically stolen - through malware, hacking, or a compromised device.

When a wallet is set up, it generates a seed phrase: usually 12 or 24 words. This phrase can recreate the private key and restore access to the wallet if the device is lost, damaged, or replaced. Write it down by hand and store it somewhere secure - if it's lost, there's no way to recover the wallet; if someone else obtains it, they can access the funds directly.

Hardware wallets should be bought direct from the manufacturer or a verified reseller. Buying second-hand or from an unofficial source carries a risk of the device having been tampered with before it reaches you.

Bitcoin can be acquired in a few ways - earned as payment for work, received directly from another holder, or mined by contributing computing power to the network. In practice, most people acquire it by buying it directly through an exchange.

With a wallet set up, the next step is buying. NZ exchanges and retailers handle this directly - they require ID verification (KYC) and accept NZD, making them the most straightforward route to a first purchase.

When you buy on an exchange, the crypto initially sits in an exchange-held account rather than a wallet you control - the exchange holds the private keys, not you. This is known as a custodial arrangement, and it means access to those funds depends on the exchange remaining operational and the account remaining accessible. Exchange failures and breaches have occurred before, including FTX, Cryptopia, and Mt Gox.

Many buyers transfer funds to their own wallet - such as the hardware wallet set up in step 2 - after purchasing. This moves the private keys (and with them, control of the funds) from the exchange to the buyer directly.

Scams - New Zealand has had consistent activity from crypto scammers, generally following a similar pattern: promises of guaranteed returns, requests to send crypto first, or requests for access to a wallet or seed phrase. Legitimate services and individuals don't ask for a seed phrase - a request for one is one of the clearest signs of a scam attempt.

Tax - Inland Revenue treats cryptocurrency as property for tax purposes. Selling, trading, or spending crypto can each count as a taxable event. Keeping records as transactions happen is generally simpler than reconstructing them after the fact.