Jasmine Birtles
Your money-making expert. Financial journalist, TV and radio personality.
Understanding Web3 and the role Crypto Could Play in Your Overall Portfolio
Ruby Layram
6th Feb 2025
Cryptocurrency is a term that’s hard to escape these days, isn’t it? Everyone from your tech-savvy friends to influencers on social media are talking about it, and maybe you’re starting to wonder if you should pay more attention.
Could crypto be a smart addition to your investment portfolio?
In this guide, we’re going to break down everything you need to know about cryptocurrency and how it might fit into your investment strategy.
Whether you’re totally new to crypto or just curious about its potential role in your financial future, this guide will cover everything you need to know.
The basics of Web3
Web3 is the next evolution of the internet. With Web2, (i.e. the internet) several centralised platforms, such as Google and Meta, control vast amounts of data and have monetised a business off user interactions with content. With Web3, users are empowered to have greater control over their identity, data, and digital assets enabling peer-to-peer interactions without intermediaries. Web3 was built on founding principles of transparency, ownership, and innovation.
So how does cryptocurrency work in Web3?
Cryptocurrency is a form of digital currency that uses cryptography (a fancy word for solving codes) for security. This makes it almost impossible to counterfeit or double-spend, which is pretty handy in today’s digital age.
Unlike traditional currencies, like the pound or dollar, cryptocurrency isn’t controlled by a central bank or government. When you send a payment through your bank today, you’re essentially requesting permission for the bank to process the transaction on your behalf. With crypto, transactions work differently—they’re sent peer-to-peer and, instead of being approved by a bank, they are validated by participants across the decentralised ecosystem. All transactions in crypto are also publicly viewable on the blockchain, which ensures public accountability and transparency.
There are thousands of cryptocurrencies out there (Ethereum, Solana, Ripple, Dogecoin, TRUMP! ), but the most well-known is Bitcoin, which was created in 2009. Since then, others like Ethereum, Solana, and Ripple have come onto the scene, each offering their own unique benefits and use cases.
Cryptocurrency vs Traditional Currencies
You might be wondering, “How is crypto any different from the money I use every day?” Well, there are a few key differences between cryptocurrency and traditional currencies (also known as fiat currencies in the crypto space).
- Decentralisation: As I mentioned earlier, cryptocurrencies are decentralised. No one entity controls them. This is quite different from fiat currencies, which are regulated by central banks. Central banks can print more money or adjust interest rates as they see fit, which can impact the real value of your cash.
- Limited supply: Most cryptocurrencies, like Bitcoin, have a limited supply. For example, only 21 million Bitcoins will ever be created. This programmable scarcity ensures that Bitcoin cannot be just printed at will and this stabilises the supply of the asset over an extended period of time.
- Global accessibility: Cryptocurrencies don’t adhere to borders. You can send or receive Bitcoin in the UK just as easily as someone can in Japan or the US. No exchange rates, no delays, and no middlemen.
- Transparency: With cryptocurrencies, every transaction is recorded on the blockchain. This level of transparency is unique, and in theory, it means that crypto can’t be manipulated by governments or large institutions in the same way that traditional currencies sometimes are.
How Does Cryptocurrency Work?
As we mentioned above, cryptocurrency operates on blockchain technology.
Imagine blockchain as a giant spreadsheet that’s shared across a whole network of computers. Every time someone buys or sells cryptocurrency, a transaction is recorded on this spreadsheet (or ledger). The transactions are then verified by multiple computers in the network, ensuring they are accurate and secure.
Each transaction is grouped with others and added to a “block,” which then forms part of the “chain” of previous blocks—hence, blockchain.
It’s like creating a permanent, tamper-proof record of every single transaction that’s ever happened.
Transactions can be made directly between people, without needing a bank to act as a middleman. This is one of the reasons why cryptocurrency can often be faster and cheaper for international transfers.
What is Crypto Used For?
You might be surprised to know that cryptocurrency is used for more than just trading and speculation. Here are some of the ways people are putting their crypto to good use:
- Buying goods and services: Cryptocurrency is being sent to individuals and businesses across the world as a form of payment. Many crypto companies, such as , have launched new ways to simply send payments to friends and family and this will likely grow in the coming years.
- Investment: Many people buy cryptocurrency as a long-term investment. They hope the value will increase over time, giving them a nice profit when they sell.
- Decentralised finance (DeFi): This is a rapidly growing sector where you can lend, borrow, and earn interest on your crypto holdings, bypassing traditional banks altogether.
- Smart contracts: Certain cryptocurrencies, like Ethereum, support smart contracts—self-executing contracts where the terms of the agreement are written directly into the code. These have a wide range of applications, from legal agreements to financial products.
Why is Everyone Raving About Cryptocurrency?
Cryptocurrency has garnered a lot of supporters, and there are some solid reasons why people are excited about it. Here are a few of the main benefits:
- Potential for high returns: Cryptocurrencies have shown incredible growth over the past few years. While they can be volatile, they also offer the potential for pretty big returns compared to more traditional investments.
- Decentralisation and control: If you’re someone who doesn’t like everything being controlled by big institutions, the decentralised nature of crypto might appeal to you. You control your assets, not a bank or government.
- Inflation hedge: Because many cryptocurrencies have a fixed supply (like Bitcoin), they’re sometimes viewed as a hedge against inflation, similar to gold.
- Global accessibility: Cryptocurrencies are available to anyone with an internet connection. This can be a huge advantage for people in parts of the world with less developed banking systems.
- Fast payments: Services like Kraken Pay allow you to quickly send to funds to anyone around the globe, without needing to worry about costly cross-border fees.
The Role of Cryptocurrency in Your Portfolio
Cryptocurrency is often viewed as an alternative asset class, meaning it’s something that you can add to your portfolio alongside more traditional assets such as cash savings, stocks & bonds, and property. But what does crypto offer your portfolio, and how much should you allocate towards it, if you’ve already decided to invest?
Crypto is Permissionless and Inclusive Finance
In recent years, there has been a rise of financial institutions, including banks and asset managers, becoming increasingly selective of who they allow to access their services. For example, last year PayPal fell under criticism for trying to introduce an ‘Acceptable Use Policy’ (AUP) to their terms of service which would allow them to fine users for spreading anything the company deemed to be misinformation on public forums. Imagine your bank monitoring your twitter profile and penalising you for your views!
Furthermore, many people continue to not have access to traditional financial services, such as bank accounts. This problem is true even in the UK, where the FCA estimates over 2% of the population in 2023 does not have access to a bank account. Think of everything you do today that involves a bank account, and consider how hard it would be to get by without access to a bank account to pay bills.
Crypto, on the other hand, is a global and borderless asset class that is not operated by any government or central bank. Anyone can set up a digital wallet and transact without an intermediary approving their transactions.
Inflation Protection and Growth Potential
Some people view crypto as a purely speculative asset class. Historically, there has no doubt been astronomical returns on investment. While the price volatility of more mature assets, such as Bitcoin, have decreased in recent years, it has still increased in value by over 160% year over year – which is a pretty good return!
The narrative that Bitcoin is an ‘inflation hedge’ is also often debated amongst financial services experts. Crypto experts have hailed Bitcoin as “digital gold” because of its fixed and limited supply. This means that, unlike cash which can be printed (and ultimately devalued) by central banks, the total number of Bitcoins will not rise above 21 million coins.
While some see it as a safe haven, others argue that it still remains a volatile asset as the price can drop rapidly, which could make it less reliable than other assets. That said, if you believe crypto could be the future of financial services, then having some small exposure to the asset class could position you to benefit from the growth and adoption of the industry.
Rapid liquidity
Unlike the stock market, crypto can be traded all hours of the day, and even on bank holidays and weekends, and transactions are typically processed within minutes. This compares to something like real estate, which can take weeks (or even months) to close a sale.
If your financial position means you could require funds quickly, or during non-traditional business hours, then it could be helpful to have an allocation of crypto as a more liquid asset that can be sold at short notice if needed.
Hedge against macro-economic uncertainty
If we’ve learned anything over the last decade, it’s that the world is becoming even more uncertain. With a global recession, a once in a lifetime pandemic, and various geopolitical conflicts, it’s unclear how to effectively plan your finances in a way that can be futureproofed against chaos.
For people in war-torn areas of the world, including Ukraine, crypto has been a lifeline to financial services. When the war broke out in February 2022, many everyday Ukrainians were left stranded as traditional banks closed and did allow people to withdraw their cash. In a moment of panic, many turned to crypto for financial aid, which resulted in the Ukrainian government legalising crypto and even launching their own crypto fundraising campaign that raised over $200 million in crypto to reach pro-Ukraine causes.
Crypto can also be stored in a self-custodial digital wallet that is not controlled by anyone but the individual themselves. This allows the person to move around the world with access to their funds, so long as they remember the passcodes to the wallet!
Final Thoughts
Cryptocurrency has the potential to be a great addition to your investment portfolio, but it comes with some risks. It can offer diversification, inflation protection, and growth potential, but it’s also highly volatile and still relatively new compared to more traditional assets.
As with any investment, it’s important to do your research, assess your risk tolerance, and avoid putting in more than you’re willing to lose. If you decide to invest in crypto, consider starting small—especially if you’re new to the space. You can always increase your position over time as you become more comfortable with the market.
If you’re ready to take the leap, here are some of our top FCA-registered crypto exchanges where you can securely buy crypto.
And, if you want to stay up to date with all the latest market news, make sure you sign up for the fortnightly MoneyMagpie Investing Newsletter.
Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.
When investing your capital is at risk. Remember, the value of any investment can both rise and fall.
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