Crypto 101: Understanding Bitcoin, Ethereum, and Stablecoins
When most people think of crypto, they think of Bitcoin. But the crypto ecosystem has evolved significantly since Bitcoin's creation in 2009. Today, there are thousands of digital assets—and knowing the difference between the major categories is the first step toward making informed decisions.
This guide breaks down the three assets you'll hear about most: Bitcoin, Ethereum, and stablecoins.
Bitcoin: Digital Gold
Bitcoin was the first cryptocurrency, created in 2009 by an anonymous developer (or group of developers) using the pseudonym Satoshi Nakamoto.
What it is: A decentralized digital currency that runs on a peer-to-peer network. No single entity controls it.
Why people hold it:
- Limited supply (only 21 million will ever exist), which creates scarcity
- It's been around the longest, giving it the longest track record
- Increasingly accepted by major financial institutions
- Often viewed as a hedge or "digital gold" within a portfolio
Key risks:
- High price volatility compared to traditional assets
- Regulatory uncertainty in many jurisdictions
- No underlying cash flows or earnings (unlike stocks)
Who it's for: Investors looking for exposure to crypto with the most established track record and the widest institutional adoption.
Ethereum: Programmable Money
Ethereum launched in 2015 and is fundamentally different from Bitcoin. While Bitcoin is primarily a currency, Ethereum is a programmable platform—a computer that runs applications.
What it is: A blockchain that supports smart contracts, which are self-executing programs stored on the network. Developers build decentralized applications (dApps) on Ethereum.
Why people hold it:
- It powers a large ecosystem of decentralized finance (DeFi), NFTs, and other applications
- The ETH token is needed to pay transaction fees on the Ethereum network
- It has transitioned to a more energy-efficient "proof of stake" model
- Growing institutional interest alongside Bitcoin
Key risks:
- More complex than Bitcoin—harder to explain to clients
- Faces competition from other "Layer 1" blockchains
- Still evolving technically, which adds uncertainty
Who it's for: Investors comfortable with slightly more risk who want exposure to the broader crypto ecosystem beyond just Bitcoin.
Stablecoins: The Bridge
Stablecoins are designed to maintain a stable value—usually pegged 1:1 to the US dollar. They combine the speed and accessibility of crypto with the price stability of traditional currency.
What they are: Crypto tokens backed by reserves (cash, treasuries, or other assets). Major examples include USDC (Circle) and USDT (Tether).
Why people use them:
- Move money quickly between exchanges or across borders
- Earn interest in crypto savings accounts
- Act as a "parking spot" within a crypto portfolio during volatility
Key risks:
- They're only as safe as the organization backing them
- Regulatory scrutiny is increasing
- De-pegging events (where the price drifts from $1) have occurred historically
Who they're for: Investors who want to participate in the crypto space but need stability, or who need to move money quickly within the ecosystem.
Putting It Together
A common framework for thinking about crypto allocation:
| Asset | Role in Portfolio | Risk Level | |-------|------------------|------------| | Bitcoin | Core holding, digital gold | Moderate-High | | Ethereum | Growth exposure, ecosystem bet | High | | Stablecoins | Cash management, low-risk parking | Low |
The right mix depends entirely on your goals, risk tolerance, and time horizon. There's no universal answer—but understanding what each asset actually is puts you in a much better position to decide.
For a deeper look at how these assets differ from a risk perspective, see our crypto risk framework. If you're a wealth advisor thinking about how to size crypto positions for clients, our allocation framework for advisors walks through the practical considerations. And for a complete overview of how crypto fits into a broader financial plan, read our guide to crypto wealth management.
This is educational content, not investment advice. Always do your own research and consult a qualified advisor before making financial decisions.
If you're a wealth advisor or RIA looking for outsourced crypto expertise, learn how Elkhorn Research partners with advisory firms. If you're an individual investor ready to build a thoughtful digital asset strategy, see our advisory services for individuals or book a discovery call.