Quick Start Guide

This page is the short route through DeFi Notebook. It sets out, in order, what you need to understand before you sign your first transaction, and points to the longer guide for each step. It is an orientation, not a plan for making money. Nothing here tells you what to buy or where to go.

Who this quick start is for

You have heard of decentralised finance, you may already hold some crypto, and you want to know how the moving parts fit together before you touch anything. If the term itself is still fuzzy, read What is DeFi? first and come back.

The five things to understand first

Almost every beginner mistake in DeFi traces back to one of these five ideas. Each takes a few minutes to grasp and all of them apply whichever application you end up using.

1. A wallet holds keys, not coins

Your tokens live on a blockchain. A wallet stores the private key that proves you control them and uses it to sign transactions. Lose the key and nobody can restore access. Share it and somebody else has full control. There is no support desk and no password reset.

Read next: How to Set Up a Crypto Wallet and the step-by-step MetaMask walkthrough.

2. The seed phrase is the wallet

The 12 or 24 words shown when you create a wallet can rebuild it on any device. Anyone who sees those words can do the same. Write them on paper, keep them offline, and never type them into a website, a chat window or a form. No genuine application or support agent will ever ask for them.

Read next: DeFi Security Best Practices.

3. Every action costs gas, and failed ones do too

A transaction is processed by the network, and the network charges a fee for the work, paid in that chain's native token. The fee depends on how busy the network is, not on the value you are moving. A transaction that fails part-way still consumes the fee. This is why a wallet holding only the token you want to move, and none of the chain's native token, cannot do anything.

Read next: Key DeFi Concepts.

4. Approvals are standing permissions

Before a smart contract can move a token on your behalf, you sign an approval. Many applications request an unlimited approval by default, and it stays in force after you close the tab. If that contract is malicious, or is later exploited, the approval is what lets your tokens be taken. Reading what you are approving, and for how much, is the single most useful habit in DeFi.

Read next: Common DeFi Scams.

5. Transactions are final

There is no chargeback and no undo. A transfer to the wrong address, or on the wrong network, is usually gone for good. Checking the first and last characters of an address, and sending a small test amount before a larger one, costs a little gas and removes most of that risk.

What you need in practice

• A self-custody wallet that you set up yourself, with the seed phrase backed up offline before any funds arrive. Our wallet comparison explains the difference between software and hardware wallets.
• A small amount of the network's native token to pay gas.
• A record-keeping habit from day one. A spreadsheet with the date, what you did, the amounts and the transaction hash is enough.
• Bookmarks for the sites you use. Typing addresses or following search adverts is how most phishing succeeds.

A sensible order to learn in

1. What is DeFi? for the overall picture.
2. Key DeFi Concepts for the vocabulary: tokens, smart contracts, gas.
3. How to Set Up a Crypto Wallet, then DeFi Security Best Practices.
4. Common DeFi Scams, before you connect a wallet to anything.
5. How to Use Uniswap, which shows how a token swap on a decentralised exchange actually works, including slippage.
6. Understanding Liquidity Pools and Yield Farming Basics, for the mechanics behind the numbers applications advertise.

If you are in the UK

Two things are worth knowing before your first transaction, not after it.

Tax applies to activity, not just to cashing out. HMRC publishes its treatment of cryptoasset transactions, including DeFi lending and staking, in the Cryptoassets Manual. Read the relevant sections yourself, because the answer depends on what you did and the rules change. The practical point is that you will need records of every transaction to work anything out, which is why the spreadsheet above matters.

Regulation is changing. The UK is moving cryptoasset firms into a full authorisation regime. We cover the timetable in FCA authorisation window for UK crypto firms. Most DeFi protocols are not firms you can complain about to an ombudsman, and you should assume no compensation scheme covers what you do on-chain.

Common first-week mistakes

• Storing the seed phrase digitally. Screenshots, cloud notes and email drafts are the first places malware and account thieves look.
• Signing without reading. A wallet prompt states what is being requested. An approval for an unlimited amount, or a signature request you did not expect, is a reason to stop.
• Sending on the wrong network. The same address format is used on several chains. Tokens sent on a network the receiving wallet or service does not support may be unrecoverable.
• Running out of gas token. Moving your entire balance of the native token leaves the wallet unable to do anything else.
• Trusting a direct message. Unsolicited offers of help, airdrops and "support" in chat apps are overwhelmingly scams.
• Reading an advertised percentage as a promise. Rates move constantly and describe the past. Yield Farming Basics explains where they come from.

Frequently asked questions

How much do I need to get started?

There is no minimum set by the technology. Gas fees are a fixed cost per transaction, so very small amounts can be eaten by fees on busier networks. Only ever use money you could lose entirely without it affecting you.

Do I need to verify my identity to use DeFi?

A self-custody wallet needs no account and no identity check. Regulated services that convert pounds into crypto do carry out checks, and that is where most people's identity is linked to their activity.

Is DeFi safe?

It carries risks that ordinary banking does not: smart contract bugs, scams, irreversible mistakes and sharp price moves. Our Disclaimers and Risks page sets them out plainly.

Can I practise without real money?

Yes. Most networks run a test network where tokens have no value, and wallets can switch to it. It is a good way to see what an approval, a swap and a failed transaction look like before any of it matters.

What should I read after this page?

Key DeFi Concepts if the vocabulary is new, or DeFi Security Best Practices if you already have a wallet.