Buying cryptocurrency can seem daunting, but it doesn’t have to be. This article will teach you everything you need to know about purchasing cryptocurrency safely and efficiently. We’ll advise you on storing your cryptocurrencies to be accessible when you need them. We’ll also discuss security measures that you can take to make sure your money is safe.
What Is Cryptocurrency?
A cryptocurrency is an encrypted form of currency that utilizes Blockchain Technology. It’s a decentralized digital currency that is difficult to be counterfeited and isn’t controlled or issued by any government or recognized entity.
Blockchain tech promises tamper-free technology making crypto transactions safe and private. This results in an efficient transfer of funds from the buyer to the seller without third-party interference—this can be described as “Cryptography.”
Bitcoin—created by the mysterious Satoshi Nakamoto—is at its center. It was the first real-world currency that we could all purchase and trade, with very few restrictions in terms of legality and monetary value (supply).
Ethereum is another popular cryptocurrency that came later and now provides solutions to many of the issues Bitcoin currently faces.
Altcoins are the next step in the evolution of cryptocurrency. The name refers to digital currencies that are an alternative to Bitcoin. However, they are more than just alternative coins.
Some of the most popular altcoins include Ethereum, Cardano, Tether, and Dogecoin. Each coin employs Blockchain Technology in novel ways, providing a wide range of additional capabilities that make digital currency more valuable than previously conceivable.
According to CoinMarketCap, there are more than 20,000 cryptocurrencies in circulation, which is why it’s best to conduct thorough, organized research before investing.
How to Buy Cryptocurrency Securely
If you’re ready to begin investing, here’s are the first steps that you should consider before you embark on your crypto journey:
1. Choose an Exchange to Buy Crypto
Centralized Exchanges: If you’re new to crypto, centralized exchanges are the easiest, fastest way to buy cryptocurrency. Centralized exchanges are great for beginners because they have fewer risks and simplify the user experience. Newcomers can easily purchase crypto via bank transfers or credit cards. Coinbase, Kraken, and Binance are among the most popular and trusted centralized exchanges, with hundreds of millions of dollars in daily volume.
These exchanges act as third-party vendors on the cryptocurrency market, serving as centers for buying and selling crypto. They manage your funds well and provide detailed reviews of each coin’s trading platforms before deciding how much to purchase in which currency. They also offer perks such as debit cards, credit cards, mobile apps, and online wallets.
The drawbacks of centralized exchanges are that they tend to have higher processing fees than decentralized exchanges. There are also fewer coins available on centralized exchanges compared to decentralized ones.
Decentralized Exchanges (DEX): Decentralized exchanges work in digital currencies only and do not store real assets or handle fiat money. DEX’s concept is close to a peer-to-peer marketplace because the buyers usually see and interact with each other without third parties involved. Uniswap, PancakeSwap, and dYdX are examples of popular DEXs.
Unlike centralized exchanges, there is no single point of control; decentralized exchanges are more secure and typically free from the risk of hacks. Centralized exchange platform users must rely on third parties to protect against hackers (e.g., a custodian manages your cryptocurrency), which are not guaranteed.
Third-party providers play a much smaller part in exchanges on DEXs than centralized ones that typically involve users’ deposits with banks or payment processors. Also, fees are lower on DEXs because there are no payments to the operators. The authenticity of each user is verified manually. Finally, they offer a more comprehensive range of cryptocurrencies than centralized exchanges.
Decentralized exchanges have certain drawbacks, including technical knowledge of the platform, making them less attractive for crypto beginners. Additionally, users must maintain their own crypto wallets and develop a secure trading strategy to keep their assets safe when making exchanges.
Traditional Brokers: Many online stock brokers now offer digital asset services, so you can trade the same way that you would stocks. Web sites like E*Trade, Fidelity, and Robinhood allow investors to buy and sell cryptocurrencies on the same platform where they buy and sell stocks. Brokers also allow for less oversight, so problems can happen more quickly than on an exchange.
2. Fund Your Account
Once you choose your cryptocurrency exchange of choice, you will need to fund your account before you can start trading. With most crypto exchanges, clients are generally required to fund their accounts by verified bank transfers or wire payments. There is typically a waiting period of two-three days for bank transfers and a few hours for wire payments. If your transfer has been verified by the exchange, you’ll receive an email notification.
Other crypto exchanges allow you to purchase cryptocurrencies with a credit card. However, the associated fees and interest rates can be high. Finally, you can fund your account by transferring crypto assets that you may already own from an existing hot or cold wallet to the exchange, if allowable.
3. Choose a Cryptocurrency
Once you’ve funded your account, the final step is selecting a cryptocurrency to trade. Many different factors will influence the future growth rates of each coin: speed and ease of transactions, and market capitalization (market cap), among other factors. Still, the basic idea is to find a coin that you believe will increase in value over time.
4. Place an Order
Now that you’ve selected a cryptocurrency, it’s time to place your order. As mentioned before, the process varies from exchange to exchange. Still, you will simply need to provide a set amount of funds and confirm once your goal has been reached on some exchanges.
Keeping Your Crypto Safe
Unlike fiat currency, where you can store your money in a bank account and withdraw it as needed, cryptocurrencies are another story. Currencies are digital and utilize a private key to verify the ownership of a digital coin. If you don’t keep your private key safe, someone else may be using the same key to access your account and send money from it—much like if you used an “unused” credit card number on file with one bank.
Many stories of people who have lost a fortune because of unsecured private keys, including a UK man who accidentally threw away a hard drive that stored 7,500 bitcoins. The lesson learned is essential to keep a secure record of your private keys.
How do you do that? There are essentially 3 ways to keep your crypto secure:
Exchanges and platforms offer custodial options where you can keep your coins in an online wallet instead of keeping them on a computer or phone. They handle your private key information for you, which simplifies the process and often include staking rewards for holding specific cryptocurrencies. The disadvantages are that you still lose access if the platform fails or is hacked.
A hot wallet differs from a custodial one because it is outside an exchange’s control. When you hold funds in these wallets, your private key data remains on that computer or device and is not stored with them. Hot wallets can still be hacked because they require an internet connection to function and can’t be recovered if the device is destroyed.
Cold storage options offer a safer option for keeping your crypto safe. They store your private keys offline on a hardware device like the Trezor Model T or the Ledger Nano X. They offer top-notch security features and hold more than 1000 crypto coins and tokens. The downside to these is that they are pricier than a hot wallet. However, they offer peace of mind as they genuinely keep your funds safe.
Buying cryptocurrencies can be a daunting task for anyone. Still, with a bit of knowledge and patience, you’ll be well on your way to making your first purchase without any hassle.