Finding out how to buy Bitcoin, Dogecoin and other cryptocurrencies is difficult for those who are new to the world of crypto. Fortunately, it's really straightforward to get started. Following these five simple steps will get you started investing in cryptocurrencies.
What Exactly Is Cryptocurrency?
Cryptocurrencies are digital assets that may be traded and owned securely via computer networking software. In order to prevent fraud, cryptographic methods have been put in place by developers.
Blockchain, the technology that underpins Bitcoin and most other cryptocurrencies, preserves a tamper-proof record of transactions and tracks who owns what. They operate without a central authority such as a bank or government, which makes public blockchains decentralized. Earlier attempts to develop fully digital currencies were plagued by the problem of people generating duplicates of their assets and attempting to spend them twice. These inventions addressed this issue.
Coins and tokens can be used interchangeably, depending on how they're employed. For example, some are meant for use as a medium of trade for products and services, while others are more like bank accounts that serve as a way to save money for future use.
1.Choosing a Broker or Crypto Exchange
To acquire bitcoin, the first step is to find a broker or an exchange that accepts cryptocurrencies. However, there are a few important variations between the two that you should be aware of while making your purchase.
What Is an Exchange for Cryptocurrencies?
To trade cryptocurrencies, buyers and sellers must come together on a cryptocurrency exchange. New crypto investors may be intimidated by exchanges, which have lower costs but more complicated user interfaces with many transaction kinds and advanced performance charts.
Coinbase, Gemini, and Binance.US are all well-known crypto exchanges. Though their normal trading interfaces may be intimidating to novice investors who have no prior experience trading stocks, these companies offer user-friendly choices for people who are new to the market.
But the ease of use comes at a price: beginner-friendly choices charge much more than the conventional trading interface of each platform would charge to buy the same coin. Prior to making your first crypto buy, or even after, you may want to learn how to use the traditional trading platforms to save money.
Make sure your exchange or brokerage of choice permits fiat currency transfers and purchases in US dollars if you're a newbie to crypto. As a result, if your favorite exchange only allows another cryptocurrency as a means of purchasing tokens, you will have to look for an other exchange in order to begin transacting in crypto on that platform.
What Is a Cryptocurrency Broker?
Brokers simplify the process of buying cryptocurrency by interacting with exchanges on your behalf and providing simple user interfaces. Exchanges typically charge lower fees than others. There are several "free" brokers who are actually generating money by selling information about your trades to large brokerages or funds, or by not completing your deal at the best available market price. Robinhood and SoFi are two of the most popular cryptocurrency brokers.
Despite the fact that brokers are certainly convenient, you should be aware that you may encounter restrictions on moving your cryptocurrency holdings out of the platform. You can't transfer your crypto assets out of Robinhood and SoFi, for example. Advanced crypto investors prefer to store their currencies in digital wallets, which may not seem like a big concern. For further security, some people prefer to use hardware crypto wallets that are not connected to the internet.
2. Create and Authenticate Your Account
You can open an account with a cryptocurrency broker or exchange once you've made your choice. Verifying your identification may be required depending on the platform and the quantity you plan on purchasing. In order to prevent fraud and comply with federal regulations, this is a crucial phase in the process.
When the verification procedure is complete, you may not be able to buy or sell cryptocurrency. Depending on the platform, you may be required to submit a copy of your driver's license or passport as well as a selfie to verify your identity.
3. Make a Cash Investment Deposit
The first step in purchasing cryptocurrency is to confirm that you possess the necessary sum of money in your account. If you're using a credit or debit card, you can make a payment by linking your account to your crypto wallet and requesting a wire transfer. For some exchanges and brokers, you may have to wait a few days before you can utilize your deposit to acquire bitcoin, depending on how you fund your account.
One word of caution before you buy: Using a credit card to deposit money into an exchange or broker can be extremely hazardous and expensive. Cash advances are how credit card issuers treat bitcoin purchases made with credit cards. As a result, the interest rates and fees associated with cash advances are higher than those associated with normal purchases. When you take out a cash advance, for example, you may be charged a fee of 5% of the transaction amount. That's on top of any costs your cryptocurrency exchange or brokerage may impose; these can reach up to 5%, meaning you might lose 10% of your crypto buy in fee charges themselves.
4. Make a Cryptocurrency Order
Your first bitcoin purchase can be made as soon as you have enough money in your account to do the transaction. If you're looking for an alternative to Bitcoin or Ethereum, there are a slew of other cryptocurrencies to pick from.
After deciding on the cryptocurrency you want to buy, you can input its ticker symbol (Bitcoin, for example, is BTC) and the number of coins you want. There are many exchanges and brokers where you may buy fractional shares of cryptocurrencies like Bitcoin and Ethereum, allowing you to possess a small fraction of these expensive tokens without spending a fortune.
In order for a blockchain transaction to be completed, it must be signed. Transactions can be sent to you by following these steps:
A public key is used to encrypt a transaction. The private key that accompanies the transaction is the sole way to decrypt the transaction.
To ensure that the transaction hasn't been altered, the private key is used to sign it. When the private key and the transaction data are put together, a digital signature is created.
Finally, the transaction may be authenticated using the public key that accompanies the transaction.
To demonstrate your ownership of the funds, you use digital signatures to sign a purchase. Transactions are verified and authenticated automatically by nodes of the network. The network rejects any transactions that are not authenticated. Transactions made on the blockchain are immutable, as long as they are legitimate and mined.
5. Decide on a Storage Way
The Federal Deposit Insurance Corporation (FDIC) does not safeguard cryptocurrency exchanges from theft or hacking. Millions of dollars of Bitcoin have already been lost due to people forgetting or losing their account passwords. That's why having a safe place to store your cryptocurrency is so crucial.
To reiterate, you may have little to no control over how your cryptocurrency is stored if you acquire it via a broker. More possibilities are available if you buy crypto on an exchange.
Don't take it out of exchange. Cryptocurrency purchases are often held in a "crypto wallet" that is linked to the exchange where you purchased it. If you don't like the exchange's service provider or wish to relocate your cryptocurrency to a more safe location, you can move it to a separate hot or cold wallet. It's possible that you'll be charged a modest fee for this, depending on the exchange rate and the quantity of your transfer.
Hot wallets. These are cryptocurrency wallets that are stored online and run on internet-enabled devices, including as tablets, PCs, and smartphones. Due to the fact that they are still linked to the internet, hot wallets are more vulnerable to be thieved.
Cold wallets. Cryptocurrency can be stored in cold wallets, which are not linked to the internet. Use an external device such as a USB drive or hard drive. With cold wallets, you have to be careful—if you lose the key-code or the device fails, you may never be able to retrieve your cryptocurrency back again. Some hot wallets, however, have custodians who can help you regain access to your account if you've been locked out of it.
A Few Other Options for Purchasing Cryptocurrency
Investing in cryptocurrencies is a popular trend right now, but it is a very volatile and dangerous option. If you don't want to directly invest in Bitcoin or other cryptocurrencies through an exchange or a broker, here are a few methods to do so:
1. Watch for Cryptocurrency ETFs (ETFs)
One of the most common ways to invest is through exchange-traded funds (ETFs), which provide you access to hundreds of different investments at once. Because of this, they are less hazardous than investing in individual stocks and give rapid diversity to the portfolio.
Crypto ETFs that allow you to invest in multiple cryptocurrencies at the same time are in high demand. This may change in the near future, as there are currently no ETFs for average investors. Kryptcoin, VanEck, and WisdomTree are now submitting cryptocurrency ETF proposals to the Securities and Exchange Commission (SEC), which the agency will review in June 2021.
2. Invest in Cryptocurrency-Related Companies
In order to get a taste of the cryptocurrency market, you can invest in companies that utilize or own cryptocurrencies and the blockchain that drives them, which are subject to governmental monitoring. If you want to buy stock in publicly traded corporations like:
Graphics processing unit manufacturer Nvidia (NVDA). Graphics processing units, the brains of cryptocurrency mining rigs, are made and sold by this technology firm.
PayPal (PYPL). Customers can now buy and sell some cryptocurrencies using their PayPal or Venmo accounts, an expansion of an already popular payment method for online purchases and money transfers to friends and family.
Square (SQ). Since October 2020, this small business payment service provider has purchased almost $220 million in Bitcoin. In February 2021, the company revealed that Bitcoin accounted for almost 5% of its cash on hand. People may purchase, sell, and store cryptocurrencies using Square's Cash App.
Before putting money into cryptocurrencies or companies that are heavily invested in them, think about your investment objectives and current financial circumstances carefully. A single tweet can cause cryptocurrency's value to drop; it's still a risky investment. As a result, investing should be approached with prudence and caution.