Buying a cryptocurrency can seem complicated to someone who is just starting in the world of crypto investing. However, if you follow certain steps, which this guide aims to tell you about, buying a cryptocurrency becomes quite easy.
What are cryptocurrencies?
Cryptocurrency is a type of digital money that exchange for goods and services over the internet, just like a physical currency in the real world. But there are some major differences between cryptocurrencies and normal money. Whereas physical money is printed, maintain, and control by central institutions like banks, cryptocurrencies are based on something called a blockchain.
A blockchain is a public database that is grown over a multitude of internet-connect computers increase all across the world. Instead of the traditional process of validating transactions through the bank, transactions over a blockchain ledger are verified by normal people from their computers. This is done by miners who compete with each other to verify a transaction, as the first one to do so is the only one that earns a processing fee. This makes sure that the transactions are done almost in real-time, in contrast to the sluggish processes involved in banks.
Moreover, cryptocurrencies are encrypted and the blockchain database grows over many devices. This makes the network very resilient to attacks by bad actors.
While initially when Bitcoin, the first cryptocurrency was launched in 2008, it was seen as a mere fad. However as these and other advantages of cryptocurrencies are becoming more established, it is driving the acceptance of cryptocurrencies like Bitcoin and exponentially increasing their value. This makes crypto one of the most lucrative investment options of the modern-day.
What you need to start buying cryptocurrencies:
- A cryptocurrency exchange account
- Personal identification documents (KYC documents) if required by the exchange
- A secure internet connection
- A method of payment
- A wallet to store your coins
1. Choosing an Exchange:
Signing up for a cryptocurrency exchange is how you buy, sell and hold cryptocurrency. There are different types of cryptocurrency exchanges: some are decentralized, meaning like cryptocurrency itself, these exchanges store their data and process transactions over a decentralized blockchain.
This helps protect the system from hacks and breaches by removing a central target. Though the cryptocurrency itself cannot be hacked, if the data about trades is lost or stolen, so are the coins.
However decentralized exchanges are very tricky and mostly not suited for someone new to cryptocurrencies. Moreover, to trade on these platforms, you need to exchange cryptocurrency with another cryptocurrency, they do not allow fiat currency transactions, which is a major limitation for newcomers.
Central exchanges, on the other hand, store the data about trades in a central data center, which provides a point of attack for hackers and other nefarious players. However, they have extra layers of security, many ask for KYC documents from their users, allow fiat transactions, and provide a simple interface suited to everyone.
2. Create Your Account:
The next step for buying a cryptocurrency is creating an account on your chosen cryptocurrency exchange. Some platforms may ask for identifications like driver’s license, social security number among other KYC documents.
3. Deposit Cash:
Now you need to connect a payment method for buying cryptocurrency with fiat money. You can pay through wire transfer, debit card, credit card, mobile wallets, or directly connecting your bank account. Not all exchanges accept all these payment methods and some banks don’t allow trading in cryptocurrencies. Further, these payments will be subject to fees, so be sure to check all information before you connect a payment method and make your deposit.
4. Place Your Order:
Once you have verified your account and made your deposit, you need to choose what cryptocurrency you want to invest in. Here you must know that different exchanges offer different varieties of cryptocurrencies, though the big ones like Bitcoin and Ethereum are traded on almost all platforms.
Nowadays cryptocurrency exchanges have nearly the same level of features as a stock exchange. Decide your choice of crypto and how many you want to buy- in some cases you can even buy a fractional share of a coin (the value of 1 bitcoin is around $45,000, so this makes sense). Once decided place your order.
5. Storing your Cryptocurrency:
Now that you have bought your desired crypto, you need to store it someplace safe. The platform you are trading on will provide you a wallet, called a crypto wallet. Though this wallet is good for keeping some cryptocurrency on hand for trading, it will not provide you with private keys for your money. There will be a public key manage by the exchange itself.
Hot wallets:
These are online wallets where you store your cryptocurrency after taking it out of the cryptocurrency exchange. They are based on internet-connected devices like computers, tabs, and phones. These provide more security than crypto wallets, but because they connect with the internet, they are also vulnerable to attack.
To improve the security on hot wallets, make sure you:
- Never talk about your funds in a public forum
- Have a strong and complex password
- Use 2-factor verification
- Use a safe and private internet connection
Cold Wallets:
These are offline or hardware wallets. Cold wallets may be paper wallets, where the keys are printed on a piece of paper to use while transacting, or hardware wallets, such as USB devices, which are not connected to the internet. Cold wallets are the most secure options to store your cryptocurrency but do not allow you to quickly trade on the exchange.
Following these steps will help in safely and properly buying a cryptocurrency and trading on a cryptocurrency exchange.
