How to Buy Crypto - A Beginner’s Guide
Interest in cryptocurrencies continues to soar with every passing year. However, while it can be exciting for people taking their first steps into the world of digital currencies, it can also prove confusing, as there’s a lot to learn and take in.
Questions are inevitable, and this guide aims to answer some of the most common, while also walking you through the process of purchasing crypto, whether Bitcoin, Ethereum or any other.
What is Cryptocurrency?
The simplest way to think about cryptocurrency is to see it as digital money that operates without banks. It is a form of currency that you can send and receive in a peer-to-peer manner and store online on blockchain technology rather than in traditional financial institutions.
Transactions sent across the blockchain are verified by a network of computers, also known as nodes, that collectively confirm their validity and record them permanently in a public ledger that can’t be altered or deleted. Without middlemen, transactions are more transparent and often faster and cheaper than traditional fiat payments, depending on the cryptocurrency used.
How to Buy Crypto - A Step-by-Step Guide
If you’re new to cryptocurrency and want to make your first purchases, you should know that it may seem daunting at first. Having said that, like riding a bike, it becomes second nature once you’ve done it a few times.
Essentially, you need to:
- Find a platform or service you can use to make a purchase
- Fund your account
- Make a purchase
You typically have two options for the first stage. You can purchase your digital currencies using either a crypto exchange like Binance or Kraken, or a broker like Paybis or Moonpay. Exchanges often provide lower fees and more control, while brokers simplify the process but may charge slightly higher rates.
Funding Your Account
Whichever method you choose, you’ll need to create an account and deposit funds using a fiat currency and payment method like a bank card or e-wallet. Just note that you’ll likely have to complete a KYC (Know Your Customer) check before you can make your first purchase, which is to determine who you are and where you live.
Once that check is complete and your account is verified, you can use a supported banking method to fund your account with the fiat currency you plan to use for the purchase of your chosen crypto.
- Click ’Deposit’ or whatever button is used to allow you to fund your account.
- Select a payment method and decide how much you want to send.
- Complete the transaction.
Placing Your Order
Once your funds are available, you can buy the cryptocurrency of your choice. Make your way to the ‘Buy’ or ‘Trade’ section, which can differ depending on the platform you’re using. Select the crypto and the amount you want to buy and follow the instructions to complete the transactions.
It’s worth noting that cryptocurrency prices are always fluctuating, so the cost of your trade can be completely different from one minute to the next. Always check the current price and only confirm a transaction when you’re happy with the rate.
Some exchanges also include token-swapping features, which is essentially trading a crypto you own with another on the market. That allows you to purchase what you need without involving fiat currencies.
After confirming your order, your purchased crypto will appear in your account balance within seconds.
Storing Your Crypto Assets
The next step, once you’ve bought the crypto you wanted, is to decide where to store it. You typically have three main options:
- On the exchange: You can keep your digital currencies in your wallet on the exchange where you purchased them. While this is the easiest and often most convenient storage method for beginners, it’s not recommended to hold large amounts this way, as exchanges can be hacked or go under.
- Using a Hot wallet: Alternatively, you can download an online crypto wallet that supports the storage of your newly purchased crypto. These take your assets away from the exchanges, but are still not ideal for holding large quantities. That said, they’re great for every day use and making regular transactions.
- Using a Cold wallet: Finally, offline wallets offer the most secure way to store your cryptocurrency assets. These operate like USB hard drives, which means that whilst they’re not connected to the internet, they’re completely safe unless you lose them.
The Biggest Risks to Consider When Purchasing Cryptocurrencies
Before you hit the ‘Buy’ button to complete a purchase, always remember that cryptocurrencies are highly volatile when compared to traditional investments. It’s not uncommon for prices to fall or increase by 20% in a single day, meaning any investment is essentially gambling. Some investors have made a lot of money while others have lost everything.
On top of that, there are no safety nets in the crypto trading game. There’s no insurance like you’d get with banks, and if you lose your private keys or fall for a scam, your funds are gone for good.
To stay safe:
- Only invest what you can afford to lose.
- Beware of crypto scams that promise guaranteed returns.
- Keep learning. The crypto market evolves constantly, so it’s important to stay on top of the latest regulations, technology and trends.
Strategies and Alternative Options for Buying Crypto
If you’re worried about the volatility when purchasing cryptocurrencies, there are alternative ways to invest that are safer, such as dollar-cost averaging and crypto ETFs.
Dollar-Cost Averaging (DCA)
One option is to use dollar-cost averaging. Let’s say Bitcoin is trading at $30,000 and you want to invest $1,000. If you buy it all at once and the price rises to $35,000 a month later, you’ve made roughly $166 in gains. But if it drops to $25,000 instead, you’ve lost around $166.
However, if you split that investment up into smaller amounts, you can limit the volatility of your investment. For example, if you buy $250 worth each week for a month, you’ll reduce the potential gains and losses. If the stock is at $35,000 by the end of the month, you’ve made fewer profits, while you’ll have experienced fewer losses, should it be at $25,000.
Crypto ETFs
You could also consider buying into cryptocurrency exchange-traded funds, which split your investment across multiple cryptocurrencies rather than taking the risk on a single asset.
The other benefit is you do not own the coins directly, as the fund does, so you do not have to worry about security, wallets or private keys. However, the downside is that fees are typically high for an ETF investment and they rely on traditional markets.
FAQs About Buying Crypto
What’s the easiest way to buy cryptocurrency?
The simplest option is using a brokerage platform like Paybis or MoonPay, as these are specifically designed for beginners who might not have the know-how of regular cryptocurrency exchanges.
What documents are required to buy crypto?
Many platforms will require you to complete a KYC process when signing up, meaning you’ll have to send documents that prove your identity, age and address. Passports, driving licenses, utility bills and bank statements are the most commonly requested documents.
Are credit card purchases safe or recommended?
Credit cards can be convenient but often come with cash advance fees and higher interest rates, while some banks may even block crypto transactions. Still, as they’re safe, they are good options to have if security is a top priority.
What’s the safest way to store cryptocurrency?
The safest option, especially if holding your long-term portfolio, is to use a cold (offline) wallet, such as hardware devices like Ledger or Trezor. These keep your funds when you do not need to use them. Online wallets are great for everyday use, but carry more risk.
Can I buy fractions of a cryptocurrency?
Yes, you’re not required to purchase a full unit of crypto, for example, a whole Bitcoin. You can generally get started with minimum purchases worth $10-$20, depending on the platform.
Can you lose your money investing in crypto?
Without a doubt, it is possible to lose money when investing in cryptocurrencies. The markets are volatile and speculative, with prices commonly swinging sharply in either direction. Therefore, we suggest you only invest money you can afford to lose.
Do you have to pay taxes when you buy or sell cryptocurrency?
While the laws differ depending on the country you live in, most countries that allow cryptocurrency purchases and trading apply some sort of taxes, especially on any gains made. Always check your local tax regulations or consult a tax advisor.
What are the main risks of buying cryptocurrency?
The biggest risks, especially for those new to the scene, are the market volatility and the many scams that target holders of crypto. Storing large amounts online or clicking on suspicious links can result in permanent loss, so stay cautious, use reputable platforms, and double-check every transaction.