23 April, 2024



A Step By Step Guide To Buying And Investing In Crypto

15 Aug, 2022

20 Mar, 2024

It can be argued that almost everyone has heard about Bitcoin (BTC) or cryptocurrency by now. Some of these people may have gone and done research on what crypto is and have acquired enough knowledge to get them interested in crypto. If you are one of these people, then you may be wondering about the next step: how to purchase crypto or invest in crypto.

There are a couple of ways to get started with purchasing and or investing in crypto. This can be done through a crypto ATM, an exchange platform, or a simple buy/sell platform. This article will take a look at these methods in detail. At the end of this article, you will hopefully be able to purchase crypto.

What is Cryptocurrency?

Cryptocurrency, or crypto for short, is a revolutionary digital currency that enables people who transact with it to send and receive money without the need for a third party or intermediary such as a bank. Furthermore, crypto is borderless and can be transacted globally with anyone willing to transact with crypto.

The first crypto that entered the public domain was Bitcoin (BTC), which was launched by someone under the pseudonym “Satoshi Nakamoto” in 2009 following the 2008 financial crisis. Satoshi’s main purpose for the creation and launch of Bitcoin was to create a more transparent financial system.

To achieve this level of transparency, Bitcoin was built on a game-changing technology called the blockchain.

What is Blockchain?

A blockchain is a distributed database or ledger that is shared among nodes in a computer network. Being a database, a blockchain stores information electronically in digital format.

One key difference between a blockchain and a traditional database is how data in a blockchain is structured. In a blockchain, data is collected in groups known as blocks, which hold sets of information.

These blocks have certain storage capacities that when filled are closed and linked to the previously filled block. This forms a chain of data known as a blockchain. All new data and information that follows the freshly added block is compiled into a newly formed block, which is then also added to the chain once filled and closed.

Things To Know Before Investing In Crypto

Being a new technology, there are a few things that you need to be aware of before jumping into crypto.

Volatility

The first thing to be aware of is that cryptos are renowned for their high levels of volatility, especially in times of hype and FOMO. In the crypto markets, it is normal for prices to change by more than 10-20 percent overnight, only to recover in the next few days.

As such, it is important to focus on the long term of crypto as prices usually rise over the long to medium term – if history is any indication of the future of crypto prices.

Now, there are cryptos that maintain a relatively stable price. These crypto are called stablecoins, and are usually pegged to something outside of the crypto ecosystem, such as gold or the U.S. dollar.

Regulation

Another thing to be aware of is that crypto is a highly unregulated market. But this won’t be the case for long as regulators across the globe are putting teams and divisions together to come up with a regulatory framework for cryptos.

Some regulations that may be introduced by global regulators is a tax on crypto coins and tokens. The amount of tax on crypto is dependent on the jurisdiction you reside in. So, it is advisable to speak to an accountant before investing in cryptos, as well as familiarize yourself with crypto regulation in your jurisdiction.

Scams

Being a highly unregulated and a decentralized ecosystem, the crypto realm has attracted and continues to attract its fair share of scams. Given the ease at which large amounts of money can be shifted with crypto, these scams normally result in millions of dollars being stolen from crypto holders and users.

Cryptocurrency Exchanges

All the ways to invest and purchase crypto that will be discussed in this article incorporate an exchange platform. As such, it would be fitting to look at what an exchange platform is before proceeding.

How a Cryptocurrency Exchange Works

The basic premise of a cryptocurrency exchange is to connect cryptocurrency buyers with cryptocurrency sellers. At the center of every exchange is an order book. This order book is responsible for storing buy and sell orders as well as connecting buyers and sellers with each other. To connect buyers and sellers as efficiently as possible, a cryptocurrency exchange implements a series of algorithms in the order book that match buyers and sellers using specific order criteria such as which cryptocurrency token or coin is used in the trades, the quantity of cryptocurrency in each order, and the price specified in each order. Once a buyer and seller are connected by the order book, the account linked to the sell order is credited with the buyer’s fiat  currency from the order and the account linked to the buy order is credited with the seller’s cryptocurrency from the order.

An exchange can either be centralized or decentralized. Let’s now analyze the key differences between the two types of cryptocurrency exchanges.

Centralized Exchanges Defined

Centralized cryptocurrency exchanges are exchange platforms where the users’ keys and funds are stored and secured by a third party.

Centralized exchanges account for a very large portion of the trading volume in the market as centralized exchanges are the only cryptocurrency exchange platforms that facilitate the exchange between fiat currency and cryptocurrency – allowing users to exchange from fiat currency to cryptocurrency and vice versa.

Many centralized exchanges also provide support for the exchange from one cryptocurrency token or coin to another, although the number of available cryptocurrency-to-cryptocurrency pairs is usually limited on a centralized exchange platform.

Decentralized Exchanges Defined

Unlike a centralized exchange that is owned by a third party, a decentralized exchange is completely peer-to-peer.

Meaning, transactions between buyers and sellers are not facilitated by a third party – as is the case in a centralized exchange. Also, users do not need to hand over control of their funds and keys to a third party and are completely responsible for the safety and security of both.

Decentralized exchanges can only facilitate the exchange from one cryptocurrency token or coin to another, and cannot facilitate the exchange between fiat currency and cryptocurrency. As such, decentralized exchanges lack liquidity since the majority of cryptocurrency trading is from a fiat currency to a cryptocurrency and vice versa.

Ways To Purchase And Invest In Cryptos

Through Exchange Platforms

Exchange platforms are the gateway into and out of the crypto realm. This is why it is also the most popular and well-known way to purchase and invest in crypto.

Step 1: Select the Exchange Platform You Want To Use

The first step to purchasing crypto is to select the exchange platform that you want to use. Things to keep in mind when choosing an exchange platform are what cryptos the exchange platform allows you to purchase, as well as the methods for fiat deposits and withdrawals included in the exchange platform.

The latter will be a big factor to take into consideration in your selection process because it may be the one thing that stops you from being able to use the exchange platform.

The most common fiat onramp and offramp method is linking your bank account to the exchange platform, then fiat deposits and withdrawals will work similar to a bank electronic funds transfer (EFT).

Each exchange platform will only support a handful of cryptos, with some offering support for more than 100 cryptos, such as Coinbase. Depending on the cryptocurrency that you want to get into, this may be another determining factor that will eliminate an exchange platform from your list of options.

Step 2: Register And Verify Your Account

Once you have decided on which exchange platform you want to use, the next step will be registering and verifying your account on the exchange platform.

Registering your account is fairly simple, you will need to fill in your name, email address, and password on registration. Some exchanges may also require your residential address on registration.

Once you have registered your account, you will then need to verify your account. In this step, you will have to submit proof of identity and or proof of residence. Exchange platforms are obligated by law to implement this process to obey know your customer (KYC) and anti-money laundering (AML) regulations.

Step 3: Deposit Cash To Trade

The next step in purchasing crypto on an exchange platform is to deposit cash on the exchange platform that you can then trade or purchase crypto with.

As mentioned slightly earlier in this article, there is normally more than one method to deposit fiat currency on an exchange platform. The number of methods available depend on the exchange platform as well as the financial regulations in the jurisdiction that you reside in.

Methods for depositing cash onto the exchange platform include making an electronic payment to the exchange platform’s bank account, or using a debit/credit card to deposit money on the exchange platform. The second method depends on the financial regulation in your area.

Step 4: Purchase Crypto

After the deposited fiat funds have reflected in your exchange platform account, you can now finally purchase crypto on the exchange by making a trade.

Normally, you have to place the trade directly on the exchange platform, either through a market order or a limit order. A limit order is a trade that is executed at a user-defined price, while a market order is a trade that is placed at the going rate for the crypto that you are looking to purchase.

Limit orders normally come at a better fee and allow you to determine the price at which you want to purchase the crypto. However, you do stand the chance of your trade not being executed if there is a sudden unfavorable movement in the crypto’s price.

Some exchange platforms do offer a simpler way to purchase cryptocurrency that does not involve interaction with any trading charts. This method is a simple buy/sell page, which only asks you to enter which crypto you want to purchase and the amount of crypto that you want to purchase.

Step 5: Choose Your Storage Method

After you’ve purchased your crypto, the next step is to choose where you want to store your crypto.

Since the majority of crypto exchanges are centralized, they are not as secure as a person may think. Due to this, it is not advisable to leave your newly purchased crypto on the centralized exchange platform unless you are planning on trading the crypto actively.

A more secure way for you to store your crypto is on a hardware wallet or a desktop wallet. You can purchase a hardware wallet tile Ledger or use a desktop wallet such as Exodus to store your funds off of the exchange platform.

When using a wallet that is not on the exchange platform, make sure to backup your wallet’s private key and store it somewhere safe in case you need to restore your wallet later on down the line.

Using A Crypto ATM

Another way to purchase cryptocurrency that is a lot simpler than through an exchange platform is through the use of a crypto ATM. A crypto ATM is similar to an ordinary ATM except you can purchase crypto through it, with some crypto ATMs also allowing you to sell your crypto or “cash out”.

The nice thing about a crypto ATM is that you do not need to submit a proof of residence or proof of identity when purchasing and selling crypto through it. All you need is a crypto wallet and a bank card, since most ATM’s are cashless.

The process of purchasing crypto through an ATM is simple. Simply enter the amount of crypto that you want to purchase and which crypto you want to purchase. Keep in mind that some ATMs will only allow you to purchase a handful of cryptos.

You will then need to enter the wallet address of the wallet that you would like your newly purchased crypto to be sent to. Remember to only give a wallet address for the crypto that you are looking to accept. So, don’t enter an ETH address when you are receiving BTC, otherwise you will lose your funds.

Once you have entered the crypto you would like to purchase and the amount of crypto you want to purchase, you will then need to swipe your credit or debit card. The funds and the ATM’s fees will then be deducted from your bank account and the crypto will be sent to the wallet address that you entered for the receipt.

What To Keep In Mind When Using A Crypto ATM

The simplicity that an ATM offers does come at a cost, as crypto ATMs normally charge large fees that can range from 5 – 15% depending on the ATM provider.

In addition, the ATM will only offer a limited range of cryptos that you can buy. The majority of crypto ATMs only allow you to purchase BTC since it is the most established crypto with the longest track record in the market.

Crypto ATMs are still a relatively new concept. Even though the number of crypto ATMs globally is increasing, it may still be difficult to locate one in your area.

Given the fact that you may need to drive to find a crypto ATM and the large fees that crypto ATMs charge, it may just be better to purchase and invest into cryptos through an exchange platform.

Consider Why You Are Investing in Cryptocurrency

Perhaps the most fundamental question you should ask yourself before making a cryptocurrency investment is why you’re doing it. There are myriad investment vehicles available, many of which offer greater stability and less risk than digital currencies.

Are you interested simply because of cryptocurrency’s trendiness? Or is there a more compelling reason for an investment in one or more specific digital tokens? Of course, different investors have various personal investment goals, and exploring the cryptocurrency space may make more sense for some individuals than for others.

Prioritize Research

Before investing, spend a decent amount of time looking deeper into projects to determine if it has long-term sustainability as it is actually something you are interested in holding.

Never purchase something just because someone you know (or don’t really know) told you to, especially if they are promising guaranteed returns or a risk-free experience. If you hear those things, run for the hills. Crypto is inherently risky and 95% of the tokens that exist today will go to zero over the next decade.

To Recap

Crypto can be purchased through an exchange platform or via a crypto ATM. Using a crypto ATM may not be worth it despite the convenience and simplicity it offers, given the associated ATM fees and the difficulty in finding a crypto ATM in your area.

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