If you are considering investing in cryptocurrency, you might think you need a computer science degree just to get started. Although buying crypto used to be a cumbersome and lengthy process, today you can buy and sell crypto with just a few clicks.
How to Buy Cryptocurrency
Buying crypto these days is similar to investing in the stock market. There are companies that offer access to crypto, allowing you to create an account and start investing. Follow these simple steps to start buying crypto:
1. Decide Where to Purchase Cryptocurrency
There are several ways to buy and store your crypto, each with their own advantages and drawbacks. Here are the most popular places to buy crypto:
On a Crypto Exchange
A crypto exchange is an online platform that allows users to trade cryptocurrencies, as well as buy crypto using fiat currency, such as U.S. dollars. Exchanges offer a simple way for users to exchange cash for crypto, but some also require navigating through complicated trading platforms to do so.
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The fees for trading on crypto exchanges are typically fairly low, but users who opt for the quick “buy now” features are typically hit with higher fees.
Some of the most popular crypto exchanges in the U.S. include Coinbase, Gemini, and FTX.us, with each offering access to a wide selection of crypto and simple-to-use mobile apps. These exchanges allow you to quickly sign up for an account, deposit cash, and start shopping for your favorite crypto. But remember, until you transfer your crypto off the exchange, it is technically in the custody of the exchange.
Through a Broker
Another way to invest in crypto is through an online broker. These firms have become immensely popular over the past few years, with brokers like Robinhood and Webull offering access to crypto with rock-bottom fees. These apps make it very easy to buy and trade crypto with intuitive user interfaces and simple order forms, ideal for new crypto investors.
Although brokers may offer “fee-free” trading, there are sometimes hidden fees involved, including charging higher than the current market price to buy a cryptocurrency or collecting a commission for routing trades to partners. Also, most brokerages do not allow you to transfer crypto off the platform, which means you can’t ever “own” your crypto. Some platforms are adding in digital wallets that will allow outbound transfers, but this is not the norm.
Overall, crypto brokers offer a convenient way to invest in crypto and other assets, all under one roof, but users can’t take it with them.
Other Places to Buy Crypto
There are several other ways to buy crypto, but they are typically less secure and are aimed at more advanced crypto traders.
Decentralized exchange apps (Dapps) allow you to make a purchase without the need to sign up for an account. These apps require that you have your own digital wallet, and only allow you to trade crypto (not cash).
Some users prefer these apps due to their anonymity and for keeping direct custody of your coins. Fees are typically low, but you may have to pay a lot in network fees (also known as “gas” fees).
Peer-to-peer (P2P) crypto platforms allow you to connect directly with another user without an intermediary, but typically requires you to send cash via a payment app like Zelle or PayPal and receive crypto directly in your digital wallet. These platforms are unregulated and come with many risks but offer more anonymity than crypto exchanges or brokers.
Overall, some crypto enthusiasts may prefer to buy crypto directly, but will need to accept the risks associated.
2. Create an Account
Once you’ve chosen a platform to purchase cryptocurrency through, you need to create an account. The process is similar to signing up for a bank or other financial account. This typically involves signing up with an email address, providing personal details like name and address, and verifying your identity.
Signing up is usually free and can be done with your personal email address and password. After verifying your email address, most crypto exchanges or brokerage firms will have you fill out an application, including your full name, residential address, phone number, and Social Security number. Most firms also require submitting a picture of your photo identification, such as a passport or driver’s license.
Finally, you may be required to submit a selfie picture for identity verification, to ensure it matches your provided picture ID. These measures are put into place to comply with national know-your-customer (KYC) and anti-money laundering (AML) policies. It also provides an extra layer of protection to firms against fraudulent activity.
Once your account is fully verified, you should be able to fund your account and purchase crypto.
3. Fund Your Account
Although most crypto exchanges and brokerages allow you to connect your bank account to the platform, some also allow purchases through debit or credit cards as well. There are multiple ways to deposit cash into your account, including:
- Bank Account Transfer. Most crypto firms offer ACH transfers directly from your bank account. You can provide your account number and bank routing number, but most modern platforms use a third-party connection to authorize transfers, such as Plaid. You simply sign in to your bank account and authorize the transfer to the exchange.
- Wire Transfers. Wire transfers are available to most major crypto exchanges and brokerages, although they might come with high fees and minimums. Wire transfers are typically used to move larger amounts.
- Credit or Debit Card. Although you may be able to fund your account with a debit or credit card, be aware that it usually comes with very high fees. Not only do most brokers and exchanges charge up to 5% for the privilege of using a card, credit card companies may also classify crypto purchases as a cash advance, charging an additional fee on top of your purchase.
You can also deposit crypto onto most platforms (except brokerages), allowing you to trade one type of crypto to buy another instead of using cash.
4. Place an Order
Once your account is funded, you can place your order. This involves choosing which crypto you want to purchase, selecting the order amount, and placing the order.
Most platforms list the crypto using the ticker symbol — for example, Bitcoin is listed as BTC — and allow purchasing small dollar amounts of crypto, regardless of the overall price.
For example, if 1 BTC is priced at $20,000, and you want to purchase $100 worth of Bitcoin, you can essentially purchase a fractional share that amounts to a small fraction of one Bitcoin. Your $100 purchase (less any fees) would net you about 0.005 BTC.
Although most platforms offer simple order forms, some have advanced trading platforms with multiple order types, including limits and stop-loss orders. This allows you to control the price at which you purchase cryptocurrency and typically results in lower fees overall.
5. Store Your Cryptocurrency
Once you have placed your order and the purchase is complete, the crypto is in your account, but technically still in the custody of the exchange or broker.
Although many crypto platforms offer cold (offline) storage of cryptocurrency and theft insurance, most do not offer any insurance against the company going out of business, putting your cryptocurrency at risk.
For further protection of your assets, you can take custody of your crypto by transferring it to your own digital wallet. This involves creating a withdrawal request, inputting your digital wallet address, and possibly paying a withdrawal fee. Withdrawals may take some time to process, depending on the blockchain network congestion.
Note: Most brokerages do not allow you to take custody of your crypto, but most crypto exchanges do.
Hardware wallets are the most secure place to store crypto, offering an encrypted, offline crypto storage solution. Hardware wallets such as the Ledger allow users to transfer funds to a USB-compatible storage device through encrypted software, protecting crypto assets by storing them offline. But don’t forget your password or private key to these devices because if you do the funds may be lost forever.
How to Sell Cryptocurrency
If you are looking to sell your crypto, there are several options available. Most of the same places you can purchase crypto allow you to sell it as well.
1. Decide Where You Want to Sell Cryptocurrency
Selling crypto typically requires using a crypto exchange or broker, especially if you are looking to convert your holdings into cash. Although decentralized exchanges and other marketplaces allow you to trade crypto, they typically require crypto-for-crypto transactions.
A crypto exchange is usually a fiat marketplace as well, allowing you to sell your crypto for cash. Places like Coinbase and Kraken offer a simple way to sell your holdings, although the fees may be on the higher side.
If you simply want to trade crypto, you can do that through an exchange as well, with some exchanges offering a wide range of trading tools and low trading fees.
Crypto exchanges also offer deep liquidity, reducing the risk of pricing issues and allowing transactions to execute relatively quickly.
You can also sell your crypto through a decentralized exchange, although this only allows you to trade it for another cryptocurrency, such as a stablecoin. For users who don’t need access to cash but simply want to convert their crypto to another, a decentralized exchange is a quick way to do this.
As mentioned above, P2P crypto platforms allow users to buy and sell crypto directly to other users. Selling on these platforms may involve a direct trade for another crypto, or you may be able to post your personal PayPal or Cash App details and receive cash for your crypto.
2. Create an Account (if You Don’t Have One Already)
Once you select a platform to sell your crypto on, you may need to create an account. If you’re using the same brokerage or crypto exchange you used to purchase crypto, you can simply log in to this account.
If you are creating a new account, you need to provide personal details, such as your driver’s license, name, address, and Social Security number. You may also need to verify your identity through a third-party, sending a picture of yourself to ensure it matches your ID.
3. Complete the Sale Transaction
Once you are logged into your account, you can place a “sell” order to convert your crypto to cash or another cryptocurrency.
Most crypto exchanges and brokerages make this easy, requiring you to simply select the amount and hit “Sell.” You may also be able to set more advanced order types, such as a limit sell order or a stop-loss order.
Once the transaction is complete, the cash will be deposited into your account on your platform of choice.
4. Transfer the Funds to Your Bank Account or Buy More Crypto
Once you have sold your crypto, you can choose to transfer your cash off the platform, or use the balance to buy more crypto.
To transfer funds to your bank account, you can start a withdrawal request, select the amount you wish to transfer, and select the bank account to transfer to.
If you want to keep your cash on the platform to buy more crypto, be aware that many crypto exchanges do not offer FDIC insurance on your liquid holdings, which could put your funds at risk if the exchange folds. Most crypto brokers, on the other hand, are also transitional investment firms and do carry FDIC insurance.
Buying crypto used to be hard.
But with the advent of modern crypto exchanges and crypto brokers, it has never been easier to smash the “Buy” button on your favorite crypto. Add to that most platforms offer intuitive mobile apps and automated investment options, you can now invest in crypto with ease.
There are always risks to buying a speculative asset, but crypto offers some unique risks as well, including lack of investment insurance, private key management, and the potential for digital theft at an all-time high. And watch out for high fees on some platforms, which can end up costing a lot.
But knowing your options will help make you an informed buyer, and taking steps to secure your assets will help you keep your crypto protected.