How to Buy Cryptocurrency: Everything to Know
By Beluga Research October 6, 2023
- Learning how to buy cryptocurrency is not difficult, as it can be purchased through online platforms or exchanges for investment or transactions
- Cryptocurrency is a digital asset that uses cryptography to secure transactions and operates on decentralized blockchains
- Purchasing cryptocurrency includes choosing a reputable exchange, creating an account, depositing funds and securely storing the chosen cryptocurrency in a wallet
- Cryptocurrencies have advantages like global accessibility, decentralization and security, as well as disadvantages like volatility, regulatory uncertainty and complexity
Learning how to buy cryptocurrency is not difficult, as it can be purchased through online platforms or exchanges for investment or transactions. Further, cryptocurrency has numerous benefits and unique features that separate it from traditional currency.
Cryptocurrencies are immutable, making transactions recorded on the blockchain highly secure and transparent. They can be directly transferred between parties without intermediaries like banks or payment processors, making transactions efficient and cost-effective.
A Brief History
Cryptocurrency began in 2009 with the introduction of Bitcoin by an anonymous person or group called "Satoshi Nakamoto." Bitcoin's groundbreaking innovation was its associated blockchain technology, which solved the problem of double-spending in digital currencies.
Following Bitcoin's success, many other cryptocurrencies emerged with unique features and use cases. Ethereum, launched in 2015, introduced smart contracts that enabled the creation of decentralized applications (dapps) on the blockchain, expanding possibilities beyond peer-to-peer (P2P) transactions.
The cryptocurrency market has since grown significantly, with new projects offering solutions and applications across industries.
How to Buy Cryptocurrency: Everything to Know
- Choose a Cryptocurrency Exchange - Users must first select a reputable exchange that supports the cryptocurrencies they want to buy. Factors to consider include security, fees, available trading pairs, user interface and customer support. Popular exchanges include Coinbase, Binance, Kraken and Gemini.
- Create an Account - Once an exchange is chosen, the user can sign up for an account on the associated website. The user will be asked to provide necessary information, including email address, password and verification requirements. It is recommended that a strong password be utilized and two-factor authentication (2FA) enabled for enhanced security.
- Complete Identity Verification - Most reputable exchanges require "know your customer" (KYC) verification to comply with regulations and prevent illicit activities. Thus, a user is generally required to upload required identification documents like a passport or driver's license and wait for verification.
- Deposit Funds - After verification, the user can deposit funds into an exchange wallet by linking a bank account or credit or debit card and initiating a transfer. Some exchanges also support cryptocurrency deposits.
- Choose the Cryptocurrency and Place an Order - Once funds are deposited, the user can navigate to the exchange's trading section, select the desired cryptocurrency, specify the amount to purchase and review order details. The buy order can be executed whenever the user is ready.
- Securely Store Cryptocurrency - After purchasing cryptocurrency, it is essential to store it securely in a wallet. Exchanges offer custodial wallets to hold funds on behalf of users and non-custodial wallets that allow the user full control. Users may also consider using a hardware wallet for increased security.
In order to get the most out of the world of cryptocurrency, it is important to conduct proper research. Before diving in, users should take the time to learn about cryptocurrencies, blockchain technology and the specific cryptocurrency in which they are interested. Understanding the basics will help to make informed decisions.
Education is important before getting started with cryptocurrency for numerous reasons, including the following:
- Risk Awareness - Cryptocurrency markets are highly volatile and speculative, meaning that prices can fluctuate dramatically in a short period, leading to potential losses. Understanding the risks involved helps users to make informed decisions and manage investments wisely.
- Security - Knowing how to secure cryptocurrency holdings is paramount. Learning about wallets, private keys and best practices for online security reduces the risk of theft or hacking.
- Regulatory Compliance - Cryptocurrency regulations vary by country and region. Being informed about the legal and tax implications of cryptocurrency transactions ensures compliance with local laws and reporting requirements.
- Scam Prevention - The crypto space is rife with scams, fraudulent schemes and phishing attempts. Learning about common scams and red flags helps users to avoid falling victim to them.
- Technology Understanding - Cryptocurrencies are built on blockchain technology. By familiarizing themselves with blockchain concepts and how different cryptocurrencies work, users provide a foundation for making informed investment decisions.
- Avoiding Impulsive Decisions - Emotional decision-making can lead to buying or selling cryptocurrencies at the wrong times. Being educated helps users make rational choices based on analysis and a long-term perspective.
- Decentralization - Cryptocurrencies operate on decentralized blockchains, distributed across computers worldwide, ensuring transparency, security and resilience.
- Digital Nature - Fast and borderless transactions with digital currencies are possible globally because cryptocurrencies exist only in digital form as cryptographic codes stored on the blockchain.
- Security - Transactions on blockchain networks are secured through advanced cryptographic techniques, making them immutable and resistant to fraud. Users have control over funds through private keys that must be safeguarded.
- Anonymity - While transactions are pseudonymous on the blockchain, it is possible to trace and analyze them. Regulatory measures aim to comply with anti-money laundering and KYC requirements.
- Smart Contracts - These self-executing contracts have terms written into code. They automate actions when predefined conditions are met, improving efficiency in finance, supply chain management and dapps.
- Global Accessibility - Cryptocurrencies enable worldwide participation in the digital economy, regardless of location.
- Decentralization - Because they operate on decentralized networks, cryptocurrencies remove the need for intermediaries like banks, ensuring faster, more efficient transactions.
- Security - Advanced cryptographic techniques are used by cryptocurrencies to secure transactions and wallets, protecting funds from fraud and hacking attempts. Blockchain technology ensures transparency and immutability.
- Financial Inclusion - Through cryptocurrencies, financial services can be provided to the unbanked and underbanked populations, allowing secure storage and transfer of value with just a smartphone and internet access.
- Potential for High Returns - The cryptocurrency market has seen significant growth, offering remarkable returns on investment and attracting investors seeking to capitalize on volatility and emerging opportunities.
- Diversification - Cryptocurrencies provide a new asset class for diversifying investment portfolios, reducing overall risk and increasing potential returns when combined with traditional investments.
- Ease of Transfers - Fast and low-cost cross-border transactions are possible through cryptocurrencies, streamlining the process compared to traditional methods involving multiple intermediaries.
- Volatility - Cryptocurrencies are highly volatile, with significant price fluctuations in short periods, making them high-risk investments.
- Regulatory Uncertainty - Regulations regarding cryptocurrency vary across jurisdictions, creating uncertainty for investors and users, and impacting adoption and value.
- Lack of Consumer Protection - Generally, cryptocurrencies lack the same level of consumer protection as traditional financial systems. Hacked or bankrupt cryptocurrency exchanges may offer limited avenues for fund recovery, emphasizing the need for reputable exchanges and proper security measures.
- Complexity - Blockchain technology and other aspects of cryptocurrencies can be complex for newcomers, requiring a learning curve to understand technical jargon, wallets, private keys and security practices.
- Irreversible Transactions - Once confirmed on the blockchain, cryptocurrency transactions are typically irreversible. Therefore, mistakes or sending funds to the wrong address can be challenging or impossible to rectify, emphasizing the need for careful transaction verification.
- Energy Consumption - Some cryptocurrencies, like bitcoin, rely on energy-intensive proof-of-work consensus mechanisms, leading to concerns about negative environmental impacts.
- Limited Merchant Acceptance - While the acceptance of cryptocurrencies as a payment method is growing, it remains relatively limited compared to traditional fiat currencies, posing challenges in finding merchants that accept cryptocurrencies for goods and services.