Learning how to buy cryptocurrency is fairly straightforward once you understand what you need. You will need to select a crypto exchange or an investment app that supports cryptocurrencies and open an account.
After you open an account and deposit money, you can begin buying cryptocurrencies. As with many stock investment apps, you can even set up recurring purchases. A crypto exchange like Kraken or an investment app that supports cryptocurrencies like Robinhood enable you to sell your digital currencies and cash out your crypto holdings.
- To buy cryptocurrencies, you simply need to create an account with an investment app such as Robinhood or a cryptocurrency exchange such as Kraken. Then you need to fund your account and place a purchase order.
- Many investment apps and crypto exchanges available nowadays make the purchase process intuitive and easy to complete while offering more advanced tools for expert traders.
- You can typically fund your trading account using various methods, such as ACH bank transfer or credit or debit card payments. Methods available to you will vary based on the platform you use.
- You don’t have to buy bitcoin or other cryptocurrencies in full units. For example, you can buy a 0.25 or 0.01 fraction of a bitcoin.
What is cryptocurrency?
A cryptocurrency is a form of digital currency. It’s a medium of exchange that doesn’t rely on a centralized authority, like a central bank, to verify its legitimacy. Instead, transactions are made using digital coins and are verified using cryptography. Cryptocurrencies are sent and received using a decentralized public network called a blockchain.
Cryptocurrencies are different from what we call fiat currencies, which are currencies backed by the government. For example, the U.S. dollar is a fiat currency backed by a centralized authority — the United States government. Cryptocurrencies exist digitally and don’t require a central source because they’re secured by networks of computers.
How to buy cryptocurrency in 5 steps
Buying cryptocurrencies used to be complicated. Today, crypto exchanges, certain investment apps, simple crypto wallets, and straightforward withdrawal methods allow you to buy, sell, and trade cryptocurrencies with ease.
Here's how to buy cryptocurrency in five steps:
- Choose a crypto exchange or an investment app
- Open a trading account
- Deposit money into your account
- Choose a cryptocurrency and buy it
- Store your cryptocurrencies
1. Choose a crypto exchange or an investment app
A crypto exchange is a platform where buyers and sellers trade cryptocurrencies. For instance, if you wish to buy bitcoin, you’ll be matched with a seller.
Some exchanges, like Kraken, offer additional options, such as trading one cryptocurrency for another. Crypto exchanges often support over 100 cryptocurrencies and provide user-friendly interfaces for beginners and advanced interfaces for experienced traders. Other popular exchanges include Coinbase and Gemini.
On the other hand, investment apps provide access to various assets like stocks and exchange-traded funds (ETFs), and some, like Public, also support cryptocurrencies. However, these apps typically don’t allow exchanging one cryptocurrency for another and may offer a limited number of cryptocurrencies without advanced trading tools. Other investment apps supporting cryptocurrencies include Robinhood and Webull.
|Crypto exchanges||Investment apps|
2. Open a trading account
The next step is to open a trading account with a crypto exchange or an investment app that supports cryptocurrencies.
You can choose one of the best cryptocurrency exchanges based on your experience, desired crypto products, and the exchange’s fees and features. Some exchanges offer debit cards linked to your crypto assets, allowing ATM withdrawals. Others provide access to non-fungible tokens (NFTs), a type of digital art.
Consider the fee structure. Most exchanges use a tiered maker/taker fee model, where your 30-day trading volume determines your tier, and your order type (maker or taker) determines your fee. Makers place orders for future fulfillment, while takers place orders for immediate fulfillment. Taker fees are typically higher.
Here’s how two popular cryptocurrency exchanges compare.
|Visit Kraken||Read our Coinbase review|
Instead of a crypto exchange, you might opt for one of the best investment apps. When choosing, consider the accessible assets, fees, and features. Many apps supporting cryptocurrencies offer commission-free trades. However, they may profit from the price difference between the market price of a cryptocurrency and your purchase price.
Consider these two investment apps that support cryptocurrencies.
|Visit Public||Visit Robinhood|
Whether you opt for a crypto exchange or an investment app, opening a trading account typically involves providing personal information as part of the Know Your Customer (KYC) standard. This standard is used by many platforms to verify your identity. You may need to provide:
- Legal name
- Phone number
- Social Security number
- Driver’s license
- Email address
- Annual income
In some instances, you might also need to upload pictures of your driver’s license or other documents for verification by a customer support representative. After creating your account, remember to enable security features like two-factor authentication before adding funds.
3. Deposit money into your account
Once you open your crypto brokerage account, you need to deposit the funds you’ll use to trade crypto. Most exchanges and apps allow bank account connections via the Automated Clearing House (ACH) network, commonly used in the U.S. for financial transactions.
Funds usually become available for trading within five business days, though some platforms may offer immediate access. Besides bank transfers, you can use credit or debit card payments to fund your account or purchase cryptocurrencies, often with instant availability. However, card usage may incur fees, such as Kraken’s 3.7% plus $0.25 per crypto purchase.
Some platforms allow other payment methods like wire transfers or PayPal, Venmo, Apple Pay, and Google Pay, each with its own fee schedule. For instance, Public doesn’t charge for incoming wire transfers, while Coinbase charges $10.
Generally, the most cost-effective funding option is an ACH bank transfer.
|ACH bank transfer||Credit or debit card|
4. Choose a cryptocurrency and buy it
Cryptocurrencies use ticker symbols as shorthand identifiers, similar to the stock market. When purchasing a cryptocurrency, you can search for the coin using its ticker symbol on the exchange or investment app. For instance, BTC is the ticker symbol for Bitcoin.
Here are some popular cryptocurrencies and their ticker symbols:
Some of these currencies, such as tether and USDC, are stablecoins pegged to stable assets like the US dollar or gold to minimize volatility. However, they lack the return potential of traditional cryptocurrencies.
You might start with well-known cryptocurrencies like bitcoin or ether. Bitcoin is the first cryptocurrency and has the most recognition. Ether, the currency of the Ethereum blockchain, is the second-largest and offers additional services beyond its use as a currency.
Once you’ve chosen a cryptocurrency, you can place an order on most exchanges for immediate execution. Decide how much you want to buy, select your payment method, and submit your order. You can usually buy a fraction of a coin if you don’t want to purchase a whole one.
5. Store your cryptocurrencies
After you buy cryptocurrencies, you will need a place to store them. You have a number of options to choose from.
- Keep them on the exchange or investment app: The best crypto exchanges and investment apps often allow you to hold your cryptocurrencies on them. This is an easy way to store bitcoin, ether, or other coins with the trading service provider you use, but it comes with limited functionality and control over your coins.
- Easy access to your cryptocurrencies
- You may be able to earn interest on certain coins
- Simple login recovery if you forget your password
- The exchange or investment app controls your cryptocurrencies
- You may not have SIPC insurance to protect against exchange or app failure
- Send them to a hot wallet: A hot wallet is standalone cryptocurrency software that’s connected to the internet and allows you to store your cryptocurrencies. Hot wallets are generally easy to use and give you more control over your coins and private keys compared to an exchange or investment app.
Find out how to set up a crypto wallet.
- Easy to connect to exchanges and marketplaces
- Often have recovery options if you lose your access
- Fast and easy to use for transactions
- Might be susceptible to online hacks
- Depending on the wallet, you may not have full control over your crypto
- Keep them in cold storage: Cold storage is keeping your cryptocurrencies on a device that isn’t always connected to the internet. Many cold wallet options come in the form of a hardware wallet, such as a USB thumb drive. For example, if you store bitcoin on a thumb drive that isn't connected to the internet, you would reduce the risk of losing anything from this cold bitcoin wallet.
- The most secure form of crypto storage
- You often have full control of your cryptocurrencies
- Can be ideal for holding a large number of cryptocurrencies with less chance of being hacked
- The process of transferring your cryptocurrencies can be burdensome
- If you lose your cold storage device, you will lose your cryptocurrencies
Keep in mind that you can also use multiple methods of storage. For example, you may keep a relatively small amount of cryptocurrencies on an exchange or in a hot wallet to easily trade or complete other transactions. However, when it comes to the bulk of your digital assets, you may prefer using cold storage for better security.
Some platforms may even provide staking opportunities to earn passive returns on cryptocurrencies you hold. When you stake, you simply hold and lock up a certain amount of a specific cryptocurrency in order to support the operations of a blockchain network. In return for staking, you often earn cryptocurrency rewards.
Learn more about staking in crypto and how it works.
5 essential tips before buying cryptocurrency
Before you move forward with your cryptocurrency purchase, you need to learn a few basics.
1. Find out your country’s regulations
Realize that, first of all, you need to determine your country’s regulations regarding cryptocurrencies. Make sure to review your country’s main financial regulatory body to find out whether you’re allowed to buy, sell, and own cryptos.
Some countries, like Iran and Bolivia, have banned cryptocurrencies altogether. Other countries are specific in their bans, such as South Korea banning privacy coins like monero (XMR), which hides some of the specifics of transactions and can be used in money laundering.
2. Learn how to analyze fees
Various exchanges and brokerage services charge different trading fees. You may also pay other fees, such as deposit or withdrawal fees. Look at your platform’s fee schedules to get a sense of what you’ll pay.
For example, you may pay an initial small transaction fee before paying other fees on top of it. This can make a higher transaction fee that doesn't come with additional charges at another platform make more sense.
3. Don’t invest more than you can afford
Because cryptocurrencies are new and considered to be an alternative asset, they can also be subject to volatility. Some cryptocurrencies may also lack liquidity, meaning it may not be easy to convert them back to cash. So avoid investing more than you can afford to lose, and keep in mind that past performances don't guarantee future results.
Additionally, there are always new coins coming out, so it’s hard to tell which will catch on or which blockchain technology will end up becoming dominant. With so many questions, it’s a wise move to avoid putting everything in your bank account into crypto investing.
4. Make sure you understand order types
Pay attention to the type of order you’re executing. Understand whether you’re buying, selling, or exchanging. Additionally, find out if your order will be executed immediately or if it will take some time to go through. Depending on the coin and the network being used, you might end up waiting days for a transaction to settle. For more popular market orders on major exchanges, the transaction is almost instantaneous.
5. Protect yourself against theft and fraud
Pay attention to where you’re getting your information, as well as the exchanges you use. In the past, there has been fraud around cryptocurrencies, as well as theft. If someone gets access to your security keys, they can clean out your digital wallet, and you have no recourse. Additionally, watch out for investment scams promising big returns from special programs related to cryptos.
How to sell cryptocurrency
At some point, you may decide that it’s time to sell your coins or end your cryptocurrency investing. In many cases, the process is similar to buying it.
- Decide the amount you want to sell and choose the sell option on your exchange or investment app. Many interfaces show you the dollar amount of your sale to make it easier to see how much you can expect to receive.
- Once you sell crypto, confirm that the transaction went through. Verify your available cash balance in the exchange or investment app.
- Once you have the balance, you should be able to withdraw it to your bank account. Most exchanges and investment apps don’t charge you a fee to withdraw via ACH bank transfer. You may also have other withdrawal options, such as wire transfers or PayPal. However, you may be subject to fees.
Buying cryptocurrency FAQ
How much money do you need to buy cryptocurrency?
How much money you need to buy cryptocurrency depends on where you’re buying it and the policies in place. It’s possible to buy crypto coins with as little as a dollar, although there might be different minimums for different coins.
Do you have to pay taxes on cryptocurrencies?
Yes, you pay taxes on profits you make by trading cryptocurrencies. The IRS treats cryptocurrencies as property for tax purposes. If you sell a cryptocurrency for more than you paid for it, you will be subject to capital gains taxes. Additionally, if you receive cryptocurrency in exchange for work, you need to report it as income on your taxes.
Is buying cryptocurrency illegal?
Whether or not it’s illegal to buy and sell cryptocurrency depends on your country. In the United States, it’s legal to buy cryptocurrency.
Why is cryptocurrency so popular?
Recent headlines involving celebrities have pushed cryptocurrencies into public consciousness. Many people are likely excited by the prospect of something new and don’t want to miss out on what they might perceive as an opportunity to strike it rich.
What are the risks of buying cryptocurrency?
As with any investment, there’s a potential that you will lose your initial investment when you buy cryptocurrency. The coin may not take off, or it could lose value rapidly. Additionally, cryptocurrencies can be illiquid, meaning it can be difficult to turn them back into fiat currency readily, especially if you buy an altcoin that isn’t frequently traded. Finally, crypto prices are highly volatile, and this contributes to the uncertainty and risk of loss.
How to buy cryptocurrency: bottom line
These days it’s fairly easy to purchase cryptocurrencies, especially if you’re just looking to buy and sell Bitcoin. All you need is access to a computer or a mobile app, along with a few dollars. However, before you move forward, make sure you understand the coins you’re buying and know the risks. Avoid investing money you can’t afford to lose and make sure that you have an investment strategy in mind.
If you want to learn more, make sure to check out our guide to cryptocurrency for beginners.