Cryptocurrency is becoming a little more mainstream — at least more people have heard of crypto and are interested in it. With this increased interest, more people want to know how to buy cryptocurrency so they can get in on the action.
If you’re interested in learning how to buy cryptocurrency, whether you want to use it for person-to-person transactions, as an investment, or even if you think you might be able to make purchases from retailers, here’s what you need to know.
What is cryptocurrency?
A cryptocurrency is basically digital money or 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 tokens (coins) and verified using cryptography. Cryptocurrencies are sent and received using a decentralized public ledger called a blockchain.
Cryptocurrencies are different from what we call fiat currencies, which are those 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.
Bitcoin kicked off the use of cryptocurrencies, so any cryptocurrency that isn’t on the Bitcoin blockchain is considered an altcoin — or an alternative to Bitcoin. The rise in popularity of Ethereum and its related blockchain could change that, though. Some brokers like Robinhood now divide cryptocurrencies into the Bitcoin and Ethereum families and list the rest of their available offerings as altcoins.
In addition to these main coins and altcoins, there are stablecoins, which are linked to specific assets. For example, a stablecoin might be linked to the U.S. dollar. In order to maintain price stability in a one-to-one exchange, the coin is backed by reserves of dollars held in a bank. There are also stablecoins that are pegged to other fiat currencies or commodities such as gold.
As you learn how to invest money in cryptocurrencies, understanding the differences between fiat currencies, altcoins, and stablecoins can help you make better decisions.
According to Visa, its customers spent $1 billion on its cryptocurrency-linked cards in the first half of 2021. As more retailers accept crypto assets as payment and more people learn how to invest in digital assets, the list of popular cryptocurrencies grows.
Some of the most popular cryptocurrencies, according to the CoinDesk20 as of July 12, 2021, include:
- Bitcoin (BTC)
- Ethereum (ETH)
- Ripple (XRP)
- Cardano (ADA)
- Stellar (XLM)
- USD Coin (USDC)
- Uniswap (UNI)
- Chainlink (LINK)
- Polkadot (DOT)
- Litecoin (LTC)
Some coins, like Dogecoin (DOGE), made a big splash initially, but have since dropped in popularity.
How to buy cryptocurrency
Before you move forward with your cryptocurrency purchase, you need to determine a few basics.
1. Your country’s regulations
Realize that, first of all, you need to determine your country’s regulations regarding cryptocurrencies. You can check with your country’s main financial regulatory body to find out whether you’re allowed to buy, sell, and own cryptos. You can get a basic overview from Analytics Insight’s rundown of cryptocurrency regulations.
Some countries, like Iran and Bolivia, have banned cryptocurrencies altogether. Other countries are specific to 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. How you plan to pay for your crypto
Once you figure out whether you can buy cryptocurrencies in your country, it’s time to figure out how you plan to pay for your crypto. Not all crypto exchanges and trading platforms accept all forms of payment. Some exchanges will take debit and credit cards, while others only accept bank transfers.
It’s also important to note that some exchanges allow you to transfer your crypto tokens from another exchange or crypto wallet into and out of their exchange. Depending on the exchange, you might be able to directly trade cryptocurrency pairs without first converting to a fiat currency. This could save you both hassle and money.
3. How to analyze fees
Various exchanges and brokers charge different fees. Additionally, you might have to pay other fees. When engaging in transactions that include the Ethereum blockchain, you might be charged a “gas” fee based on the computing power being used to complete transactions.
Look at a platform’s fee schedules to get a sense of what you’ll pay. For example, you might pay a flat transaction fee but then need to pay other fees on top of that. This might make a sliding transaction fee at another platform actually work out better.
Find out what fees are charged. Some brokers simply charge based on the spread between the asking price and the selling price of a coin. Many exchanges will provide you with the total cost before you complete your transaction, but in some cases, you might be surprised later.
4. Which coin you want to buy
Not every coin is available in every place. If you want to trade Bitcoin, you have a lot of exchanges and brokers available to you. But, DOGE isn’t available on every exchange, even though it was popular for a period of time. Many altcoins aren’t readily available on major exchanges.
There are thousands of cryptocurrencies, so it’s important to know what you want to buy before moving forward. Research the coin you’re interested in and look for an exchange or broker that offers access to it.
For more info, check out our guides on:
5. How to get set up with a digital wallet
Finally, you need a digital wallet that can receive, send, and store your coins. To make the best choice for your goals, you need to understand the difference between a hot wallet versus a cold wallet:
- A hot wallet is one that’s always connected to the internet. Some major exchanges offer wallet services connected to the internet to make it easy to send and receive coins from others, or from your own wallet.
- A cold wallet isn’t connected to the internet. It is a hardware wallet that often looks like a flash drive. This means your security keys aren’t saved online. But you only plug the wallet into a computer if you want to send or receive crypto from elsewhere.
When choosing a wallet, make sure it’s compatible with the coin you’re interested in. Not every wallet can accommodate every coin, so research ahead of time to make sure your wallet will work with the coins you want to buy.
Where to buy cryptocurrency
Cryptocurrency exchanges function similarly to regular brokerages. Much like you can choose a stock to buy with an online broker and place your order, a crypto broker exchange allows you to choose a coin to buy and make your purchase.
It’s also often possible to buy a portion of a coin. For example, if you can’t afford one Bitcoin, you could buy a fraction of a Bitcoin. Many exchanges list a minimum transaction amount for each coin, so you know how much you need to spend at minimum.
Some exchanges also allow for trading cryptocurrencies for one another. Examples would be for trading Bitcoin/Litecoin (BTC/LTC) or trading Ethereum/Bitcoin Cash (ETH/BCH). As long as the particular cryptocurrency pair is supported, you might be able to directly exchange them without first converting them to a fiat currency.
Some exchanges even offer credit cards and other perks, like rewards in cryptocurrency. This makes it easier to use your cryptocurrency or even earn more coins with each purchase.
Some common cryptocurrency exchanges include:
You can easily compare those top three exchanges by checking out our guide to Kraken vs. Coinbase vs. Gemini.
Rather than buying your coins from a broker, where a third party manages the transaction, it’s also possible to purchase crypto on a peer-to-peer exchange.
With these exchanges, you sign up, verify your email, and then begin looking for coins and rates you like. You agree to terms directly with the person you’re trading with, and there might be a number of accepted payment methods, including PayPal, gift cards, or wire transfer. You can also often execute transactions with smaller fees than what would normally be charged by a broker.
It’s important to note that you need to know your wallet address when using peer-to-peer exchanges, since you might not have access to a wallet service on the exchange itself. You can typically have your coins sent to a hot or cold wallet.
Some of the peer-to-peer exchanges available include:
- HODL HODL
Some investing apps that allow you to trade stocks and options also allow you to trade crypto. However, it’s important to note that you’re not actually buying the coins in many cases. Instead, you’re basically buying an IOU marker based on the broker’s holdings.
Many of these apps don’t have wallet services, and there’s no way to send your current coins to your account with the app or withdraw coins. You have to use fiat currency in your account balance to buy, and then you need to sell your position for fiat currency and withdraw the money if you want access to it.
While these apps can make it easy to gain exposure to cryptocurrency trading, you’re not actually buying coins. Some examples of investing apps that offer crypto trading include WeBull, Robinhood, and SoFi. WeBull made our list of the best day trading apps, while Robinhood is on our list of the best investment apps overall. SoFi is on our list of the best brokerage accounts.
To learn more, check out our:
PayPal now makes it possible for you to buy crypto using their app. However, the only cryptocurrencies available are:
- Bitcoin Cash
PayPal provides the wallet service for you, and you can start with as little as one dollar. You do need a PayPal Cash or Cash Plus account to make your purchases, though.
On top of that, you can choose to pay for online transactions using cryptocurrency. However, if you do decide to use crypto as a payment option, it will be considered a taxable event, since PayPal will have to sell the crypto on your behalf to complete the transaction.
Another place to buy cryptocurrency is at an ATM. There are more than 10,000 ATMs worldwide that allow you to purchase cryptocurrencies. Many of them allow you to buy Bitcoin, Ethereum and Litecoin, and you might have access to other coins, depending on the ATM.
These ATMs are often standalone and look similar to bank ATMs. You can put in your debit card and then purchase coins to be sent to your wallet. In some cases, depending on the ATM, you might even have a wallet created for you. In this case, security keys will be printed out for you so that you can access the wallet later.
Tips to keep in mind before you buy crypto
- Don’t invest more than you can afford. Because crypto is new and considered to be an alternative asset, it can also be subject to volatility. It’s also lacking in liquidity, meaning it’s not necessarily easy to convert it back to cash. So it’s important to avoid investing more than you can afford to lose. Additionally, there are always new coins coming out, so it’s hard to tell which will catch on or which blockchain platform will end up becoming dominant. With so many questions, it’s a wise move to avoid investing everything in your bank account.
- 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.
- 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.
- Do your market homework. Understand what you’re getting into before you move forward. Know the market, and pay attention to some of the uses of the underlying blockchain. Know why you’re buying a specific coin, how it’s used, and why it works in your portfolio.
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.
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, especially a new asset class, 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.
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.
If you want to learn more, make sure to check out our guide to cryptocurrency for beginners.