Archives February 2022

How to buy cryptocurrency

Understanding how and where to buy your crypto, and the potential risks involved.

Buying cryptocurrency can be a relatively straightforward process, and there are numerous ways to do it which are accessible to almost anyone. That being said, some methods of buying crypto come with higher risks and/or returns. So, it’s worth doing your research on how to buy cryptocurrency before taking the plunge. 

Whether you’re new to crypto or a seasoned trader, see below for some useful insight into where to purchase your crypto and the benefits and risks involved.

What are cryptocurrencies? 

A cryptocurrency is a digital asset that is traded on a global market. Unlike stock market trading, which operates only within certain hours of the day and on weekdays, cryptocurrency can be traded 24 hours a day, 7 days a week, 365 days of the year. There is no centralised governance of the market.

Being able to trade cryptocurrency 24/7 has some obvious advantages. Prospective investors do not need to wait around for the NYSE, NASDAQ or another exchange to open in order to buy crypto and start trading. The fact that the market is open around the clock also has the advantage of driving up profits for the industry. 

A downside to the market never closing is that it results in huge fluctuations within the market at all hours of the day and night. Every few hours a part of the world wakes up and starts trading, which has a massive effect on market outcome. This can make the market unpredictable and can be exhausting for prospective buyers, traders, and sellers of crypto, who may feel that they need to trade round-the-clock in order to stay abreast of the latest updates.

How to buy cryptocurrency

Where can I buy crypto? 

There are a number of different platforms where you can purchase cryptocurrency. These platforms are generally separated into two main factions: centralised exchanges (CEX) and decentralised exchanges (DEX). 

Centralised exchanges (CEXs)

With around 99% of crypto exchanges being made via these platforms, the most common place to buy cryptocurrency is a centralised online exchange. While cryptocurrency is technically “decentralised”, as mentioned above, centralised markets do exist within the crypto space in the sense that the central aspect of said market is an acting “middle-man” service provider who enables users to buy, trade, and sell crypto via their platform. 

Centralised cryptocurrency exchanges essentially act as third-party brokers which oversee transactions and provide customers with the knowledge security that they are getting what they pay for. Generally, these platforms facilitate the buying and selling of crypto at market value, while making a profit off of various service fees. 

Some of these brokers deal singularly in cryptocurrency, whereas others allow users to purchase crypto alongside their standard stock offering.

Popular examples of CEXs that deal purely in crypto include:

Popular examples of CEXs that also offer stocks and bonds include:

Pros and cons of centralised cryptocurrency markets

Pros

  • Used by the vast majority of crypto buyers. Centralised exchanges account for roughly 99% of cryptocurrency trading volume. This can make them more straightforward and user-friendly for first-time crypto buyers, as they can guide you through the purchasing process.
  • Higher levels of liquidity. Due to there being more market participants, there is consistently high liquidity in centralised cryptocurrency markets.
  • More regulated. Centralised crypto exchanges are better regulated by financial authorities and follow more compliance procedures than decentralised markets. 
  • Better infrastructure. Because of their higher popularity, and therefore profit, centralised markets are able to offer better infrastructure such as faster transaction speeds. This often allows users to make purchases, sales, or trades in less than a second.

Cons

  • Potential hacking. Because of high trading volumes, centralised markets are an attractive target for hackers. While some centralised markets, eg. Coinbase, are insured by the FDIC (Federal Deposit Insurance Corporation) this is only up to $250,000 USD, and this type of insurance is not requisite of, or available to, all centralised market exchanges. 
  • The buyer does not retain full control of their assets. When purchasing crypto, you are given a private key, which is a randomly generated string of letters and numbers, which allows you to store and spend your crypto via a digital wallet. With a centralised exchange, you entrust your private keys to the market that you purchase from, meaning that you don’t have full control of your money.
  • They keep their systems off the blockchain. Centralised markets do not record their transactions on the blockchain, a database distributed amongst nodes in a computer network (Ethereum and Binance Smart Chain are examples of blockchains). This means that there is no totally secure record of these transactions, which can lead to security breaches.
  • Fees. Centralised markets make their money from charging their users fees for their services. 

Decentralised exchanges (DEXs)

Decentralised exchanges, on the other hand, are markets that exist directly on the blockchain. Where centralised markets exist as third-party brokers, decentralised markets allow for peer-to-peer transactions. This is often referred to as a “trustless” environment, because you are not entrusting your private keys or information to an outside source.

Decentralised exchanges are notably less popular than centralised exchanges, although their popularity is currently rising. This is due to the fact that they offer solutions to many (if not all) of the problems posed by centralised exchange platforms. 

Examples of DEXs include:

Pros and cons of decentralised cryptocurrency markets

Pros

  • Secure. A major benefit of a decentralised market exchange is that there is almost 0% chance of hackers infiltrating the system and stealing your funds, or any other security risks. 
  • Buyers retain total control. When buying through a decentralised exchange, you retain control of your private keys, rather than relinquishing them to a third-party. Trading is made directly from a personal wallet or cold storage device. 
  • Greater diversity. You can access, buy, trade, and sell a greater number of coins using a decentralised market than a centralised one. Some centralised markets may only allow you to trade popular coins, such as ethereum or bitcoin, but decentralised markets offer full access to all available coins. 
  • Low/no fees. Decentralised markets charge minimal or no fees for their services. 

Cons

  • Lack of liquidity. Because these markets are lesser-known and lesser-used, they often lack sufficient liquidity to trade effectively. 
  • Have centralised components. While in theory decentralised markets are “impossible” to hack, this is often not in fact the case, because many of them have centralised components, which could pose the same issues as centralised markets.
  • Experienced buyers only. Only people with a good understanding of cryptocurrency trading ought to attempt to make purchases via a decentralised market exchange. They have complex user interfaces, which can be confusing for new traders.
  • Less features available. Orders on decentralised exchanges tend to take longer, and the platforms themselves offer less features than centralised markets.  

Whether you are looking to buy crypto on a centralised or a decentralised exchange, it’s good to do your research on as many options as possible prior to making a purchase by comparing exchange platforms.

How to buy Bitcoin

getty images

Your step-by-step guide to buying the world’s most popular cryptocurrency.

Bitcoin is the original, biggest and most well known cryptocurrency currently on the market. And while buying Bitcoin can seem like a daunting prospect, it’s really relatively easy when you know where to start. See below for our 6 easy steps on how to buy Bitcoin.

1. Choose an exchange or broker

Choosing an exchange or a broker can require a bit of research, especially if you’re new to crypto.

Exchanges:

You can opt for either a centralised (CEX) or a decentralised (DEX) exchange. If you are just starting out on your cryptocurrency journey, opting for a centralised exchange, like Coinbase, Binance, Gemini or CoinSpot might be a preferable option for you. Decentralised exchanges are more suited to buyers and traders with more experience in the cryptocurrency market due to their complex user interfaces.

Different exchanges will charge different fees for their services, so it’s worth comparing the market to find one that’s the best for your circumstances. The price of Bitcoin, because it is a decentralised currency, may also vary somewhat across market platforms.

Brokers:

If you’re looking for the safest and easiest way to buy Bitcoin, brokers like eToro are ASIC regulated, so your purchase is protected. Cryptocurrency brokers can also take the confusion out of buying crypto by organising the purchasing on your behalf. This may be more straightforward than navigating a market exchange for some prospective traders (though many CEXs are often very user-friendly). However, some charge higher fees than exchanges for the privilege.

Some brokers, on the other hand, claim to offer their services for “free”. Of course, if something sounds too good to be true, it usually means that it is. These “free” brokers may not execute your bitcoin purchase at the best market price, or they may sell information about you and what you’re buying to large brokerages or funds.

2. Create an account

Much like buying most things online, you must first create an account with your exchange or broker of choice. This is usually fairly straightforward and only requires a few personal details, such as your name and email address. You’ll also need to add a payment method for purchasing your Bitcoin, and for making withdrawals.

3. Verify the account

Not every exchange or broker will require you to verify your identity in order to buy Bitcoin, but some will. This process is known as “Know Your Client” or “Know Your Customer” (KYC). It essentially usually just requires that you upload a photo of your passport or driver’s license, so that the exchange or broker in question knows that you are who you say you are. The more cautious platforms may also require a selfie or a selfie of you holding the ID.

4. Deposit money to invest in Bitcoin

Whether you choose to do this by linking a bank account, Paypal account, or using a credit or debit card is up to you. However, it’s worth noting that some credit card issuers do not allow you to buy bitcoin using a credit card. The ones that do may also charge additional fees, such as transaction fees, processing fees and higher interest rates, for doing so. There may also be security risks associated with making a credit card purchase.

Other payment methods may also have different fees associated with them, so it’s worth reading the terms of your chosen service provider carefully prior to making a purchase.

5. Place an order

Once you’re set up on your exchange platform or with your broker, you can simply place an order on Bitcoin by selecting BTC as your chosen cryptocurrency.

At the time of writing this article, the price of one Bitcoin (BTC) costs around $56,508 AUD. Luckily, bitcoin can be divided up into fractional shares, and you can usually start purchasing BTC with as little as $10.

6. Safely store your Bitcoin

Because of its decentralised nature, the Financial Conduct Authority (FCA) does not regulate Bitcoin. This means that, unlike the money in your bank account, it is at a high risk of theft or hacking. In order to keep your cryptoassets protected, therefore, you have to store them somewhere safe.

Your options include:

  • Keeping it on the exchange. If you purchased your bitcoin via a centralised exchange platform then you can simply leave your bitcoin on the exchange where you bought it. Most exchanges offer “crypto wallets” that are attached to the platform.
  • A hot wallet. You can also keep your Bitcoin in or move it to something called a “hot wallet”. You can store, send, and receive Bitcoin tokens using this type of digital wallet. A hot wallet is always connected to the internet or cryptocurrency network. This makes it somewhat more susceptible to hacking than cold storage methods, but it is protected by your private keys.
  • A cold wallet. A “cold wallet” is a physical wallet that you can store your cryptocurrency in that is fully offline. The main benefit of this is that it keeps your Bitcoin safely out of reach of hackers. However, a cold wallet poses new risks, in that you could lose it or have it physically stolen. Many cold wallets look similar to USB drives, and could be easily misplaced. Cold wallets are available for purchase online from around $100.

Whatever method you select to buy your Bitcoin, it’s important that you are cautious in your approach. Do your research into the most suitable and safest place to purchase it from for your circumstances, the fees involved, and the best storage methods before spending any money.

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