I think one the biggest deterrents for people new to cryptocurrency is the first question they find themselves asking: How do you buy bitcoin?
I’m going to do my best to demystify the process and help you see that it isn’t nearly as foreign as it may at first seem.
In fact, it’s a lot like stocks:
With stocks, you transfer your money from your bank account to a brokerage firm. Through that brokerage account, you do all of your investing, trading, and managing. When you’re ready, you pull the money back into your bank account.
The process for purchasing and trading cryptocurrency follows the same basic idea. The differences lie primarily in the terminology, and like anything in life, once you learn the “crypto language” you’ll realize it’s not as intimidating as it appears.
Step 1: Setting up an exchange account
An exchange account is essentially the same as a brokerage account. It allows you to interact with the crypto market in much the same way you would the stock market: it has price, bid, ask, limit, etc.
There are several different exchanges to choose from, and I actually cover the various options in Episode 28 of the SaneCrypto podcast, so for an in-depth analysis of the different choices available to you, I’d give that a listen.
One of the most widely used exchange platforms is Coinbase; it’s a great option for those just getting started. Feel free to do your own research to find a choice that is best suited for you.
Once you pick an exchange account, you then move your capital to that account. You can do this through either an ACH transfer, or wire it over directly from your bank account. The first is a little slower, and has limitations in place, so wiring the money through your bank account is generally the recommended route.
Step 2: Purchasing cryptocurrency
Once you’re actually in your exchange account, it works similarly to your typical brokerage account, except instead of buying IBM or Starbucks shares, your purchasing bitcoin and Ethereum.
Say you have $20,000 that you’re wanting to invest in cryptocurrency. Based on your research into the crypto market, you decide you want to invest 70% of your $20,000 into bitcoin and the other 30% into Ethereum.
Each cryptocurrency has to be purchased as a separate order, so first, you would choose $14,000 worth of bitcoin and select “Buy”. Then you would choose $6,000 of Ethereum, and click “Buy” again. The crypto assets will then appear in your exchange account, and voilà!
You are now officially a cryptocurrency investor.
Take a moment to celebrate, I’ll wait.
Step 3: Move your cryptocurrency to a hardware wallet
So far, nothing has strayed too far from traditional publicly traded securities.
This is where things start to look a little different.
Bear with me, and don’t worry if you find it a little confusing. Most people struggle with this at first, but like anything, the best way to learn is by getting your hands dirty.
You may remember a time, before the digitized world we live in today, when you held your stocks as a physical certificate that you would take home and place in a safe, thereby keeping your hard earned investment secure.
A hardware wallet is essentially a safe that lets you hold on to and manage your crypto assets in the most secure way possible. Keeping them on your wallet helps keep your coins protected from hackers and thieves, while still allowing you to easily keep track of your assets.
One of the best and most affordable hardware wallets is the Ledger Nano S wallet. Again, it’s another popular option among crypto investors, but feel free to do your own research and find the choice that works best for you.
Next, you set the wallet up with your computer.
You plug the wallet into your computer, and it walks you through the installation process for the various programs you need to help you move your coins from your exchange account to your hardware wallet.
Once it’s done setting up on your computer, it’ll give you an address for your wallet. This address connects the wallet to your share of cryptocurrency; using that address, you can transfer money between your exchange account and your wallet, make transactions, check your coin amounts, and so on.
It’s important to note that the crypto coins aren’t stored on your wallet; they’re still stored in the blockchain. The hardware wallet just stores the information to access and use your coins in the most secure and convenient way possible.
It’s similar to a safe, though with a few more bells and whistles. What makes it safer than keeping it in your exchange account is the complex encryptions, randomized passcodes, immunity to viruses, and hashing algorithms built into it.
All this means is that if someone somehow breaks into your exchange account or steals your hardware wallet, your crypto assets will still be safe. And if you simply lose your wallet, you’ll still be able to recover your assets. Win-Win.
If this sounds like Greek to you, don’t worry! Once you actually start using a hardware wallet, you’ll get the hang of it in no time.
So, to summarize:
- Open an exchange account
- Transfer money from your bank account to your exchange account
- Buy your desired crypto assets
- Transfer your coins from your exchange account to a secure hardware wallet
And when you’re ready to sell your cryptocurrency back, just repeat these steps in reverse!
Hopefully this dispelled some of the fog around purchasing bitcoin and other cryptocurrencies. I imagine that for most people who’ve invested in stocks, the process will feel at least a little familiar.
As always, I hope you found this useful.
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