Crypto Buying Guide for Beginners
Cryptocurrency is revolutionizing the way we invest, bank, trade, and spend money. Since its inception in the early 2000’s, cryptocurrency has skyrocketed in popularity and created a new generation of millionaires. But despite its growing traction into the mainstream of society’s financial sector, many people remain confused about what exactly cryptocurrency is and how to buy it.
As a beginner, investing in cryptocurrency can be complicated. This article aims to simplify the process for you by introducing the different types of cryptocurrencies, describing the exchanges where crypto is bought and sold, and providing a step-by-by guide for purchasing cryptocurrency for the first time. There’s a lot to cover so let’s jump right in!
What Is Cryptocurrency?
In technical terms, cryptocurrency is digital money that is decentralized and secured by blockchain technology. Cryptocurrency can be used to buy and sell things or be held as a long-term investment that grows in value.
As a beginner to crypto, the technical definition may leave you even more confused than when you started. So, let’s breakdown a few key terms to give a clearer picture of what exactly cryptocurrency is and how it’s used.
For starters, cryptocurrency exists only in digital form and is designed to be used over the internet or digital networks. You can’t physically touch or store crypto like the dollar bills sitting in your wallet. The digital quality of crypto often leads beginners to ask: how real is crypto and is it secure? That’s where blockchain technology comes in.
What is Blockchain?
Blockchain is the technology that powers cryptocurrency exchanges and secures your crypto investments so they cannot be stolen or lost. In essence, Blockchain is a public, immutable ledger that stores transactional records and tracks ownership of digital assets like cryptocurrency and NFTs.
Blockchain is maintained by a network of computers in a way that makes it extremely difficult to hack or alter. As a result, cryptocurrency transactions are carried out safely and securely between individual investors without the need of an intermediary like a government or a bank. For this reason, crypto is described as “decentralized”.
Types of Cryptocurrencies
As a beginner to cryptocurrency, you’ve probably heard of Bitcoin and might consider it to be a synonymous term. However, Bitcoin is just one of the thousands of different types of cryptocurrencies currently traded on crypto exchanges.
Bitcoin was launched in 2008 and is widely seen as the pioneer of cryptocurrencies. But it’s not the only cryptocurrency you can buy as a beginner. Other common cryptocurrencies include Ether, Litecoin, Cardano, Dogecoin, Tezos, and a host of others.
What distinguishes one type of cryptocurrency from another is the quality of the blockchain network that powers it. For example, Ether is currently the second-largest digital currency by market capitalization after Bitcoin and is traded on a decentralized software platform called Ethereum.
Ethereum is considered a highly reputable crypto exchange because it enables smart contracts and decentralized applications (dApps) to be built and run without any downtime, fraud, control, or interference from a third party.
Cryptocurrency Related Terms You Should Know
Now that you know what cryptocurrency, blockchain, and decentralization all mean, let’s go over some additional terms that will help you navigate the cryptocurrency market as a beginner.
An altcoin is any cryptocurrency coin that’s not Bitcoin. An altcoin can refer to anything, from a popular coin like Ether to largely new and unknown coins with minimal market value.
Bitcoin Cash is a peer-to-peer electronic cash system that formed from a fork of Bitcoin. Whereas Bitcoin is considered too volatile to be used as currency, Bitcoin Cash is better optimized for transactions.
A fork occurs when changes are made to a blockchain’s rules. The change of rules results in two paths – one that follows the original rules, and a new blockchain that splits off from the old one (e.g., Bitcoin and Bitcoin Cash).
A block is a group of data within a blockchain. Blocks consist of transaction records generated whenever users buy and sell cryptocurrencies. A block can only hold a limited amount of information. When it reaches its limit, a new block is formed to continue the chain.
A coin represents a store of digital value that exists on a given blockchain or cryptocurrency network. ‘Coin’ and ‘cryptocurrency’ are often used interchangeably. Bitcoin (BTC) is the crypto coin native to the Bitcoin blockchain. Ether (ETH) is the coin native to the Ethereum blockchain. Lumen (XLM) is the coin native to the Stellar blockchain.
Initial Coin Offering (ICO)
Similar to an Initial Public Offering (IPO) of stocks, an Initial Coin Offering (ICO) is a way of raising funds for a new cryptocurrency project.
A cryptocurrency’s market capitalization is the total value of all the coins that have been mined.
Mining is the process whereby new cryptocurrency coins are made available.
Cold Wallet/Cold Storage
A cold wallet is a method of storing your cryptocurrency completely offline. It often takes the form of an external device such as a USB or a hard drive. A cold wallet is considered the most secure method of storing cryptocurrency.
A hot wallet is an online method of storing your cryptocurrency. It requires an internet connection to access, much like storing data in the Cloud.
A public key is the address or identification code of a crypto wallet, much like a bank account number. You share your wallet’s public key when you want to receive or send money to individuals or institutions.
A private key is an encrypted code that allows you to directly access your crypto wallet. A private key is similar to the password for your bank account and should never be shared.
A smart contract is an algorithmic program that carries out the terms of a crypto contract automatically based on its code.
Decentralized Applications are applications created by developers and situated on a blockchain network to carry out actions without an intermediary.
HODL is an acronym that stands for “Hold On For Dear Life”. It refers to a long-term investing strategy whereby crypto coins are bought and held, rather than traded, in the hopes that their value increases.
A hash is a unique arrangement of letters and numbers that identify blocks and are tied to cryptocurrency traders.
A token is a unit of value on a blockchain network that typically has an additional value proposition outside of just a transfer of value (like a coin).
How to Buy Cryptocurrency: Step-by-Step
How do you buy cryptocurrency? The process is fairly simple. Here’s a step-by-step guide to making your first cryptocurrency purchase.
Step 1: Find a Crypto Exchange
The first step to buying cryptocurrency as a beginner is to find a crypto exchange. As we mentioned earlier, Bitcoin and Ethereum are two of the most popular and oldest exchanges. But they’re not the only ones.
In fact, beginner crypto investors may find it advantageous to make their first crypto purchase on a lesser-known crypto exchange where the price per coin is lower. For example, at the time of writing this crypto buying guide, the price for Bitcoin (BTC) is about $30,000; whereas the price for Litecoin (LTC) is around $73.
Note: While the price of a single Bitcoin (BTC) is tens of thousands of dollars, it can be bought for fractional shares, so your initial investment could be as low as $30.
A list of popular crypto exchanges with links to each website is provided later in this guide.
Step 2: Create and Verify Your Account
The second step to buying crypto as a beginner is to create an account on your chosen crypto exchange. Depending on the exchange or the amount of crypto you plan to buy, you may need to verify your identity.
The platform may ask you to provide a copy of your driver’s license or passport. Oftentimes, you’ll also need to upload a selfie to prove your identity matches the photos in the documents you submit.
Step 3: Deposit Cash to Invest
The third step to buying crypto as a beginner is to add funds to your account to make crypto purchases. Most exchanges allow you to deposit cash in a variety of ways, including linking a bank account, authorizing a wire transfer, or making a payment with a credit or debit card.
As a crypto beginner, be aware that credit card companies process cryptocurrency purchases as cash advances. This means your crypto purchase is subject to higher interest rates, and you may even have to pay a cash advance fee. We recommend you avoid using a credit card for your cryptocurrency purchases if possible.
Step 4: Place Your Crypto Order
The fourth step to buying crypto as a beginner is to place your crypto order. Now that you’ve deposited funds into your account, you are free to shop the crypto marketplace and buy as many or as few coins as you’d like.
The process is as simple as entering the ticker symbol of the cryptocurrency you’d like to purchase – for example Litecoin’s ticker is LTC – and the number of coins you want. Most exchanges allow you to buy fractional shares of cryptocurrency.
Step 5: Select a Storage Method
The fifth step to buying crypto as a beginner is to select a storage method. After you purchase your crypto, you will need a place to store it in. Typically, your purchased crypto is automatically placed into a crypto wallet provided by the exchange. You also have the option to transfer your crypto off the exchange to a separate hot or cold wallet. There may be a small fee associated with transferring your crypto off the exchange, much like the fee incurred when transferring money between bank accounts.
As mentioned earlier in this guide, a hot wallet refers to a crypto wallet that is stored online and on internet-connected devices. A cold wallet, on the other hand, isn’t connected to the internet, and can take the form of external devices such as a hard drive or a USB. Cold wallets are the most secure method of storing your cryptocurrency.
Popular Exchanges to Buy Crypto
Coinbase is one of the most popular crypto exchanges on the market. As a crypto beginner, you can buy and sell more than 30 different cryptocurrencies on Coinbase. However, you may want to consider an alternative exchange as Coinbase currently has higher fees than most other exchanges, typically around 0.5% to 4.5%. However, the advantage of Coinbase is that it is Insured in the event that hackers gain access to your money.
On eToro, crypto beginners can buy and sell up to 15 different types of cryptocurrencies. The eToro exchange has lower fees than Coinbase, typically between 0.75% to 2.9%. However, you’ll need a $50 account minimum to get started.
Robinhood currently has seven cryptocurrencies available for investors to buy and sell. That’s less than the aforementioned Coinbase and eToro. However, Robinhood has no fees and no account minimum to get started.
SoFi Active Investing
SoFi Active Investing currently allows you to buy and sell three different types of cryptocurrencies – Bitcoin, Ethereum, and Litecoin. Like Robinhood, there are no fees and no account minimums. SoFi is a great choice for crypto beginners because they often offer special promotions for new investors.
On Webull, crypto beginners can buy and sell four types of cryptocurrencies – Bitcoin, Bitcoin Cash, Ethereum, and Litecoin. Webull has no fees and no account minimums to get started.
Benefits of Investing in Cryptocurrency
Cryptocurrency continues to grow in popularity as an investment tool because of its many associated benefits. And compared to traditional investment vehicles like stocks and bonds, there’s more potential to grow your earnings as an early adopter. For instance, a $100 purchase of Bitcoin at its starting point would be worth $48 Million today!
Many people are compelled to start investing in cryptocurrency because they consider it to be a fairer financial system. Whereas traditional banks can deny people from opening bank accounts, crypto exchanges are decentralized and therefore free from discrimination. As long as you have an internet connection you can send, receive, borrow, earn interest, and even stream funds anywhere in the world.
Most crypto exchanges are also free and easy to set up and control.
As with the traditional stock exchange, your investment options in the cryptocurrency market are quite broad. It will take some additional market research and advice from crypto experts to find the most valuable investments. However, the best thing you can do to maximize your crypto portfolio is to get in on the action now. As with most investments, early adopters stand to gain the most profit.
So what are you waiting for? Go find a crypto exchange and start your cryptocurrency investing journey today!