I mentioned in a previous post that cryptocurrency is not only a new trend in business, but it can be a great way to make money. There are several ways to make money with Bitcoin or any other crpytocurrency, but before you can make money with it, you first have to learn about buying cryptocurrency.
These days, buying cryptocurrency is about the only way to acquire it; the days when Bitcoin and Litecoin were so inexpensive that people gave them away are long gone. Today, both of them, and some 1500 other cryptocurrencies, are now heavily traded commodities, and they’re going to cost you some fiat money; that is, cash.
In this post I’ll describe the basic process for buying cryptocurrency. In later posts, I’ll review some cryptocurrency exchanges on an individual basis and I’ll also outline some ways that you can make money with cryptocurrency aside from simply buying it and hanging on to it for a while.
Steps for Buying Cryptocurrency
If you’re interested in buying cryptocurrency, you’ll have to have a wallet in which to store it, a bank account to provide the funds for purchase, and an account at an exchange that allows you to purchase cryptocurrency with government-issued money, known as “fiat money.”
There are other ways for buying cryptocurrency that do not involve exchanges, and I’ll cover those peer-to-peer methods in a later post. For most people who are new to Bitcoin or other cryptocurrencies, buying cryptocurrency through an exchange is the preferred route.
A “wallet” is not necessarily a physical device, though it can be. Most of the time, a wallet for cryptocurrency is a piece of software that is designed to keep track of your private and public keys that allow you to buy, sell and trade the coins.
Some cryptocurrencies require a proprietary wallet, and others can make use of multi-currency wallets. Electrum, for example, is a Bitcoin-specific wallet, while Exodus is a multicurrency wallet that can handle Bitcoin, Ethereum, all Ethererum-based tokens, and a few other coins, as well.
You’ll need to find a wallet that can accommodate the currency you plan to buy. Installing a wallet is fairly simple; you download the application, run the installer, and follow the instructions for creating a password and for saving your recovery keys that will allow you to regain access to your cryptocurrency should something happen to your computer. Most software wallets are quite easy to set up and use.
Create an Account at an Exchange
The easiest method of buying cryptocurrency is to get it at an exchange. There are many exchanges that buy and sell cryptocurrency, but only a few allow you to buy it with dollars, euros, pounds, or yen. The rest only permit buying cryptocurrency with other cryptocurrency.
Some of the better-known exchanges that accept fiat money are Coinbase, CEX, and Cryptopia. Creating an account is as simple as providing a username, a password, and a valid email address. In order to deposit money, most reputable exchanges will also require that you provide some additional documentation to prove who you are.
This is particularly true of any U.S.-based exchange. You may need to provide a photo of your driver license, a passport, and possibly a scan of a utility bill. These are required by various governments in order to ensure that people buying cryptocurrency are not engaging in money laundering, which is illegal.
This verification process can take anywhere from a few hours to a few weeks, depending on how many people have recently created new accounts at that particular exchange. Most of the time, the process goes fairly quickly, and you’ll receive confirmation via email when you’ve been approved to deposit money.
Some exchanges allow deposits via credit card, but recently, most major U.S. banks have prohibited their customers from buying cryptocurrency with credit cards. If that applies to you, you’ll need to deposit money from a bank account, using either a direct transfer such as SEPA or ACH, or via wire transfer.
Coinbase, for example, allows ACH transfers from U.S.-based banks, and adding a bank account to my Coinbase account was as simple as selecting the bank name from a pulldown menu, adding my login credentials for my account, and selecting which account (checking or savings) that I wanted to use.
Once you have done that, buying cryptocurrency is very easy. Most exchanges that sell cryptocurrency in exchange for fiat only offer a few different coins for sale. Bitcoin, Ethereum, and Litecoin are the three that you can buy most anywhere. A few exchanges only offer Bitcoin.
At Coinbase, for instance, you can buy Bitcoin, Ethererum, or Litecoin by filling out a simple form. Each coin has its own menu. Pick the one for the coin you want to buy and you’ll see a form that asks you to either tell them how many coins you want or how much money you want to spend.
If you fill in the form for Bitcoin and tell them that you want to spend $500, they’ll tell you how much Bitcoin you’ll receive for that much money. Then you click a button to confirm the purchase, and you’ll receive a notification that tells you that the transaction is underway.
The amount of time it takes to complete the transaction will vary, depending on how you funded your account. Credit card purchases and wire transfers take place within hours. ACH transfers can take up to a week.
You’ll have to pay a fee to the exchange for buying cryptocurrency from them, and how much you pay depends on how you’re funding your account. Credit card purchases can carry fees of up to 5% or so, while wire transfers and ACH transfers are fairly inexpensive.
After Buying Cryptocurrency
You will be notified by the exchange once your purchase is complete. What do you do now? If you plan to trade your newly-purchased Bitcoin, Ethereum or Litecoin for other cryptocurrency, you’ll have to download it to your wallet or transfer it to another exchange.
If you simply plan on holding the purchase as an investment, you should download it to your wallet. You could keep the coins on the exchange, but exchanges are occasionally hacked and if that happens, you could lose your coins. It’s best only to keep cryptocurrency on an exchange for as long as you need it there to transact. After that, you should move it to a wallet.
To do this, you first need to open your wallet application and be sure that the particular wallet you’re using is the correct type for the coins you wish to store in it. Once your wallet application is opened, you should see a button labeled “receive” or something similar. When you do this, you’ll see an address for receiving your coins that looks like a long string of alphanumeric characters.
You’ll need to copy that string of characters, and then go back to your account at the exchange and click on the link that says “withdraw.” On the next page, you’ll see how many coins you have, and you’ll see a form that asks you the address to which you want to send the coins. For this, you enter the wallet address that you just copied from your wallet.
You then have to enter the number of coins you’d like to withdraw. All exchanges allow you to enter the number manually, but a few also have a button labeled “max” that you can click to indicate that you want to withdraw all of it. Once you do this, the exchange will likely show you how much of your withdrawal that they are taking as a fee. It’s usually a small portion of about 1% or less.
Next you simply have to click the button to confirm the transaction. Some exchanges will require you to confirm withdrawals via email; this is a security feature.
Be aware that transferring cryptocurrency from one location to another does not take place instantly. It might take a minute, or it might take several hours. Most of the time, it takes place within 10-15 minutes or so.
After a short time, you should see an indication in your wallet that your coins have arrived and it will show you how many you have. If you purchased more than one kind of cryptocurrency on the exchange, you’ll have to repeat the process for each kind of coin, and that may involve using more than one wallet.
Buying Cryptocurrency Conclusion
What’s next? You can hold your coins as a long-term investment, you can send them to another exchange to trade them for other kinds of cryptocurrency, or you can spend them if you find an online business that accepts cryptocurrency as payment.
Buying cryptocurrency is not yet as easy as using a credit card to buy something from Amazon, but it’s safe, secure, and easy enough to do that you’ll quickly get used to it.