Getting Started With Crypto: A Guide For Americans

Investing in cryptocurrency is a risky but potentially rewarding endeavour. Before investing, it's important to understand the basics of cryptocurrency and the crypto market.

Cryptocurrency is a digital asset that operates on a blockchain, a peer-to-peer medium of exchange without a central authority. Bitcoin and Ethereum's Ether are the two most popular cryptocurrencies, but investors can choose from thousands of cryptos.

There are several ways to invest in cryptocurrency in the USA, including:

- Cryptocurrency exchanges: These platforms allow users to buy, sell, and store cryptocurrencies. Examples include Coinbase, Kraken, and Gemini.

- Traditional stockbrokers: Some traditional brokers, like Robinhood, offer crypto trading in addition to stocks, ETFs, and other assets.

- Payment services: Cash transfer services like PayPal, Venmo, and Cash App allow users to buy, sell, and store cryptocurrencies.

- Bitcoin ATMs: These machines function like normal ATMs and can be used to buy and sell Bitcoin.

- Bitcoin exchange-traded funds (ETFs): The SEC has approved spot Bitcoin ETFs, which track the price of Bitcoin and can be traded on traditional brokerage accounts.

When choosing a platform to invest in cryptocurrency, it's important to consider factors such as fees, security, customer service, and the range of cryptocurrencies offered. It's also essential to understand the risks involved in crypto investing, as the market is highly volatile and unregulated.

Choosing a crypto exchange

Security

Prioritize the security measures offered by the exchange to protect your crypto assets. Look for exchanges that have robust security protocols, including two-factor authentication, encryption, and cold storage of assets. Ensure they have a strong track record of safeguarding user funds and preventing cyber-attacks.

Reputation

In the dynamic crypto market, the reputation of an exchange is crucial. Opt for exchanges with a solid reputation and a proven track record of reliability and transparency. Avoid exchanges with frequent security breaches or those facing regulatory issues.

Available Cryptocurrencies

Ensure the exchange offers a wide range of cryptocurrencies to meet your investment needs. While some platforms focus on major coins like Bitcoin and Ethereum, others provide a diverse selection of altcoins and meme coins. Choose an exchange that aligns with your investment goals.

Liquidity

Liquidity plays a vital role in safeguarding your investments and facilitating swift, low-slippage trades. Opt for exchanges with high liquidity to protect your assets and ensure smooth transactions.

User Interface

Consider your level of experience and choose an exchange with a suitable user interface. Some platforms cater to beginners with user-friendly mobile apps, while others offer advanced trading features for seasoned traders.

Fees

Trading fees, withdrawal fees, and transaction fees vary across exchanges. Compare the fee structures and choose an exchange that aligns with your investment strategy and budget. Also, consider any volume discounts or loyalty programs that can reduce fees.

When deciding on a crypto exchange, thoroughly research its security measures, reputation, available cryptocurrencies, liquidity, user interface, and fee structure. Additionally, check for regulatory compliance, customer support, and educational resources to make an informed decision.

Setting up a crypto account

Step 1: Choose a crypto exchange

First, you need to select a cryptocurrency exchange that suits your needs. Some popular options include Coinbase, Gemini, Kraken, Crypto.com, Binance, and KuCoin. These exchanges offer a range of features, such as a wide selection of cryptocurrencies, low fees, advanced trading tools, and margin trading. It's important to consider factors such as security, regulatory compliance, and user-friendliness when choosing an exchange.

Step 2: Create an account

Once you've chosen an exchange, you need to create an account. This usually involves providing personal information, such as your name and contact details, proof of address, and uploading a copy of your ID. This process helps exchanges comply with anti-money laundering regulations.

Step 3: Set up a payment method

After creating your account, you need to set up a payment method to deposit funds into your account. Most exchanges allow you to use bank transfers, credit cards, or debit cards. Bank transfers are usually the cheapest option, while credit and debit card deposits may incur higher fees.

Step 4: Place your first order

Now that your account is funded, you can place your first order to buy cryptocurrency. Simply choose the cryptocurrency you want to purchase, enter the amount you want to spend, and place your order. Some exchanges may offer instant purchases, while others may require you to place a buy order and wait for it to be filled.

Step 5: Consider a crypto wallet

While you can store your cryptocurrency on the exchange, it's worth considering a separate crypto wallet for added security. Crypto wallets can be hot (online) or cold (offline) storage options. Hot wallets are more convenient but may be more susceptible to hacking. Cold wallets, such as hardware wallets or paper wallets, are considered more secure but may require technical knowledge to set up.

Connecting to a payment method

Depending on the exchange, personal identification may be required. This may mean including a picture of a driver's license or Social Security card, as well as information about your employer and source of funds. The process is largely the same as setting up a typical brokerage account.

At most exchanges, you can connect your bank account directly or link it to a debit or credit card. Although you can use a credit card to purchase cryptocurrency, cryptocurrency price volatility could inflate the overall cost of purchasing a token when combined with a credit card's interest charges.

Fees vary for deposits via a bank account, debit, or credit card, and exchanges also charge fees per transaction.

There are several ways to connect a payment method to your cryptocurrency exchange account. You can use a crypto payment API, a crypto payment gateway, or a crypto debit card.

Crypto Payment API

To connect a crypto payment API, you will need to use a decentralised wallet and integrate it into your website with a payment gateway. The API keys will interact with the blockchain and wallets to release funds once the transaction conditions have been met.

Crypto Payment Gateways

Crypto payment gateways can be already-built solutions or customisable gateways that you can change the layout or interface of. They help you pay using your crypto wallet, just like how Stripe supports credit/debit cards.

Crypto Debit Cards

For the crypto consumer on the go, a crypto debit card is one of the easiest and most convenient ways to spend your holdings. All you have to do is load up your card with the crypto of your choice and you’re ready to spend it like cash anywhere in the world that the card network is accepted.

Other Options

You can also pay using peer-to-peer (P2P) money transfer apps such as PayPal, Venmo, or Cash App, or by using a crypto wallet.

Placing an order

Once you've chosen a crypto exchange or brokerage, you'll need to create an account. This usually involves providing some personal information, such as your name and contact details, and uploading a copy of your ID. This process helps exchanges comply with anti-money laundering regulations.

After setting up your account, you can deposit money to start investing in cryptocurrencies. Most platforms offer several ways to fund your account, with bank transfers usually being the cheapest option. Credit and debit card deposits often incur fees of 2% to 5%.

With your account funded, you can start placing orders to buy cryptocurrencies. Keep in mind that the cost of buying and selling varies across platforms, so it's important to understand the fees involved. While some platforms charge transaction fees, virtually all exchanges and brokers make money from the "spread" – the difference between the buying and selling prices they quote.

Additionally, some platforms offer instant purchasing, while others may require you to place an order and wait for it to be fulfilled.

It's important to note that you don't have to buy a whole unit of a cryptocurrency, such as one Bitcoin. You can choose to invest as little or as much as you want, making it accessible to those with varying budgets.

Safe storage

Crypto Wallets:

Crypto wallets are the most common way to store cryptocurrencies. They can be categorised into two types: hot wallets and cold wallets.

• Hot Wallets: These are online software wallets that allow you to access your crypto via an internet-connected device such as a computer, phone, or tablet. Hot wallets are convenient for frequent transactions, but they are more susceptible to hacking and theft. It is recommended to use hot wallets only for small amounts of cryptocurrency that you actively trade. Always use strong passwords, two-factor authentication, and safe internet browsing practices to secure your hot wallet.
• Cold Wallets: Cold wallets, also known as hardware wallets or offline wallets, are small, portable devices that are not connected to the internet. They are considered much more secure than hot wallets since they are not accessible online. Cold wallets are ideal for storing large amounts of cryptocurrency or for long-term holdings. Examples of commercial cold wallets include the Ledger Nano X and Trezor Model T, which usually connect to your device via USB. You can also use a paper wallet, which involves printing out your private and public keys and storing them in a secure location.

Crypto Exchanges:

Storing your crypto on an exchange is convenient, especially if you frequently trade. However, it is important to choose a reputable and secure exchange as they are often targeted by hackers. Examples of popular exchanges in the US include Coinbase, Kraken, Gemini, and Binance. When creating an account on an exchange, always enable two-factor authentication and use a strong, unique password.

Seed Phrases and Backup:

Regardless of the storage method you choose, it is crucial to back up your wallet early and often. Additionally, consider using a seed phrase, which is a series of randomly generated words that act as a master password for your wallet. Seed phrases provide an extra layer of security and can help you recover your keys if you lose your storage device.

In conclusion, while there is no 100% secure method for storing your cryptocurrency, cold wallets are generally considered the safest option. However, hot wallets and crypto exchanges can also be used for more convenient access to your crypto, especially for frequent trading. Always prioritise security measures such as strong passwords, two-factor authentication, regular software updates, and backup solutions to protect your crypto assets.

Frequently asked questions