Bank-To-Crypto: Investing In Digital Assets Securely

Investing in cryptocurrency is risky, but it can also be rewarding. Cryptocurrencies such as Bitcoin and Ethereum have risen a lot since their debut, but they've also experienced tremendous boom-and-bust cycles. If you're looking to invest in crypto, there are a few things to keep in mind. First, make sure you understand what you're investing in. There are thousands of cryptocurrencies, and they all function differently. You should also remember that past performance does not guarantee future results. Another important thing to watch out for is volatility. The prices of cryptocurrencies can be extremely volatile, which can be great for sophisticated investors but challenging for beginners. It's also crucial to manage your risk and only invest what you can afford to lose. Finally, research the different ways to invest, such as through a crypto exchange, broker, or traditional financial apps.

Choosing a broker or exchange

• Security: Crypto exchanges have been targeted by hackers in the past, resulting in significant losses. Therefore, it is crucial to prioritise security when selecting a platform. Look for measures such as cold storage, two-factor authentication, and compliance with regulatory standards like SOC 2-certification.
• Fees: Trading cryptocurrencies can be expensive, with both brokers and exchanges charging various fees. Brokers typically charge higher fees than decentralised exchanges. In contrast, crypto exchanges usually charge a percentage of the trade's value, regardless of the trade size. Consider the fee structures of different platforms and choose one that aligns with your investment strategy.
• Range of Cryptocurrencies: If you're interested in trading a wide range of cryptocurrencies, you may need to choose an exchange over a broker. Exchanges generally offer a broader selection of cryptocurrencies, while brokers may have more limited options.
• Trading Features: Brokers and exchanges offer different trading features. Exchanges usually provide a wider range of order types, such as limit orders, market orders, and stop-loss orders. On the other hand, brokers may offer leverage trading, allowing you to trade with higher values than your deposited funds.
• Regulation: Crypto exchanges are typically less regulated than brokers. Brokers are often regulated by financial authorities, providing an extra layer of protection for your investment. However, not all exchanges are unregulated; some comply with Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations.
• Customer Support: Brokers generally offer more comprehensive customer support than exchanges. If you're a beginner or prefer having access to assistance, a broker might be a better option.
• Suitability for Beginners: Crypto brokers are often recommended for beginners due to their user-friendly interfaces and educational resources. In contrast, crypto exchanges may have a steeper learning curve and are better suited for those with a good understanding of the market.

Verifying your account

Provide Necessary Information:

Different platforms will require different information for verification. Generally, you will need to provide basic information such as your full name, email address, and mobile number. Some platforms may also ask for additional details such as your physical address, date of birth, and government-issued ID. It is essential to provide accurate and up-to-date information to ensure a smooth verification process.

Complete KYC verification:

KYC verification is a standard procedure across cryptocurrency platforms and exchanges. It involves confirming your identity and providing documentation to prove your identity and residency. This process helps platforms comply with anti-money laundering (AML) and countering the financing of terrorism (CFT) regulations. You may be asked to upload documents such as a passport, driver's license, or utility bill. Some platforms may also require a selfie or a short video for additional verification.

Link Your Bank Account:

To invest in cryptocurrencies through your bank, you will need to link your bank account to the platform. This typically involves providing your account number, routing number, and other relevant details. By linking your bank account, you will be able to seamlessly deposit and withdraw funds between your bank and the platform.

Two-Factor Authentication:

Enabling two-factor authentication (2FA) adds an extra layer of security to your account. This usually involves providing your mobile phone number to receive a one-time passcode (OTP) during the login process. 2FA helps protect your account from unauthorized access and enhances the overall security of your funds.

Biometric Verification:

Some platforms may offer biometric verification as an additional security measure. This can include fingerprint, facial recognition, or iris scanning technology. Biometric verification provides a convenient and secure way to access your account, ensuring that only you can access your funds.

Address Verification:

In some cases, you may be required to verify your residential address. This is typically done by providing a recent utility bill, bank statement, or government-issued letter that includes your name and address. Address verification helps ensure that you are a legitimate user and can also be used for tax purposes.

It is important to carefully review the specific requirements and guidelines provided by the platform you choose to invest through. Each platform may have slightly different verification processes, and it is essential to follow their instructions accurately to ensure a smooth and successful verification of your account.

Depositing cash to invest

Investing in cryptocurrency is risky, but it has produced top returns for investors over time. Cryptocurrency is a digital asset that operates on blockchain technology. It is secured by blockchain technology and acts as a store of value, similar to gold.

There are several methods for depositing cash to invest in cryptocurrency. One way is to use a traditional financial service provider that has adopted cryptocurrency, such as CashApp, PayPal, Robinhood, or SoFi. These platforms allow users to buy and sell cryptocurrencies, but they have limitations on the range of cryptocurrencies available and how you can utilise them.

Another method is to use a crypto-first digital wallet and exchange provider, such as a centralised exchange. These include Coinbase, Gemini, and Kraken. Centralised exchanges are managed by a single company and offer certain protections, such as insurance in case of cybersecurity breaches, regulatory clarity, and help with safeguarding assets. They also tend to have more intuitive user interfaces. However, centralised exchanges rely on a middleman between you and your assets, which means your assets can be frozen or constrained by the exchange. Additionally, centralised exchanges must abide by Know Your Customer regulations and collect and verify personally identifying information.

Decentralised exchanges (DEXes) are another option. These are not run and managed by a single entity but instead allow for peer-to-peer crypto transactions without intermediaries. Popular DEXes include Uniswap, SushiSwap, dYdX, and 1inch. DEXes do not have a large pool of user funds that can attract hackers, but they may have security vulnerabilities that can be exploited. Additionally, there is typically not a stringent onboarding process that collects personal information, so there is little recourse for users who lose funds. DEXes also tend to have more complex user interfaces.

Finally, you can use a third-party broker or a cryptocurrency exchange to trade your digital money into a fiat currency of your choice. This is a simple, easy, and secure process, but it can take around 4-6 days to get the money into your bank account. Brokers are restricted by money laundering laws, so you must withdraw your money to the same account you used to deposit your cryptocurrency.

It is important to note that depositing and withdrawing cash from cryptocurrency exchanges may incur fees and take some time to process.

Placing your cryptocurrency order

Once you have decided on the cryptocurrency exchange or broker you want to use, you can place your first cryptocurrency order.

There are hundreds of cryptocurrencies to choose from, ranging from well-known names like Bitcoin and Ethereum to more obscure cryptos like Theta Fuel or Holo.

When placing your order, you will need to enter the ticker symbol of the cryptocurrency you want to purchase, such as BTC for Bitcoin, and specify how many coins you would like to buy. With most exchanges and brokers, you can purchase fractional shares of cryptocurrency, allowing you to buy a sliver of high-priced tokens like Bitcoin or Ethereum.

It is important to remember that investing in cryptocurrency is risky, and you should only invest what you can afford to lose. The prices of cryptocurrencies are extremely volatile and can change quickly, so it is essential to do your research before placing your order.

Selecting a storage method

There are several options for storing your cryptocurrency, each with its own advantages and disadvantages. Here are some of the most common methods:

• Hot wallets: These are online cryptocurrency wallets typically available as web-based, desktop, or mobile apps from centralised service providers. They are usually free to use and allow for quick transactions as they are always connected to the internet. However, they are more susceptible to hacks since the keys are stored online.
• Cold wallets: Cold wallets are offline cryptocurrency storage methods. This includes hardware wallets, which are small USB-like devices that support specific types of cryptocurrencies, and paper wallets, which involve printing or writing your private keys on paper. Cold wallets are more secure than hot wallets since they are not connected to the internet, but they are less convenient for making quick transactions.
• Custodial storage: This method involves using a third-party custodian or a cryptocurrency exchange to store and manage your crypto keys. Custodial storage offers both convenience and security, especially if the platform is well-regulated and has stringent know-your-customer (KYC) and anti-money laundering (AML) checks in place. However, there is a risk of the exchange going under, as seen in the case of FTX.
• Decentralised exchanges (DEXs): DEXs are not run and managed by a single entity but instead allow for peer-to-peer crypto transactions without intermediaries. They align more closely with the decentralised nature of the crypto industry, and since there is no central entity managing user assets, they are less likely to be targeted by hackers. However, they tend to have more complex user interfaces, and there is limited recourse for users who lose funds on these exchanges.

When selecting a storage method, it's important to consider your priorities. If you prioritise security above all else, cold wallets and custodial storage with a reputable platform are good options. If you prioritise ease of access and quick transactions, hot wallets or storage with a crypto exchange may be more suitable. Additionally, factors like regulatory compliance, transaction fees, and the level of user-friendliness of the interface may also influence your decision.

Frequently asked questions