Investing In Crypto: Choosing The Right Exchange

Investing in cryptocurrency is a hot topic in investment circles, but it's also a risky alternative investment. Cryptocurrency is a decentralized digital or virtual currency, secured by cryptography, making it virtually counterfeit-proof. It is limited in supply, which helps give crypto value and makes it nearly impossible to counterfeit or double-spend.

If you're new to the world of crypto, figuring out how to buy Bitcoin, Dogecoin, Ethereum, and other cryptocurrencies can be confusing at first. Thankfully, it's pretty simple to learn the ropes. Here are the steps to get started:

1. Choose a Broker or Crypto Exchange: You can buy crypto through a broker or an exchange. Brokers simplify buying crypto but may charge higher fees. Exchanges such as Coinbase, Gemini, and Binance offer platforms for buying and selling digital currencies but can be overwhelming for new investors.

2. Create and Verify Your Account: Sign up and provide personal information to prove your identity, often known as Know Your Customer (KYC) protocols. This may include submitting a copy of your driver's license or passport.

3. Deposit Cash to Invest: Fund your account by linking your bank, authorizing a wire transfer, or using a debit or credit card. Credit card purchases are risky and expensive due to high interest rates and additional fees.

4. Place Your Cryptocurrency Order: Decide on the cryptocurrency you wish to purchase and enter its ticker symbol and the desired quantity. You can buy fractional shares of cryptocurrencies with high values, such as Bitcoin or Ethereum.

5. Select a Storage Method: Crypto exchanges are vulnerable to theft or hacking. You can leave your crypto on the exchange or transfer it to a separate hot or cold wallet for more secure storage. Hot wallets are online and convenient but have a higher risk of theft. Cold wallets, such as USB drives or hard drives, are offline and provide top-tier security.

Choose a broker or crypto exchange

When it comes to investing in cryptocurrencies, there are two main avenues to consider: using a broker or a crypto exchange. Both have their pros and cons, so it's important to understand the differences between them before making a decision.

A cryptocurrency broker is a firm or individual that acts as a financial intermediary between buyers and sellers of cryptocurrencies. They set their own prices and fees, and provide a platform for users to buy, sell, and sometimes hold, cryptocurrencies and other digital assets. Brokers are generally considered more suitable for beginners as they offer a user-friendly environment with less complex trading processes. They also tend to have stronger security measures in place, which can be particularly important for those investing large sums of money. Additionally, all cryptocurrency brokers are regulated by financial authorities, providing an extra layer of protection. However, brokers often charge higher fees and may have a more limited selection of cryptocurrencies available for trading.

On the other hand, a cryptocurrency exchange provides an online platform for buyers and sellers to trade cryptocurrencies directly with each other based on current market prices. Exchanges usually act as the middleman and charge transaction fees. They offer a wide range of cryptocurrencies and trading pairs, making it easy to manage all your investments in one place. Some exchanges also allow users to trade traditional fiat currencies, such as US dollars or euros, for cryptocurrencies. While exchanges can be more complex and may not offer the same level of security as brokers, they often have lower fees and provide more advanced trading features.

When choosing between a broker and an exchange, it's important to consider your level of experience, investment goals, and risk tolerance. Beginners may prefer the simplicity and security of a broker, while more experienced traders may opt for the lower fees and greater flexibility of an exchange. Additionally, it's crucial to research the credentials, security measures, and regulatory compliance of any broker or exchange before committing to ensure the safety of your investments.

Set up an account

Setting up an account on a cryptocurrency exchange is similar to signing up for an online brokerage account. The exact steps vary depending on the exchange, but here are the general steps to follow:

Create an account:

Provide an email address and create a password to open an account. You will then receive an email to confirm that you control the email address.

Upload personal information:

Provide your full name, address, date of birth, and phone number. You may also need to upload a copy of a government-issued photo ID, such as a driver's license or passport. Some exchanges may also require your Social Security number.

Complete identity verification:

This step may involve taking a selfie while holding your ID or using a webcam or phone to confirm that the ID you uploaded is yours.

Fund your account:

After completing the verification process, you can fund your trading account using the available options. The easiest way is to connect your bank account to your trading account and transfer money through a bank deposit, debit card, or wire transfer. Wire transfers usually have the lowest fees.

Set up two-factor authentication:

Two-factor authentication (2FA) adds an extra layer of security to your account. It requires two different types of authentication to access your account: your password and a code sent to your mobile device, email address, or an authentication app. While some exchanges make 2FA optional, it is highly recommended for security reasons.

It is important to note that user verification can take anywhere from a few minutes to several days, depending on the exchange and the level of verification required. Exchanges often offer tiered verification levels, with higher tiers requiring more information and providing higher deposit and withdrawal limits.

Add funds to invest

Once you have chosen a broker or cryptocurrency exchange and set up an account, you will need to add funds to your account before you can start investing in crypto. You can add money to your account in several ways, including by connecting your bank account, initiating a wire transfer, or using a debit or credit card for payment. The time it takes for funds to become available in your account will vary depending on the deposit method and the broker or exchange you have chosen.

While some exchanges allow credit card deposits, these can come with additional risks and costs. Credit card companies often treat crypto purchases as cash advances, leading to higher interest rates and extra fees. When you factor in the fees charged by both the credit card company and the exchange, you could lose up to 10% of your crypto purchase.

Therefore, it is important to research the deposit methods offered by your chosen broker or exchange, as well as the timeframes for the funds to become available and any associated costs. This will help you to decide on the best way to add funds to your account and start investing in crypto.

Initiate your cryptocurrency transaction

Initiating your first cryptocurrency transaction can be daunting, but it's a straightforward process. Here is a step-by-step guide to help you get started:

Step 1: Choose a Cryptocurrency Exchange or Broker

You can purchase cryptocurrencies through a broker or a cryptocurrency exchange. Cryptocurrency brokers like Robinhood and SoFi simplify the process of buying crypto but may charge higher fees. On the other hand, cryptocurrency exchanges like Coinbase, Binance, and Kraken offer platforms with more advanced features for buying and selling digital currencies.

Step 2: Set Up an Account

After selecting your preferred broker or exchange, you will need to create an account. This typically involves providing personal information, such as your full name, address, and a copy of your government-issued photo ID, to verify your identity.

Step 3: Fund Your Account

Before you can start investing, you need to add funds to your account. You can do this by linking your bank account, initiating a wire transfer, or using a debit or credit card for payment. It's important to note that credit card deposits may come with higher risks and additional costs.

Step 4: Initiate Your Cryptocurrency Transaction

With your account funded, you are now ready to purchase your chosen cryptocurrency. Decide on the type of cryptocurrency you wish to buy, such as Bitcoin or Ethereum, and enter its symbol (e.g., BTC for Bitcoin). Specify the quantity you want to purchase, keeping in mind that many exchanges allow purchasing fractional shares of cryptocurrencies with high values.

Step 5: Use a Crypto Wallet

To send and receive cryptocurrency payments, you will need a crypto wallet. You can use any wallet compatible with your chosen exchange. Crypto wallets can be installed on your computer or mobile device and act as an interface for accessing your crypto. They provide you with a wallet address, similar to an email address, which you can use to send and receive payments.

Step 6: Send and Receive Cryptocurrency

To send cryptocurrency, open your wallet app, click on the "Send Payment" button, enter the amount you want to send, and the recipient's wallet address or QR code. To receive cryptocurrency, open your wallet app, click on "Receive Payment," and share your wallet address.

Important Considerations:

• Always conduct thorough research before investing in any cryptocurrency.
• Remember that cryptocurrency transactions are irreversible.
• Be cautious of scams and only share your wallet information with trusted sources.
• Consider using cold storage devices like paper or hardware wallets for added security.

Select a storage method

When it comes to storing your cryptocurrency, you have several options, including hardware devices, applications, and even a simple piece of paper. Each storage method has its own advantages and disadvantages, so it's important to choose one that best suits your needs. Here are some of the most common storage methods:

• Custodial wallet: This is a wallet controlled by a third party, such as a crypto exchange or broker. It can be either a hot (online) or cold (offline) wallet, or a combination of both. Custodial wallets are convenient and require less work on the user's part, but they may not be as secure as other options since you're relying on the security measures of the third party.
• Hot wallet: A hot wallet is an application that stores cryptocurrencies online. It is usually available as a desktop or mobile app, or as a web-based wallet. Hot wallets give you more control over your crypto and are typically free and easy to use. However, they carry the risk of being hacked.
• Cold wallet: A cold wallet is an offline crypto wallet, which can be a hardware device or a paper wallet. Hardware wallets are small devices that connect to your computer and allow you to send and receive cryptocurrency. They are considered highly secure since your crypto is offline when stored in this way. However, they can be less convenient and slower to use than hot wallets. Paper wallets involve printing or writing down your private keys on paper and storing them in a secure location. While this method is highly secure, it is less user-friendly and more susceptible to physical damage or loss.
• Crypto exchange wallet: You can also store your crypto directly on the exchange where you purchased it. Many exchanges provide free hot wallets with little to no setup required. However, this option may not be as secure since exchanges are often targeted by hackers.

When choosing a storage method, it's important to consider your priorities in terms of security, convenience, and accessibility. It's also a good idea to use a combination of storage methods to diversify your risk. Remember that no matter which method you choose, it's crucial to keep your private keys and recovery phrases safe and secure.

Frequently asked questions