How to Buy Cryptocurrency: Crypto Buying Basics

17 November 2019 —Admin

Where to buy cryptocurrency

Cryptocurrency exchanges

To get started with buying cryptocurrency, you’ll need to make an account with a cryptocurrency exchange. A cryptocurrency exchange is a third-party service that processes cryptocurrency transactions on your behalf. The exchange typically charges a flat or percentage-based fee in exchange for providing this service.

If you’re looking to trade crypto without relying on a third-party intermediary, you can head straight to the Direct trading service section below.

Much like traditional stock exchanges, cryptocurrency exchanges allow buyers and sellers to trade a range of cryptocurrency assets against both traditional markets (such as the US dollar) and other cryptocurrencies such as Bitcoin (BTC).

Exchanges can be regulated or unregulated. A regulated exchange requires you to provide legal identification such as a driver’s license, passport or utility bill to sign up and use the exchange. This requirement is referred to as ‘KYC’, or ‘Know Your Customer’. Governments typically require exchanges to follow KYC procedures in order for those exchanges to operate as legally-registered businesses.

Unregulated exchanges don’t require you to provide these documents, but using an unregulated exchange may leave you without legal recourse if something doesn’t go according to plan.

Many cryptocurrency exchanges also provide storage services for your cryptocurrency — however, this isn’t always the best way to keep your crypto safe. Due to their centralised nature, exchanges are vulnerable to hacking and theft, so storing your funds in a private cryptocurrency wallet is advised.

Types of cryptocurrency exchange

Not all cryptocurrency exchanges are created equal — exchanges can vary in terms of the underlying technology that powers them, the types of cryptocurrency assets they trade, and whether they allow fiat (government-backed traditional money) transactions, or only allow crypto-to-crypto transactions. It’s important to research which exchange may be best for your crypto-trading needs.

Regular trading platforms connect buyers and sellers to each other, with the exchange acting as a middle man between buyer and seller. The seller gives crypto to the exchange, who then transfers it to the buyer.

Brokerage services sell cryptocurrencies at the service’s chosen price, often slightly higher than market value. Brokerage services are often easier to use than regular trading platforms or direct trading services; however, a brokerage can be more expensive.

Direct trading services are decentralised exchanges which facilitate peer-to-peer trading without the use of a third-party intermediary. Most direct trading services do not let you purchase crypto using fiat (traditional, government-backed) currency. Direct trading services are used when trading one cryptocurrency for another, rather than buying a crypto using your local fiat currency (e.g. USD).

If you’re purchasing crypto for the first time, a brokerage service may be the way to go — brokerage services will just show you a price for the crypto you want to buy, without any confusing order books or price charts. Brokerage services typically offer simple ways to purchase a variety of cryptos using your local fiat currency.

Regular trading platforms are a good place to go for more experienced traders. These exchanges provide you with more information, more control and more options — but can be intimidating if you’re just starting out.

Direct trading services are more specialised and more secure than Regular Trading Platforms and brokerage services. Due to their decentralised nature, direct trading services are less vulnerable to attacks by hackers. However, they’re also more limited (they only allow crypto-to-crypto trading) and typically harder to use than regular trading platforms and brokerage services. Direct trading services can be a great way to trade crypto for other crypto at fair market value, but these exchanges are for experts only.

Making a cryptocurrency exchange account

Once you decide on the kind of exchange you want to use, the next step is to sign up for an account with the exchange. There are still a few steps to work through before you can start buying and selling crypto.

Start by going to your chosen exchange’s website. Find the Sign Up option, click it, and start the account creation process (make sure to use a secure password). At this stage, if you’ve chosen a regulated (KYC) exchange, you may be required to provide a few things to finish setting up your account:

Proof of identity:

A document or documents that prove you are who you say you are.

Most exchanges will require either a passport or driver’s license to satisfy this requirement.

Proof of address/residence:

Some exchanges may require a document with your residential address so they can mail an authentication code to your address to verify that you actually live there.

Most exchanges will require a utility bill, e.g. phone bill or electricity bill, to satisfy this requirement.

Bank account:

Your bank account information is required in order for you to deposit and withdraw funds to and from the exchange.

Exchanges may require a bank statement bearing your name and residential address to meet this requirement – this document may also meet the proof of address requirement, depending on the exchange.

These requirements may seem frustrating or invasive, but it’s important to remember that KYC regulations are in place to protect both the exchange and you, the customer. By requiring users to provide legal identifying documents when they sign up, a crypto exchange can help to ensure that users will not attempt to perform illegal activity on the exchange. This protects you from accidentally interacting with anyone engaged in illegal activity. However, KYC regulations are still seen by some as an example of government overreach or over-regulation.

After you provide the required identifying documents, the exchange may approve your account immediately or there may be a short waiting period (a few hours up to a day or two) while your documents are verified. Once account verification is complete, you’re ready to move to the next step:

Depositing funds

You’ll now need to deposit fiat money into your new exchange account — this is the money you’ll use to purchase cryptocurrency. To deposit money into your crypto exchange account, you’ll usually need to link a bank account to your exchange account. The initial linking process may involve a small charge and refund to your bank account, to verify that it’s yours and that there are funds in the account. Once you’ve linked your accounts, you’re ready to deposit funds.

Within your exchange account, there will be a Wallet section, and inside that, a section for depositing funds. You’ll need to find the exchange’s bank account information in this section.
Send the amount you’d like to deposit to the exchange’s bank account, making sure to include any identifying details requested by the exchange

(different exchanges have different requirements, but this often involves including a unique transaction reference number attached to your exchange account, so the exchange knows who the funds belong to).
After a waiting period (which varies depending on your bank and the exchange) you should receive an email confirming that the funds have been deposited into your exchange account.

Now that you have funds in your exchange account, you’re ready to buy some cryptocurrency.

Buying cryptocurrency

There are hundreds of different cryptocurrencies in circulation. If at this point you’re not sure which crypto you’d like to buy, this is a good time to research your options. Remember that buying and selling a particular crypto isn’t just a financial decision, it’s a choice to support a specific crypto project.

For simplicity’s sake, we’ll use Bitcoin as our example for how to buy a cryptocurrency using your exchange account. The details of buying your crypto depend on the type of cryptocurrency exchange you’ve made your account with.

Regular trading platform:

On a regular trading platform, you’ll encounter some charts and interfaces you might not be familiar with. Typically, a regular trading platform’s website will have some or all of the following:

A price chart
An order book
A buying field (with ‘limit buy’ and ‘market buy’ options)
A selling field (with ‘limit sell’ and ‘market sell’ options)
An Account/Wallet section
‘Open Orders’ or ‘Order History’ sections

Buying crypto using a regular trading platform

These steps assume that you’ve deposited fiat currency into your account on a regular trading platform exchange. If you haven’t yet done so, take a look at the steps above to deposit currency into your exchange account. Once you have funds in your account, the crypto-buying process will look something like this:

1. Navigate to your account page on the exchange website.

2. Click the Buy/Sell option (or similar).

Here, you’ll need to decide the type of crypto buying order you want to place: a market order or a limit order.

A market buy order will buy (fill) your order immediately, at the best current market price
A limit buy order will wait to fill your order until the price of your desired crypto hits a price point you choose (typically, below current market price)

3. Once you’ve picked your order type, you’ll need to choose the size of your order: the amount (and type) of crypto you’d like to buy, and (if you’re making a limit buy) the price you want to buy it for.

4. Review your order and double-check that you have the funds required for the purchase.

5. Click ‘Confirm’/’Buy’ (or similar).

The trading platform should send you an email confirming the details of your order.

Brokerage service:

A brokerage service’s interface is usually much simpler than a regular trading platform or direct trading service. A brokerage service’s website will typically have the following features:

A simplified price chart
A buying field
A selling field
An Account/Wallet section
‘Open Orders/’Order History’ sections

Buying crypto using a brokerage service

Just like with a regular trading platform, you’ll need to have funds in your brokerage service account before you can buy. Once you’ve deposited money into your account, the process is pretty simple:

1. Navigate to your account page on the brokerage service’s website.

2. Click the Buy/Sell option (or similar).

Note: Brokerage services typically only offer the market order option for buying crypto, and may simply label it as ‘Buy’.

3. Once you’ve picked your order type, you’ll need to choose the size of your order: the amount (and type) of crypto you’d like to buy.

4. Review your order and double-check that you have the funds required for the purchase.

5. Click ‘Confirm’, ‘Buy’ or similar.

The brokerage service should send you an email confirming the details of your order.

Direct trading service:

A direct trading service is the most complex way to trade crypto. Direct trading services are generally only used to trade one crypto for another — if you’re looking to turn fiat money (e.g. USD) into crypto, you’ll want to use a brokerage service or a regular trading platform. A direct trading service interface will typically have features similar to a regular trading platform:

A price chart
An order book
A buying field (with ‘limit buy’ and ‘market buy’ options)
A selling field (with ‘limit sell’ and ‘market sell’ options)
An Account/Wallet section
‘Open Orders/’Order History’ sections

The process of buying crypto through a direct trading service will generally be similar to the steps for buying through a regular trading platform. The key difference with a direct trading service is that you’re buying crypto using a different cryptocurrency, not fiat money.

TLDR: Buying cryptocurrency

Most cryptocurrency buying is done through crypto exchanges, which come in several different types. Some kinds of exchange are easier to use but more expensive (like regular trading platforms and brokerage services), and other kinds are more private but can be more limited and harder to use (direct trading services). The crypto-buying process varies depending on the kind of exchange you’re using, so make sure to scroll up and read up before you start buying.

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