How to buy and store digital currencies
The process of buying Bitcoin, Dogecoin, Ethereum, and other digital currencies can be overwhelming at first. But fortunately, it is not as difficult as it seems. If you are new to the world of cryptocurrency, this article will explain how to buy and store cryptocurrency in the way that suits your goals.
Steps to buy digital currencies
1- Choose a broker or stock exchange
Before thinking about how to store them, you must first buy cryptocurrencies. Now you need to choose a broker or trading platform. While both of these options allow you to purchase, there are some key differences to keep in mind.
What is a cryptocurrency exchange?
A cryptocurrency exchange is a platform where buyers and sellers meet with the aim of making deals between them. Exchanges often have relatively low fees, but they tend to have more complex interfaces, multiple trading types, and advanced performance charts that make them seem intimidating to new investors.
The most popular cryptocurrency exchanges are Coinbase, Gemini, and Binance. While the complex trading interfaces may confuse beginners, especially those without any background in the field, they also offer easy-to-use buying options.
Convenience comes at a cost, with beginner-friendly options commanding far more fees than it would cost to buy the same cryptocurrency through each platform’s standard trading interface. To save costs, you may aim to learn the techniques that will enable you to use standard trading platforms before you make your first cryptocurrency purchase.
As someone new to the cryptocurrency space, you will need to make sure that the exchange or brokerage you choose allows fiat currency transfers and purchases made in US dollars. Some exchanges only allow you to buy cryptocurrencies with other cryptocurrencies, so check before you start trading.
What is a digital currency broker?
Cryptocurrency brokers will take the complexities out of buying cryptocurrency because they offer user-friendly interfaces that interact with the exchanges for you, but they usually charge higher fees than cryptocurrency exchanges.
Some brokers may claim that they are “free”, but then be sure that they make money by selling information about what you and other traders buy and sell to brokerage firms or big funds, so be careful.
While the process is undeniably convenient, you should be careful with brokers because you may face restrictions on transferring your cryptocurrency holdings outside the platform. At Robinhood and SoFi for example, you can’t transfer your digital holdings from your account. This may not seem like a big deal, but there are many cryptocurrency investors who prefer to keep their coins in cryptocurrency wallets or in offline devices for security reasons.
2- Create your account and verify your identity
Once you have decided on a cryptocurrency broker or exchange, you can register to open an account. Depending on the platform and how much you plan to buy, you may have to verify your identity to prevent fraud and to meet federal regulatory requirements.
You may not be able to buy or sell any digital currency until you complete the verification process, and the platform may ask you to provide a copy of your driver’s license or passport, or even upload a personal photo to prove that your appearance matches the documents you provide.
3- Deposit funds into your account
To buy cryptocurrencies, you will need to make sure you have funds in your account. You can deposit money into your account by linking your bank account, authorizing a wire transfer or even making a debit or credit card payment. Depending on the exchange or broker and your financing method, you may have to wait a few days before you can use the money you deposit to buy cryptocurrencies.
While some exchanges or brokers may allow you to deposit funds from a credit card, doing so is expensive and very risky. Credit card companies treat cryptocurrency purchases using credit cards as cash advances, meaning they are subject to higher interest rates than regular purchases. You may have to pay 5% of the transaction amount when making a cash advance for example, this is in addition to any fees your cryptocurrency exchange or brokerage may charge, which can be as high as 5% itself, which means you could lose 10% of your money. Your cryptocurrency purchases for fees.
4- Make your first digital currency purchase
Once you have funds in your account, you are ready to place your first cryptocurrency purchase order. There are hundreds of cryptocurrencies to choose from, ranging from well-known names like Bitcoin and Ethereum to lesser-known cryptocurrencies like Theta Fuel or Holo.
When you decide which cryptocurrency you want to buy, you can enter the ticker symbol, and the number of coins you want to buy. Most exchanges and brokers allow you to buy stakes in cryptocurrencies, this means that you can buy a piece of high-priced tokens like Bitcoin or Ethereum that require thousands of dollars to own.
Here are the symbols of the 10 most powerful cryptocurrencies based on market cap:
- Bitcoin (BTC)
- Ethereum (ETH)
- Tether (USDT)
- Binance Coin (BNB)
- Cardana (ADA)
- Dogecoin (DOGE)
- XRP (XRP)
- USD Coin (USDC)
- Polkadot (DOT)
- Uniswap (UNI)
5- Determine the storage method
After purchasing cryptocurrencies, you need to think about how to store them. Cryptocurrency trading is not supported by protections such as the FDIC which makes it more vulnerable to the risk of theft or hacking, or you can even lose your investment if you forget or lose the codes to access your account. This is why it is very important to have a secure storage place for your digital coins.
As mentioned above, if you are buying cryptocurrency through an intermediary, you may not have any choice in how your cryptocurrency is stored. But if you buy a digital currency through the exchange, here are the options that await you:
Leave it on the exchange: When you buy a digital currency, it is usually stored in what is called a digital wallet linked to the exchange. If you want to move your assets to a more secure location, you can move them from the exchange to a separate hot or cold wallet. Depending on your trading and conversion volume, you may have to pay some fees for it.
Hot wallets: These wallets are stored online, and then run on internet-connected devices such as tablets, computers, or phones. Hot wallets are good, because they are at risk of theft because they are connected to the Internet.
Cold Wallets: These refer to cryptocurrency wallets that are not connected to the internet, making them the safest option for holding cryptocurrencies. These wallets take the form of external devices such as a USB drive or hard drive. You have to be careful with cold wallets, you can lose all your assets if you lose the key token associated with it or the hardware crashes or fails.
How to store cryptocurrency safely
After purchasing cryptocurrencies, one of the most important things to consider is how to store them. Digital currencies do not have the same types of protection as a bank account or investments made through an intermediary. As the owner, it is your responsibility to store the digital currencies.
If you lose access to your cryptocurrency, you will most likely never get it back. This is a problem so common that it is estimated that 3.7 million bitcoins are lost forever.
You have many different options for storing your cryptocurrencies including devices, apps, etc. Once you know more about each storage method, you can choose the wallet (or wallets) that suit you best and that you think will keep your assets safe.
1- Store digital currencies in the custodial wallet
A custodial wallet can be considered the default option for storing cryptocurrencies, as there is a third party holding cryptocurrencies for you, either through cold storage, hot storage, or a combination of the two.
When you buy cryptocurrencies from exchanges, apps, or brokers, they usually put them in a custodial wallet that they control. If you want to store it yourself, you can transfer it to your hot or cold wallet.
Many investors use custodian portfolios without problems, and there are also some advantages to this type of portfolio:
It requires the least amount of effort on the part of the user
Since your cryptocurrency is stored in your account, it is easy to access if you want to trade it
You don’t have to worry about losing your cryptocurrency wallet, as long as you have access to your account, you can access your cryptocurrency
On the other hand, there is a third party that controls your assets, and you are forced to rely on their security measures and trust that they will not prevent you from accessing your account.
Although custodian wallets are not as secure as using your own wallet, they are a convenient option for investing in cryptocurrencies. And if you decide to keep your coins in a custodial wallet, make sure that the platform you choose has high security standards.
2- Store digital currencies in a cold wallet
A cold wallet is an offline wallet. There are various ways to store cryptocurrency in this way such as creating your own free paper wallet (which we will discuss later), or getting a hardware wallet, which is the most popular type of cold wallet.
Hardware wallets are small devices that connect to your computer and store digital currency. It connects to the internet when sending and receiving cryptocurrencies, but other than that, it keeps your money offline. Here’s how hardware cold wallets work:
Each hardware wallet has certain types of digital currencies that it can store. Some can store more than 1,000, while others store much fewer.
When you connect your hardware wallet to your computer, you can create an address to receive coins the wallet.
You can send digital currencies from the wallet to another address
Every hardware wallet has a recovery phrase, which allows you to recover your coins if you lose the hardware itself. It is important to keep this safe, as it is the key to everything you own.
Storing cryptocurrencies offline is the best option from a security perspective, and many platforms use it to protect most of their assets. When your coins are offline, it is impossible for hackers to steal them.
The biggest drawback of cold wallets is that since you need to link your cold wallet to transfer cryptocurrencies, the process is slower than if you kept everything online.
3- Storing digital currencies in a hot wallet
A hot wallet is an application that stores digital currencies online. Hot cryptocurrency wallets have some highlights including:
It gives you control over your cryptocurrency
It is often free
Easy to use, you can send and receive cryptocurrencies very quickly with this type of wallet
Like hardware wallets, hot wallets come with a recovery phrase that you can use if you lose access to the wallet.
The only problem with hot wallets is that since they store cryptocurrencies online, they run the risk of being hacked. Although the odds of this happening are low, and there are many people who store their coins through this wallet without issues, it is potentially very risky.
4- Store digital currencies in a physical wallet (device)
A physical digital wallet, also known as a paper wallet, is another type of cold storage, which is a printed copy of your public and private keys usually in the form of a string of characters and scannable QR codes.
All digital currency transactions take place over these keys, you will receive coins using the public keys, and then send them by scanning both the public and private keys.
Paper wallets have the same advantage as hardware wallets in that they provide greater security by keeping your assets offline, and you can also make them yourself which makes them ideal if you want maximum security with minimal cost.
The downside of this wallet is that it is considered the least user-friendly of all wallets. While anyone can follow the steps online and create their own paper wallet, other wallets are less complex.
Tips for storing cryptocurrency safely
Here are some tips to help you store your digital currency safely:
Store the bulk of your cryptocurrency in a cold wallet as this is the safest option.
Use a hot wallet for the smaller amounts of cryptocurrencies you want to keep available for trading.
Record recovery phrases for your digital wallets so you don’t forget them.
Save your recovery phrases in a safe place that only you can access.
Never share your cryptocurrency wallet recovery phrase or private keys with anyone, and don’t save them to your computer.
You can choose one or more cryptocurrency wallets. We recommend choosing a physical wallet (hardware) for most of your cryptocurrency holdings and downloading a hot wallet for some for easy access.
Also, don’t forget to check out the best cryptocurrency e-wallets article, which will provide you with a list of the best cryptocurrency e-wallets.
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