A few friends have recently asked me about the process for buying crypto cryptocurrency lately. The fact that I need to write this post is an example of one of the major pain points of cryptocurrency. I hope to see come apps come out this year that will make the process I describe unnecessary for many investors.
One app that I do know of is the Robinhood app. While I am a Robinhood user, crytpo trading is not yet available in my state so I can’t recommend it. The Robinhood app also isn’t that easy for a new user as they need to download the app, set up an account, link a bank account, and transfer money in before they can start buying cryptocurrency. The Robinhood app is limited in which coins you can trade and as of this writing I don’t believe you can transfer coins in or out, just trade them.
So until we get a better solution. Here is a process to get started to buy some coins:
- Choose which coin you want to buy
- Open an exchange account
- Fund your exchange account
- Buy Bitcoin or other coins available on the exchange
- Send coins to an offline wallet or other exchange to buy alt coins
- Buy alt coins
Here are each of the steps in detail:
1. Choose which coin you want to buy
The first thing you need to do to get started with investing in Cryptocurrency is to decide which coins you want to buy. Some coins can be bought on an exchange that allows you to transfer fiat currency, like US Dollars, into the account to buy other coins with. A vast majority of coins can only be bought on an exchange using a reference currency such as Bitcoin, Ethereum, Litecoin, or Tether. Bitcoin is the most widely used reference currency. Some of the common exchanges that allow US Dollar transfers are Kraken, Coinbase, and Gemini. Kraken provides access to the most coins so if you want to buy one that’s listed on Kraken, I would suggest using that exchange. To buy an alt coin on another exchange I prefer starting with Gemini, which only support buying and selling of Bitcoin and Ethereum at this time, but may be expanding in the future.
2. Open an exchange account
Once you have decided on the coin you want to buy, you need to open an account on an exchange. This can take from a few days to a few weeks and will require you to submit some identity documents. Here are links to the exchanges mentioned above.
https://gemini.com/
https://www.coinbase.com/
https://www.kraken.com/
3. Fund your exchange account
Once your exchange account has been established you can link a payment source and transfer money into your account. Using a bank transfer is a common way of transferring funds and generally completes in a day or so.
4. Buy Bitcoin or other coins available on the exchange
Cryptocurrency exchanges work like most stock trading exchanges. Each coin has a market where orders can be placed. Markets are referred to by the associated trading pair. For example, the USD/BTC trading pair provides a market for trading US Dollars for Bitcoin and vice versa.
Once you chose the trading pair you want to work with, you will see the current “bid” price, which is the most anyone is willing to pay to buy and the current “ask” price, which is the most anyone is willing to receive to sell. If you choose to buy or sell at the “market” price, these are the prices you will pay assuming there is sufficient volume available at these prices. Placing a market order guarantees that your order will be filled, but does not guarantee the price so in times of volatility the price your order is executed at may be much higher or lower than expected. An alternative to the market order is the “limit” order, which does not guarantee that your order will execute, but does guarantee that if it does execute it will do so at a set price or better. I recommend starting off with limit orders.
Place your order by setting the amount of coins that you want to buy and the price you are willing to pay. Some exchanges have a minimum order but note that Bitcoin trades out to 8 decimal places. The smallest unit of Bitcoin that is commonly traded is known as the Satoshi and represents one, one hundred-millionth of a Bitcoin or 0.00000001 Bitcoin. So if Bitcoin is currently selling for $10,000 you could buy $100 worth by entering a quality of 0.01 and a price of $10,000.
5. Send coins to an offline wallet or other exchange to buy alt coins
Exchanges can and do get hacked. Because of this, you don’t want to leave your coins on an exchange unless you plan to trade them in the near future. If you plan to keep the coins you just bought for a while, you need to move them to a wallet you control. Check out these links for more information:
https://medium.com/@turboza/how-to-securely-store-your-ethereum-and-ethereum-ico-tokens-e7ee924701cd
If you plan to use your Bitcoin, Litecoin, or Ethereum (the most common trading pairs) to buy other alt coins you need to send them to the exchange that supports the trading pair you are interested in. You can find an exchange on the website, CoinMarketCap.com. Find the coin you are interested in and click on the “markets” link. This will show you the major exchanges and trading pairs for a given coin.
Choose the exchange and open an account. This will usually take a few minutes and little or no documentation is need at this time to get started. Most exchanges have a verification process to allow you to trade higher daily amounts, but you don’t need to do that right away, or at all, if the initial limits meet your needs. The first thing to do when you are logged into your new account is to turn on two factor authentication. Next you need to find the place to get a deposit address. Look for a link that says something like funds, wallets, balance, or account. You will come to a page with a list of supported coins and a link to deposit. Find the coin you want to deposit and click the button or link to get the deposit address. This is where you will send your coins from the original exchange. Copy this address and save it somewhere so you can copy and paste it later.
The last step is to send the coins. Login to the exchange where your coins are and go to the screen that shows your balance, or choose the link to send. Choose the option to withdraw for the respective coin and paste in the receiving address that you just copied from the other exchange. Put in the amount you want to send and press the send button. Note that you will be charged a withdrawal fee that varies by coin and by exchange. This is just part of doing business. Note that it is CRITICAL to get the receiving address correct. If you send to the wrong address YOUR COINS ARE GONE!
Depending on how much activity is on the network, it may take a few minutes or a few hours to receive your coins on the receiving exchange. Be patient. If you don’t see your coins, make sure you followed the withdrawal process correctly. Many exchanges will require you to click a link in an email to approve the withdrawal even with two factor authentication enabled. If you don’t do this your withdrawal won’t be processed.
6. Buy alt coins
You now have your coins on an exchange that supports the trading pair you are interested, BTC/CS (Bitcoin/Credits Tokens) for example. This is a valid trading pair for the Binance exchange. Follow the same process as outlined in step 4 to trade your Bitcoin for the alt coin you want. If you don’t plan to trade these coins soon, move them to an wallet you control.
Example Full Cycle Transaction
- Open an account with Gemini.com, link checking account, and transfer $1000
- Buy 0.1 Bitcoin (BTC) for $1000
- Open an account with Binance.com, note the Bitcoin deposit address
- From the Gemini account, withdraw 0.1 Bitcoin to the Binance deposit address
- Buy ~2500 Credits Tokens (CS) for 0.098 Bitcoin (0.1 BTC less the 0.002 withdrawal fee)
- Create a new Ethereum address using MyEtherWallet.com
- Send Credits Tokens to Ethereum public address
- Wait until CS climbs to $40
- Send CS back to Binance and sell for 10 BTC
- Send BTC to Gemini and sell for $100,000
- Transfer $100,000 from Gemini to bank account
What did I just buy?
What we think of as a crypto coin is really just an amount for a given transaction on a distributed ledger (blockchain). From a value perspective, there is really no different than traditional electronic money in a bank account. Someone can wire you $1000 and it show up in your account. The transaction is recorded by the sender and receiver. The big difference is that instead of the transaction records (ledger) being controlled by one central entity, it is stored on thousands of connected ledgers with no central control. This create a “trust-less” system with verifiable transactions, which is one of the key features that make blockchain technology valuable.
In a distributed ledger system a transaction is associated to a “private key”, which is where the value resides. When you control a wallet, you are the only one with the private key. When you receive 10 Bitcoin, the network processes a transaction that associates the value 10 Bitcoin with your private key. If anyone gets access to your private key, they have access to everything associated with it. When you have cryptocurrency on an exchange your don’t control the private key , which is why you are at risk.
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Need to get more information out like this mainstream.
Avg Joe has no Idea what to do..so they lose interest!
Thx for the post
Crypto: Let's go to work!
Agreed. I tried to keep this post as simple as possible without leaving anything out. I had to restrain myself from going into too much detail and couldn't bring myself to cut the last two paragraphs, but I figured if the reader made it that far they are probably interested. :)
the more new users have access to buying crypto the better off we will be. too many users say they haven't been into crypto because it is too complicated to enter. should not be! good post!
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