A Beginner's Guide to Buying Cryptocurrency
Table of Contents
What Is Cryptocurrency?
Cryptocurrency, also called just "crypto", is a digital currency created using cryptography. Most frequently these are not created or distributed by any central bank or government organization, though increasingly these groups have shown an interest in creating their own crypto.
Cryptos are typically broken down into various numerical segments starting with whole numbers and going down an infinite number of decimal points until 0. The units of a cryptocurrency usually have different names for each Crypto. For example whole numbers of Bitcoin are called "Bitcoins" while small portions that represent one hundred millionths of a Bitcoin (the smallest you can get) are called "Satoshis" or just "Sats". When speaking about cryptocurrency in general the acceptable nomenclature is usually "coins" or "tokens".
The transactions for these currencies are verified and recorded automatically in a decentralized system using cryptography which is known as a blockchain. Typically, the blockchain records are public detailing which wallets on the network sent and recieved exactly how many units of the cryptocurrency and multiple or all computers participating in the network have the exact same ledger of transactions or blockchain.
Note: Cryptography is the broad name for the ways in which computer programming protects the privacy of information using math. You probably know it best from "encrypted" emails or tv shows about intelligent criminals.
Cryptocurrency's are most frequently a medium of exchange of value designed specifically to be used on the internet. Though, some times they are either something else or they have multiple roles to play. For example the first cryptocurrency, Bitcoin, is often thought of as an exchange of value and a store of value. Other cryptocurrencies are both an exchange of value and give a holder voting rights in decisions being made for a specific crypto, blockchain, or app using the crypto.
The blockchain ledgers which power cryptocurrency take advantage of cryptographic functions to engage record financial transactions not visible to others.
Cryptocurrencies function through blockchain technology to provide a variety of benefits including decentralization, transparency, and protection from alteration.
How Many Cryptocurrencies Are There?
Some estimates go as high as 10,000 or more cryptos out there available today. Though a more accurate number might be those that are actively being looked at by potential buyers/users, to find this we'll look at a website that exists to track all cryptos. The website CoinMarketCap tries to keep tabs on the entire market and lists 9,429 unique cryptocurrencies accurate as of October 2022.What Isn't Cryptocurrency?
Before you run off and purchase crypto, it is important to know what your crypto is not to avoid being scammed or wasting your money.
When people think about cryptocurrencies or try and sell crypto, they often include many things that aren't really cryptocurrencies. Cryptocurrency is a virtual currency; that is, it exists in the digital world only (yes, even when in a cold wallet). No one has a physical cryptocurrency coin or token in their pocket. Those gold colored coins your grandma purchased for you are not real Bitcoins or Dogecoins. Same goes for our amazing Bitcoin Shirts, Dogecoin Shirts, and other Crypto Gear. While it looks stylish and cool, it is not a cryptocurrency.
Some things that aren't digital currencies are security tokens, utility tokens, and non-fungible tokens. In this context, a security token is a digital two-factor authentication device used as a log-on aid. A utility token is a digital form of cryptocurrency that is issued to fund the development of that cryptocurrency. It can later be used to purchase something offered by the issuer of that cryptocurrency. It is used as a method of fund-raising for cryptocurrency offerings.
A non-fungible token is created just like a cryptocurrency but is a digital form of art, music, videos, and other items. They are usually bought and sold with cryptocurrency and have become a popular medium for selling digital art. Unlike the fungible nature that makes crypto spendable, NFTs are considered unique and, as the name states, non-fungible.
What Are Some of the Better-Known Cryptocurrencies?
There are many, many cryptocurrencies today; some estimate there are over 10,000 cryptos out there, the website CoinMarketCap lists 9,429 unique cryptocurrencies. Currencies continue to be created even though the market has crashed over the past year and is only worth approximately $1 trillion instead of its high of $2.6 trillion. Among the top cryptocurrencies are:
General Process for Buying Crypto
You can obtain coins or tokens from a cryptocurrency by purchasing them directly, investing in crypto funds, or by investing in the crypto companies themselves. Generally, to buy crypto directly, you need to go through a crypto exchange or one of the broker/dealers or money transmission businesses that sell it. Sometimes, you may be able to buy a newly issued cryptocurrency in an initial coin offering (ICO).
Investing in crypto companies means looking for companies whose business is partially or totally concentrated on crypto. These can include crypto mining hardware manufacturers, PayPal Holdings, Inc, and other companies that support crypto, companies that mine cryptocurrency, and even investing in broker/dealers that allow crypto accounts. You can also invest in companies that own lots of cryptos themselves.
You can also invest in Exchange Traded Funds that focus on cryptocurrencies. These are similar to mutual funds but are traded on exchanges like stocks. As with a mutual fund, you will own a share of a pool of cryptocurrencies.
You can also invest in a cryptocurrency Roth IRA. This will increase the security of your currency, but whether it will make your retirement more secure is, of course, another question.
Finally, you can be a cryptocurrency miner or validator. You need to learn how to do either, and the process can be expensive, but the rewards can be considerable.
You can hold your coins in a hot wallet that is digital and connected to the internet or a cold wallet that is similar to a free-standing hard drive in that you can disconnect it from the net, making it far less vulnerable to hacking.
Always, always remember your passwords. Without them, you can never access your coins again. And keep it somewhere your heirs can find it for the same reason.
Before buying any cryptocurrency, you should be aware that they are highly risky investments because of their relatively unlimited supply and the risk of hacking. Billions can disappear in seconds through hacking. Be sure that you can afford to lose whatever you invest.
Buying Bitcoin
Buying Bitcoin is a relatively simple process. You must choose a Bitcoin wallet, a program to hold your Bitcoins. Then find a trader or website that is selling Bitcoin. You can then purchase the coins with a debit or credit card. Some of the places to do that are websites like Coinbase or Coinmama. Both are relatively easy to use crypto exchanges and are a great fit for crypto investors / hobbyists in the USA. Two of the other well-known for crypto exchanges for Bitcoin are Binance and Kraken. Exchanges are a great place to purchase Bitcoin because they are (most often) very liquid should you need to sell. You want to make sure whatever exchange your select is focused on you the trader/investor and not other endeavors as the implosion of exchanges such as Mt. Gox and FTX show.
To buy from an exchange or other finance website you probably need to first create your account, and complete the required Know Your Customer information and verification. This is information about you that the company is required to obtain as a requirement for Anti-Money Laundering purposes. Then you need to fund your account with your fiat currency from a credit or debit card. Finally select Bitcoin on the exchange and how much you want to purchase and complete the transaction.
Coinbase is probably the easiest way to buy Bitcoin in the United States and the one we would currently recommend you try as a first timer.
Buying Dogecoin
Dogecoin is sold on crypto exchanges and through investment platforms such as Robinhood making it fairly easy to access. Exchanges where Dogecoin is know to be available include Coinbase, Binance US, and Kraken, each of which has a simple-to-use, expensive version for newbies and a cheaper, complex version for regular traders. Other places to buy Dogecoin include Robinhood, but you may be unable to move your currency off their site easily.
As with other crypto, you have to create an account, deposit funds, and make your purchase. On most platforms you can purchase by dollar amount or number of dogecoins you want to obtain.
The exchange will, by default, keep your coins in their wallet. One of the best pieces of advice is to move your coins from the exchange or investment platform into a cold or offline wallet to ensure they are never lost, stolen, or misused by the financial company where you purchased them
Though increasing in popularity, Dogecoin is not as widely available as other crypto currencies.
Buying Ethereum
You can buy Ethereum on a centralized exchange or a decentralized exchange (a DEX for peer-to-peer transactions) where you don't give control of your funds to a centralized company or from a wallet.
In the U.S., you can buy on Binance US, bitFlyer, Coinbase (not in Hawaii), Coinmama (not in CT, FL, IA, NY), and other exchanges which are, as you see, not available in all states. Wallets such as Argent, imToken, MyCrypto, and MyEtherWallet are available to US purchasers but not in every state. Because of the way DEXs work, you will find fewer geographical restrictions and can pay with tokens, PayPal, or in-person cash delivery.
Buying Shiba Inu
Shiba Inu is an Ethereum-based crypto that features the Shiba Inu dog as its mascot. It is generally considered an alternative to Dogecoin and is sometimes called the Dogecoin killer. Shuba Inu is available on ShibaSwap, its native exchange, as well as on Binance US, Coinbase, KuCoin, and others. You can use your linked bank account, another crypto, and credit or debit cards to make the purchase. If you live in one of the states that make owning crypto difficult, you can buy a trading pair on KuCoin, buying shib/USDT, and then exchange the USDT for a shib. You can also use the Atomic Wallet with your debit or credit card.
Before You Buy....
Figure out your risk tolerance and how much you can afford to lose. Your risk tolerance is your level of discomfort at the idea of a loss. For some highly risk tolerant people, risk is exciting and never upsetting. For others, even a $20 table-stakes poker game causes anxiety. Although you probably fall between these extremes, you do want to think about it before you buy something as highly risky as cryptocurrencies. Once you have figured out how much you can emotionally stand to lose, think about what you can genuinely afford to lose. Crypto is not the place for the kids' college funds or your monthly rent.
One helpful trick is to think about dropping that same sum of money out a window. If you can do that without cringing, you can afford to buy crypto with it.
