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How Do You Purchase Cryptocurrencies?

With more than 20,000 cryptocurrencies in circulation—Bitcoin, Ethereum, Tether, Cardano, Solana—you should know that a cryptocurrency can be here one day and gone the next, essentially leaving your investment worthless.

Picking a good cryptocurrency is not like picking a good stock; granting you ownership in a company that creates profits for its shareholders, or at least has the potential to do so. Owning a cryptocurrency represents ownership in a digital asset with zero intrinsic value.

That said, to purchase cryptocurrency, you first need a broker or cryptoexchange.

A cryptocurrency broker, such as Robinhood, takes the complexity out of purchasing crypto, offering user-friendly interfaces that interact with exchanges for you. Some charge higher fees than the exchanges and you may face restrictions on moving your cryptocurrency holdings off the platform.

A cryptoexchange is the platform where buyers and sellers meet and trade cryptocurrencies. Ensure that the exchange supports the deposit and withdrawal of your local fiat currency, or government-issued currency. Some exchanges only allow you to buy crypto using another crypto, meaning you’d have to find an exchange to buy the tokens your preferred exchange accepts before you could begin trading crypto on that platform.

Other things to consider include transaction fees, types of cryptocurrencies available on a platform, available education resources, and other features that may align with your interests and goals.

Once you decide on a cryptocurrency broker or exchange, you would sign up to open an account and depending on the platform and the amount you plan to buy, you may have to verify your identity.

You then have four options to fund your new account:

  1. Local bank transfers
  2. International wire transfers
  3. Third party payment processors
  4. Credit/debit cards

While some exchanges or brokers allow you to deposit money from a credit card, doing so is risky and expensive. Credit card companies process cryptocurrency purchases with credit cards as cash advances.

Cryptocurrencies are traded in pairs, and with most exchanges and brokers, you can purchase fractional shares. To complete your first purchase, you will need to select the coin you wish to buy on the exchange. Exchanges have a “Trade” section and within this you will need to choose the coin you’re interested in purchasing.

Cryptocurrency exchanges are not backed the Federal Deposit Insurance Corp (FDIC), and are at risk of theft or hacking, according to Forbes.

Instead of keeping your digital assets on an exchange, you have the option to store them in a wallet which comes in two forms—hot and cold. Hot wallets are connected to the internet, making them convenient, but more susceptible to being attacked. Cold storage is possible by using hardware wallets.

The most important step is to educate yourself about emerging digital currencies and the technologies they use.

To close, despite stories of investors making millions, entering the market at an inopportune time can result in rapid and extreme losses.


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