How to buy cryptocurrency

Key points

• Bitcoin and other cryptocurrencies are growing in popularity as alternative investments.
• Cryptocurrency exchanges are the most popular medium to buy cryptocurrency.
• The crypto market peaked in November 2021, hitting over $3 trillion in value.

The world of cryptocurrency is never boring. One day, people are talking about price peaks. The next, they’re discussing which crypto exchange CEO has been charged with financial crimes.

If you want to follow in the footsteps of those who invest in disruptive technologies, cryptocurrency is one way to do so. But keep in mind that it is a speculative investment. 

What is cryptocurrency?

A cryptocurrency is a digital currency that exists outside the control of a centralized entity, such as a government or central bank. 

Transactions are verified and records are maintained by a decentralized system using cryptography, rather than by a centralized authority. The core technology behind cryptocurrencies — known as the blockchain, where transactions are recorded into blocks — is complex. 

The blockchain was a technological breakthrough when an anonymous character named Satoshi Nakamoto penned a white paper on bitcoin in 2008. The original crypto officially launched in January 2009, with more following, including litecoin in 2011 and peercoin in 2012.

Eventually, cryptocurrencies “may form the basis of quick, secure transactions of wealth that don’t require a central government or banking authority for validation,” said Matthew Weathers, applied instructional technology administrator and adjunct professor of mathematics and computer science at Biola University in La Mirada, California. 

How does cryptocurrency work?

Cryptocurrencies are entirely digital. While conventional money can be digital, it also exists physically in the form of cash and is issued by a central authority such as the government. The concept of a decentralized and digital form of money can be tougher to wrap your head around.

Advocates point to the fact that an increasingly digital world needs digital money. They also say that a decentralized economy could be a more accessible and democratic version of the current financial world, which can be harder to access for citizens in less developed countries or under oppressive regimes. 

Detractors argue that crypto is one massive get-rich-quick scheme, with illusions of grandeur but nothing of inherent value. It has also been criticized for facilitating illicit activity, such as money laundering, while hacks and scams are commonplace in the industry. 

Types of cryptocurrencies

We can break down the thousands of cryptocurrencies into subsectors, with different coins striving to achieve different things. 

While risk is present everywhere in crypto, it varies significantly between these subsectors. It follows that the return profile does too.

Bitcoin

Bitcoin is the crypto “OG,” the coin that launched thousands of imitations. When bitcoin launched, there weren’t many competitors. The original crypto was designed to be independent of both central banks and governments. The peer-to-peer verification process was created to revolutionize currency, displacing intermediaries.

Because the currency is capped at a total supply of 21 million coins, many believe there could be value in its scarcity and that it could eventually achieve a store-of-value status akin to gold. Currently, there are more than 19.6 million coins in circulation. 

The rate at which new coins are introduced into circulation will slow with the next halving, estimated to occur in April 2024. This event will cut the number of new coins miners earn in half.

Altcoins

Altcoins are generally considered cryptocurrencies that are not bitcoin, although some would change this definition to exclude ethereum too. 

While bitcoin is extremely volatile, altcoins are more volatile again. Looking at price charts, many trade like levered bets on bitcoin, with the bear market particularly harsh to many altcoins.

Stablecoins

Stablecoins are a blend of conventional money and cryptocurrency. They involve a cryptocurrency pegged to a fiat currency, such as the U.S. dollar. 

In such a way, traders can transact in the decentralized world of cryptocurrency without swallowing the wild volatility of crypto by having their portfolios tied to currencies, such as the U.S. dollar. 

The biggest stablecoin is tether (USDT). Certain central banks worldwide also have begun to research issuing their own stablecoins.

Meme coins

Meme coins are a joke. That’s not meant facetiously. They are, quite literally, a joke. 

Meme coins refer to popular cryptocurrencies that enthusiastic online traders and crypto followers back. 

During the pandemic, coins like Dogecoin captured the public’s imagination, with high-profile internet campaigns pumping prices to scarcely believable levels. Dogecoin was the most notorious, its market cap reaching a lofty peak of $88 billion in May 2021. For context, the minimum market cap a public company must reach to be considered for the S&P 500 is $15.8 billion. 

How to buy cryptocurrencies

Cryptocurrencies are unusual assets, and purchasing them can be intimidating for new users. In truth, however, it can be done quite easily. 

If you decide to step into the crypto storm, here are three steps to follow. 

1. Select a platform to buy crypto

Selecting a platform to buy your assets is the first and perhaps most important step. It’s especially important in crypto. Security risks are high, and transparency has traditionally been low, with several firms folding over the years and customer assets going with them. 

Generally speaking, you can choose between a traditional online broker and a cryptocurrency exchange, which we explain below.

Traditional online brokers

Not all traditional brokers offer crypto. Still, as the asset class has expanded into mainstream consciousness, some have moved into the space. 

But more obscure altcoins are often not viable through this medium. Potential customers should also do their due diligence on fees and the types of investment products offered, as they can vary significantly from company to company. 

Cryptocurrency exchanges

The most common way to buy crypto is through an exchange. Binance dominates the space following the startling collapse of FTX in November 2022. FTX founder Sam Bankman-Fried has since been convicted of stealing billions of dollars from customers.

Coinbase is listed publicly in the U.S., while other big names include Kraken and KuCoin. But the FTX bankruptcy should tell you all you need to know about the importance of being vigilant. 

Alternative platforms

You can also buy cryptocurrency with your debit or credit card. Bitcoin ATMs let you use your card to buy crypto, while some online platforms allow you to purchase coins like you’re online shopping. These options may carry hefty fees, however, and buying a volatile asset on credit can increase the risk.

2. Fund an account

Funding an account can commonly be done by bank transfer or credit card (although fees tend to be high for the latter). The easiest way is to deposit crypto you already own, although you must deposit fiat to buy crypto in the first place. 

3. Place an order

Placing an order should be straightforward, depending on the platform. Ensure you are purchasing the right asset. That sounds obvious, but with many coins and ways of gaining exposure to them, traders often need to catch up here. 

How to buy cryptocurrency with a credit card

You can now buy cryptocurrency with some credit cards, including American Express, Visa and Mastercard. To do so, you must find an exchange that accepts your credit card and link your credit card to your account or use a platform like CoinGate to facilitate the process. 

But the fact that you can buy cryptocurrency with a credit card doesn’t necessarily mean you should.

“It’s generally a bad idea to go into debt, especially credit card debt, in order to make speculative investments,” Weathers said. “However, using a credit card as a convenient way to buy bitcoin isn’t problematic if the person regularly pays off their credit cards and doesn’t keep a balance.”

How to store cryptocurrency

Storage is another big decision facing users. Your preferred method will depend on how secure you want to be at the expense of convenience, the amount of crypto you want to purchase and the length of time you expect to hold it. 

We outline some of your storage options below.

Hot wallet

A hot wallet is connected to the internet. That makes it convenient. But should proper security not be practiced, the wallet could be vulnerable to online attacks. 

Exchange account

An exchange account is the most convenient option, but it comes with risks. You are relying on the exchange to keep your crypto secure. This is a daring endeavor given the recent legal action against exchange founders and CEOs. Binance’s Changpeng Zhao pleaded guilty to money laundering in November 2023, while Bankman-Fried was found guilty of stealing $8 billion in customer assets that same month.

Cold wallet

A cold wallet is an alternative to a hot wallet. It isn’t connected to the internet, meaning it stands less chance of being compromised. On the flip side, a customer must ensure they keep the wallet and their seed phrase, crypto’s version of a password, safe. 

How to buy cryptocurrencies for beginners

“For most people, the simplest and quickest way to buy some cryptocurrency would be to use PayPal since most people already have an account,” Weathers said. Simply go to the “Crypto” section and click “Buy.”

You can also use exchanges like Coinbase, Gemini and Binance.US. Their fees and payment options vary, but they make it easy for beginners to purchase and store cryptocurrency.

Trading apps and online stockbrokers are another option. Some companies, including Robinhood, let customers buy cryptocurrency through their platforms.

Remember that you’ll also need to store your cryptocurrency using one of the methods outlined above. 

Considerations for investing in cryptocurrency

There is a lot to think about before investing in cryptocurrency, from its volatility to the fact that the future has seldom seemed more uncertain. Give any cryptocurrency careful consideration before pressing buying it.

“New types of wealth have the potential to disappear or to become very valuable,” Weathers said. So he recommends investing only money you can afford to live without for 10 years.

“After 10 years, (your) investment may have disappeared completely, or it may be worth quite a bit more,” he said. 

No one knows what cryptocurrency’s outcome will be. The best strategy may be to hope for the best but expect the worst.

Frequently asked questions (FAQs)

What are the most popular cryptocurrencies?

The most popular cryptocurrencies are, unsurprisingly, the ones with the largest market caps. Bitcoin is comfortably number one, while ethereum has long been second. But when it comes to the public interest, meme coins are tough to beat, dogecoin and shiba inu being the two largest.

What is the best way to buy cryptocurrency?

There is no single best way to buy cryptocurrency. One option is PayPal, which is convenient if you already have an account but offers limited options. While online stock brokers and trading apps also offer convenience, they provide varying degrees of access. Crypto exchanges are popular, but their fees vary.

How do I buy crypto for the first time?

If you already have an account, one of the easiest ways to buy crypto for the first time is with PayPal. If you work with an online broker or use a trading app, you may also be able to buy cryptocurrency there. Alternatively, you can open an account on a crypto exchange like Coinbase or Gemini.

Are there different types of crypto exchanges?

There are many crypto exchanges, all of which offer different products. Binance is the biggest, while Coinbase is the largest publicly listed exchange, having floated in April 2021. 

The space seems to be in constant upheaval. Binance’s former CEO pleaded guilty to money laundering in November 2023. Only a few weeks earlier, FTX’s founder was found guilty of fraud and money laundering.

Throughout crypto’s brief history, many exchanges have suffered hacks, and the regulatory framework in the space is far from established. It is vitally important that customers research which companies they want to use and where they want to store their crypto.

Why are there so many kinds of cryptocurrencies?

The interesting thing about cryptocurrencies is that they run on open-source software. That allows many to be created, as coders can simply copy and paste the code of an existing crypto to create a new one through a process known as forking.

There is a downside, of course. During the bull market hysteria, many cryptocurrencies of questionable value popped up. But many ceased to exist as the market crumbled in 2022, with the value of crypto stalwarts like ethereum and bitcoin tumbling too. Bitcoin and ethereum lost more than 60% of their value in 2022. But they have since rebounded, with bitcoin reaching a new high in March 2024.

How long this bull run will last is anyone’s guess. If history is any gauge, what goes up in the crypto world can just as easily come tumbling down.