Cryptocurrency Explained: A Beginner’s Guide to Buying Crypto
By now, you've probably heard of cryptocurrency, or at the very least, you've heard of Bitcoin. With an increase in the value of over 330% in 2020, Bitcoin has finally made it into mainstream news headlines.
Bitcoin hasn't always been so popular. When it first came to be over a decade ago, it was considered nothing more than an interesting monetary experiment. But, in the last few years, cryptocurrencies have taken off. Now, more people than ever are investing in cryptos like Bitcoin.
Are you looking to get started with crypto but not sure where to start? Then you're in the right place. In this Cryptocurrency Explained, I will tell you everything you need to know about buying crypto, and how to stay safe while doing it.
What are cryptocurrencies?
Cryptocurrency is a form of digital or virtual currency that can be exchanged for goods, services, and other forms of money online. The "crypto" in cryptocurrency comes from the mathematical field cryptography, which is used to ensure transactions are secure and cannot be counterfeited.
Cryptocurrency works using a technology called Blockchain. Through Blockchain technology, data is spread across many different computers that manage and record transactions. Through this process, cryptocurrencies are decentralized because they are not controlled by any single institution and are totally independent of central banks, like the Federal Reserve.
Essentially, cryptocurrencies eliminate the middlemen, like banks, and allow users to make transactions directly with one another. They are also independent of countries’ monetary policies that can increase inflation or cause depreciation. The peer-to-peer nature of cryptocurrency drastically reduces the costs associated with traditional financial services and allows for the creation of innovative new financial products.
Why buy crypto?
Transparency - Cryptocurrencies use blockchain technology, which creates an online ledger of all transactions. Blockchain technology makes it easy to verify transactions and incentivizes all users to be honest.
Easy and secure - Crypto allows you to send money to anyone, anywhere in the world, easily and securely. Cryptocurrencies are exchanged through the use of public and private keys or passcodes that keeps things secure, and due to the peer-to-peer nature, fees associated with transactions are kept relatively low.
Potential for high returns - Many investors have made a lot of money through Bitcoin and other cryptocurrencies due to their increasing values over time. The value of cryptocurrencies can be volatile, which gives you the potential to earn money based on your investment size.
The technology of the future - Many see cryptocurrency as the currency of the future. People are racing to buy them now before they increase in value.
Hedge against inflation - As cryptocurrency is decentralized, it is not subject to the inflation that happens when central banks print money to pay for government spending efforts. Many of the newer cryptocurrencies have built-in features that allow them to completely offset traditional inflation that is imposed by the Central/Federal Banking system, thus preserving your investment for the long-term.
Blockchain technology - Many invest in cryptocurrency because they are interested in growing and supporting the technology behind it. Blockchain technology is a decentralized processing and recording system that can be more secure than traditional payment methods and data transfer systems.
Global - Buying, selling, and investing in cryptocurrency is a global activity. Whether you are in the US, Europe, or Asia you can perform transactions easily, safely, and quickly. With cryptocurrency, there are no borders or boundaries.
Anonymous - Unless you give it, your cryptocurrency “account #”, or Public Key, has no tie to any identity or location. You can have one, or many accounts, it’s purely up to you.
Be your own bank - Cryptocurrency eliminates many traditional banking obstacles by providing easy access to financial services by lowering costs, making it easier to open accounts, and making those accounts more usable. To learn more about this, check out this article, How Cryptocurrency Can Accelerate Financial Inclusion.
Things you need to know before buying crypto
Crypto is unlike any other investment - Unlike banks and stock exchanges, there are virtually no fail-safes to protect you if you make a mistake. Cryptocurrencies allow you to be your own bank, which includes the responsibility of keeping your investments secure.
Securely store any sensitive information on paper - Store your personal information, private keys, and access codes in paper notebooks kept in a safe place. This helps to avoid the risk of hackers or thieves gaining access to your crypto accounts.
Use long secure passwords on your crypto accounts and wallets - the more secure your passwords are, the more secure your investments are. Never use the same password more than once to increase security. Only store passwords on paper stored safely to ensure hackers cannot access them.
Use two-factor authentication - To ensure security on your crypto accounts, be sure always to use two-factor authentication that requires a phone call or SMS verification when logging onto your crypto accounts.
Double and triple check - When using your Public and Private keys to deposit or withdraw funds from your cryptocurrency wallet make sure you check and double-check that you are using the complete and correct key (it’s a long number so look at the first three and the last three digits and compare.) Also, importantly, confirm the type of cryptocurrency. For example, you cannot deposit Bitcoin into an Ethereum account and vice-versa. In fact, each cryptocurrency is unique. If you try and send the wrong type of cryptocurrency to an account, you could lose your funds forever.
How to buy cryptocurrency
Step 1 - Pick a Coin
Before buying cryptocurrency, it is crucial to research which coins are best suited for your needs. A good place to start is CoinMarketCap which lists all the current cryptocurrencies and has charts and details for each. Since the launch of Bitcoin in 2009, thousands of alternative cryptocurrencies have been added to the market. With so many options, it can be overwhelming to decide which coin is right for you. Similar to investing in the stock market, investing in a particular crypto can be a way for you to show your support for the technology and mission behind each coin.
Here are some of the most popular cryptocurrencies to invest in:
Bitcoin (BTC): As the world's first-ever cryptocurrency, Bitcoin is undoubtedly the most popular. Bitcoin is an excellent place to start for first time crypto buyers due to its price stability relative to newer alternative coins. Bitcoin can be divided into eight decimal places so that you can purchase small fractions of a whole coin. So, if you bought $100 worth of the BTC when trading at around $30,000, you'd get around 0.0033 of a Bitcoin. Learn more about Bitcoin here.
Ethereum (ETH): Ethereum presents itself as a worthy investment due to how it is used to facilitate the creation of Decentralized Applications. Investing in Ether is similar to casting a vote for a more decentralized internet. Like Bitcoin, you don't have to buy a whole Ether and can purchase fractions of a whole coin. Learn more about Ethereum here.
Litecoin (LTC): Since its inception, Litecoin has consistently ranked among the top ten capitalizations of the cryptocurrency market, which makes it relatively stable compared to other coins created around the same time. Like BTC and ETH, you can purchase a fraction of an LTC rather than buy one whole coin. Learn more about Litecoin here.
Step 2 - Set up a cryptocurrency wallet
Before you can purchase cryptocurrency, you will need to have a crypto wallet. With so many different types of crypto wallets, deciding which option is the best for you can be challenging. Have no fear; we've broken down everything you need to know about crypto wallets in this post.
To summarize, a crypto wallet does not hold your funds, it’s more like a debit card with the information to access your account on the global blockchain. There are three main types of crypto wallets to choose from: custodial wallets, non-custodial wallets, and hardware wallets. Custodial wallets are not recommended because they are hosted by third parties like cryptocurrency exchanges (an alternative option for purchasing crypto online). There is a saying in the crypto industry, "if you don't control your keys, you don't control your funds." When using a hosted-wallet, there is always a risk that the third-party involved could be hacked or compromised, and you could potentially lose your crypto.
Using non-custodial wallets like the ones from BRD or Monarch tends to be more secure because they allow you to have complete control over your crypto. You can access these wallets through your mobile phone.
The most secure wallets are hardware wallets (also known as “cold” wallets, i.e. your keys are stored offline) like the ones from Ledger and Trezor. Hardware wallets store your private keys on a hardware device that looks like a USB thumb drive. They make transactions online but are stored offline in the device and are completely controlled by you providing increased security.
Step 3 - Choose how you want to buy your cryptocurrency
There are a few different options for buying cryptocurrency with CoinFlip:
Cash - You can use cash to buy cryptocurrency easily, securely, and fast at a CoinFlip ATM. To find your closest location, use the ATM Finder on our website. All that is required to get started on our machines is a digital wallet (we recommend BRD), a phone number, and as little as $5.
Credit/ Debit card - You can buy Bitcoin and other cryptocurrencies from the comfort of your own home by using a credit or debit card directly from the CoinFlip website at https://www.coinflip.tech/buy-bitcoin-online. Keep in mind that the minimum purchase amount is $50 when buying crypto online with CoinFlip.
Bank Transfer - You can safely purchase crypto via wire transfer by calling us at +1 (877) 339-6432. Our wire transfer service requires a minimum purchase of $1,000. However, we are in the process of creating lower minimum purchase options via ACH transfer. Stay tuned for updates on that!
Stay up to date on the latest in cryptocurrency
If you've been considering purchasing cryptocurrency but have waited due to fear or lack of knowledge, it is time to take action. With the information in this guide, you'll have an easier time knowing how to safely and securely buy cryptocurrency using CoinFlip. Keep up with the latest in cryptocurrency news by subscribing to our newsletter, the Weekly Flip Thru.
Do you want to learn more about cryptocurrency? We have plenty of resources for you at CoinFlip. To begin, check out the information on our Get Started page.
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