So you want to buy some cryptocurrency huh?! Ok, allow us to talk you through the process, because getting your hands on crypto needn’t be as scary as you might first think… But there are a few things you need to be aware of, so before you go investing the kids’ university fund in the latest coin your taxi driver mentioned, have a read through our simple-ish guide…
Rule 1: Don’t invest more than you can afford to lose!
Seriously, this is the big one. Cryptocurrencies are in their infancy. New ones crop up and current ones fail daily. Price changes are massive and can happen in either direction before you can react. We’ve seen price changes of +/-300% in the space of an hour on some. Buy with care!
Rule 2: “Not your keys, not your crypto”.
The best known saying in the crypto community. Cryptocurrencies are not designed to work like normal money which you keep in a bank, or at other “trusted” organisation.
They are designed for you to keep control of them in a wallet which you control. Once you have bought some make sure you move them from an exchange to your own wallet.
Rule 3: If everyone is talking about it it is too late for a quick win.
By the time your taxi driver, hairdresser, and gran are telling you about something it means all the big players have bought loads, the price has spiked and the mainstream media are reporting it. Normally that is followed by a big crash (Bitcoin went from under $1000 to over $20,000 in 2017, and has now dropped down back to around $4000 as an example due to this). Those people who bought in early are just waiting to sell you their crypto at a premium!
Let’s say you understand that, and you still want to buy some.
Maybe you have seen a project that interests you or you want to deal with a company which accepts payment in crypto. Maybe you just want to buy and hold some as an investment. In this piece, I will guide you through the process of buying some crypto, for example, Ethereum.
As one of the more established and popular blockchain solutions the Ethereum (the blockchain) uses Ether as its currency. This can be used for a number of things, from holding as an investment through to buying unique vinyl figures which are tracked via the blockchain, or even playing the lottery…
Just a quick note;
You will see the term Fiat used in this article. Fiat is just the term for government-backed money such as GBP, USD or EUR. If you are getting in the game you may as well know some of the terms!
Also, the terms crypto, cryptocurrency and coins are all interchangeable. This is different from the blockchain which is the underlying technology the coins work on. It just so happens we covered this exact topic last month in our chat with local whizz kids, Quanta…
The first step of buying any cryptocurrency is getting a wallet…
Exchanges get hacked. Exchanges fail. And when they do and your crypto is lost then, well, your crypto is lost. There is no central authority to appeal to!
Having it in your own wallet, or cold storage where no one else can get to it is the solution for this, and you only transfer funds to exchanges when you want to make transactions.
The tradeoff is that you are responsible for them. If you lose your key, your passphrase, or your passwords then you have lost them and no-one can help you recover them. Which is kind of the point! Control moves away from organisations & their ability to manipulate you or control your money and back into your own hands.
Be careful when you get a wallet. There are always scammers out there, just as there are with fiat! To sign up first find a reliable wallet that can handle the particular coin you want. In the same way that you can’t keep USD in your GBP bank account, you can’t keep Bitcoin in an Ethereum wallet.
When you sign up you will be given some information, normally a private key and/or a recovery passphrase. Write these down somewhere offline. Write them down somewhere else.
Back them up. But don’t share them with anyone.
These are like the keys to your personal digital safe, if you lose them you can’t get in, and if you give them to anyone else they can!
To clarify this a bit more in comparison to your Fiat bank account;
Your wallet address is like your bank account number. You can share it with people and they can use it to send you money. It is safe to share it with people though they will be able (using a blockchain explorer) to see what you have saved in it. Your Private key and recovery phrase is like your pin code and bank card. If you give them to people they can take your money!
While a lot of coins have their own wallets, here are a couple of popular ones you may want to look at:
- MyEtherWallet.com. A web-based service that gives you control and talks you through exactly how to keep your details safe.
- Enjin Wallet (on the app store). This keeps your wallet on your phone or tablet.
Each of the above works a similar way. They will give you a private key and a recovery phrase which you should back up but not share with anyone. These are how you get into the wallet.
They will also give you a wallet address which is what you use to send funds to the wallet. They also each give you instructions on how to use them, back them up and store your data. They can all handle a number of different cryptocurrencies, but you need to check that the one you want to buy is supported on that particular wallet.
Some crypto’s have their own wallet with their own set of rules and procedures so if you do get another make sure you understand how it works!
Once you have a wallet ready you need to go to an exchange and sign up to buy some crypto…
There are a wide range of exchanges out there each with their own requirements to sign up. Some of the better-known exchanges include; kraken.com, coinfloor.co.uk, international.bittrex.com or coincorner.com (if buying bitcoin), but there are lots of others too.
Between them, they should have most cryptos covered but if you are wanting a particular obscure coin you might need to find a specific exchange to trade on. All the rules apply no matter which exchange you are looking at though!
Normally you will have to go through a KYC process where you prove your identity & that you own the account you are transferring money out of (for example providing a photo of you holding the account card). Once that is complete you are ready to become a “crypto trader”!
It is also best policy to set up 2 factor authentication (eg through Google Authenticator or via SMS) to help secure your account.
Now you have a wallet to transfer your funds to and an exchange you have signed up at, you are ready to buy some crypto…
But go read the first rule. Read it a couple more times and make sure you understand. Any crypto you buy could lose all its value before you have a chance to log onto the exchange to sell it. If you still want to, and I haven’t scared you too much, now you buy your crypto!
First of all, transfer some money from your fiat account onto the exchange. Normally this is a matter of putting in your card details and selecting an amount.
Now you can swap your fiat for crypto. There are 2 ways to do this. The first is the easiest (and default on a lot of exchanges). You buy at the current price (“Market”) whatever that happens to be. The exchange pairs your transaction up with someone selling at that price, they get your money and you get their coins. Once you click that sell button and it goes through (normally in seconds) the trade is final and can’t be reversed.
In these exchanges you will see a list of current trades available, green are the buys and red are the sells.
NB: each cryptocurrency has a 3 letter code on an exchange. A lot of them are standard so Ether (for Ethereum) is ETH, Bitcoin is BTC. However on some exchanges they use different codes for newer coins than other exchanges, so double check exactly what the code is for the coin you want to buy on your particular exchange.
Alternatively, you can set a “limit” price. This is the price you are willing to pay. So let’s say the price of Eth has been moving between $135 and $150 dollars today. You set the price of $135 and when someone is selling at that price your trade goes through. The risk here is that you could find the price rapidly goes up and you can’t even get it at $150 anymore. Or you could find the price drops rapidly and your trade goes through but the average price now is $120.
There is no right or wrong way and trying to time the market (or day trade by buying low & selling high to create a profit) is incredibly hard, especially in such a volatile market. Either way, all the fees are calculated by the exchange and taken automatically. There are a number of other ways to set trades but they are more advanced trading methods and for now Market and Limit will fulfil your needs!
A word of warning, be careful with your prices. If you type the wrong price in, particularly when selling your coins, you can lose a fortune in seconds. For example, there is a recent example of one trade which should have been to sell 10 Ethereum at $1000. Whoever did it sold 1000 Ethereum for $10 instead which immediately cleared. A lot of people got some very good deal but the seller lost a lot of money selling $1,000,000 of ETH at a price of $10,000. Due to a typo.
Now you’ve done the hard bit and purchased your crypto on an exchange…
You have a wallet on the exchange so your Eth, Bitcoin or other cryptocurrency is sitting there. However, that wallet is still controlled by the exchange so you don’t really own it. If you are going to sit on the crypto and hope the price moves up over time you need to send it to your personal wallet.
To do that there will be a section on the exchange which shows you your exchange wallet details. There will also be a send crypto option which states the currency. Here you enter the wallet details you are sending it to.
Make sure this is correct and make sure you are using your wallet address and not your private key. If you make a mistake here and send it to the wrong wallet, or put in the wrong details, your crypto will be lost. The same applies if you send a particular currency to a wallet that does not accept it. It will not be returned, it will be permanently lost!
Best practice is to send a small amount first to check your details and make sure it appears in your own wallet, then send the full amount afterwards. When you are happy, click that “send” button and wait. After a few minutes, your funds should appear in your personal wallet and you are now the proud owner of some crypto!
You should also get a transaction code. As your transaction is permanently on the blockchain you can view it at any time by looking up a blockchain explorer for that particular currency and searching for the transaction ID.
If you want to trade it you can leave it on that exchange (for example if you want to sell it again shortly for a profit) or if you want to send it somewhere else (e.g to a shop to buy something, to an ICO to buy tokens somewhere else) then you send it there. They will provide you with a wallet address to send it to and the same applies.
Regardless, congratulations. You are now part of the crypto revolution!
For more information feel free to connect with me at https://www.linkedin.com/in/cryptodan/