So you’ve decided to get into cryptocurrency. Where do you start? Whether you’re a crypto newbie or someone in the game for a while, this guide will give you a crash course on everything you need to know about buying and selling cryptocurrency.
Fast Facts About Crypto
Before we get started, here are a few things you should know:
Cryptocurrency Has No Central Authority
A core principle of crypto is decentralization, which means no single entity or group can control nor influence the network for their interest. Transactions are also done directly between users without an intermediary (like a bank), making them fast and secure.
Crypto Can Be Volatile
Perhaps one of the biggest downsides of cryptocurrencies is that they can be volatile. Crypto prices can fluctuate significantly daily in response to news events or changes in global market conditions, making them a risky investment.
The Creator of Bitcoin (The First Crypto) Remains a Mystery
To this day, nobody knows for certain who created Bitcoin. Going by the pseudonym Satoshi Nakamoto, the creator(s) released Bitcoin’s whitepaper in 2008 and then went dark.
Soon after, control of the Bitcoin code repository was transferred to a developer named Gavin Andresen before they disappeared completely from the scene.
How Does Cryptocurrency Work?
Cryptocurrencies use blockchain technology to track and verify transactions. The blockchain is essentially a digital ledger that records all cryptocurrency transactions, thereby ensuring everything is transparent, immutable, and secure.
When you buy or sell cryptocurrency, every transaction is verified by computers known as network nodes through a process called cryptography. Once verified, the transactions are recorded in a public ledger called a blockchain and can be seen by anyone on the network.
Bitcoin, for example, is a cryptocurrency built on top of the blockchain. Since its official launch in 2009, Bitcoin has grown to become the largest crypto in the market owing to its security, convenience, and decentralization, among others.
The value of Bitcoin has fluctuated wildly over time alongside trends in the market and global events. However, its growth has remained steady, with its price rising from around $1,000 in 2017 to over $19,000 by the end of the year.
What was once worth $0 is now highly valued in the crypto market at thousands of dollars. As of this writing, the live price of Bitcoin is currently at $33,694.94.
Most cryptocurrencies use one of two consensus mechanisms (or protocols) to verify and validate transactions on the blockchain: Proof-of-Work (PoW) or Proof-of-Stake (PoS).
- Proof-of-Work (PoW): With PoW, miners compete against each other to confirm transactions and add them to the blockchain. The first miner to do so is rewarded with crypto. Bitcoin, for instance, uses a PoW consensus mechanism. Ethereum also plans to move from PoW to PoS eventually.
- Proof-of-Stake (PoS): Under a PoS system, nodes are selected to validate blocks based on how much cryptocurrency they hold or “stake.” The more currency staked, the greater the chance of being selected as a validator. Validators are then rewarded with cryptocurrency for their work in verifying transactions.
To store your cryptocurrency, you’ll need a digital wallet. A digital wallet is essentially a software program that stores your public and private keys and interacts with the blockchain to enable cryptocurrency transactions.
There are three types of wallets:
- Software Wallets: These wallets are either hosted by a third party on the cloud or reside on your computer. They are convenient as they can be accessed from anywhere in the world. However, they are subject to hacking and, therefore, less secure.
- Hardware Wallets: Also known as cold storage, these wallets are physical devices that store your private keys offline, making them immune to hacker attacks. They are considered the most secure type of wallet but can be expensive.
- Paper Wallets: These wallets are simply pieces of paper with your public and private keys printed on them. They offer the lowest level of security but are the most convenient and the cheapest to set up.
How to Buy Cryptocurrency
Now that you know the basics, here’s a step-by-step guide on how to buy cryptocurrency:
1. Find a Reputable Crypto Exchange
One of the most important things to do when buying cryptocurrency is to find a reputable crypto exchange. While there are many exchanges available, it’s important to choose one that’s trustworthy and easy to use. Some popular exchanges include Coinmetro and Binance.
2. Create an Account and Verify Your Identity
Most exchanges will require you to create an account and verify your identity before you can buy or sell cryptocurrencies. This usually involves providing some personal information, like your name, email address, phone number, and proof of identity.
3. Choose the Cryptocurrency You Want to Buy
Once you’ve found a reputable exchange and created an account, you’ll be able to choose the cryptocurrency you want to buy.
4. Enter Your Payment Information
Once you’ve decided on the cryptocurrency you want to buy, enter your payment information. This usually requires linking a bank account or credit card to the exchange.
5. Place Your Order
After you’ve entered your payment information, you can place your order. Depending on the exchange, you may be able to buy crypto with fiat currency (i.e., USD) or with another cryptocurrency.
6. Store Your Cryptocurrency in a Wallet
Once you’ve bought cryptocurrency, you’ll need to store it in a digital wallet. You can choose from any of the three wallet types we mentioned earlier. Make sure to choose a secure and reputable wallet to store your crypto.
How to Sell Cryptocurrency
If you’ve bought cryptocurrency but don’t want to hold onto it, selling is equally easy. All you need to do is find someone who wants what you have and arrange a trade. Many exchanges allow users to sell their cryptocurrencies to others, too. This gives you plenty of choices if you don’t want to go down the peer-to-peer route.
When selling cryptocurrency, you’ll also need to provide your payment information which involves linking a bank account or credit card to the exchange. Once you’ve done this, you can place your sell order. When your order is filled, you’ll receive the payment in your chosen currency. You can then transfer the money to your bank account or keep it in your digital wallet.
It’s worth noting that trading cryptocurrency is very different from trading stocks or bonds. For example, there aren’t many regulations surrounding them, and even less oversight from financial authorities.
As such, it’s important to do your due diligence before buying or selling crypto. Ensure you know and trust the person you’re dealing with, and always use a secure platform or escrow service to protect yourself.
It’s also a good practice to keep yourself updated on the latest crypto news, prices, and trends, as these can help you make informed decisions about when to buy or sell.
As with any investment or business endeavor, it’s always best to exercise caution when dealing with cryptocurrency. Crypto is inherently volatile, but that doesn’t mean it isn’t rewarding. With proper research, caution, and a little bit of luck, you could find that investing in cryptocurrency is a very rewarding experience.
So, what are you waiting for? Start trading today!