The procedure for purchasing cryptocurrencies vary from country to country with limitations ranging from total bans to approved official currency. Let us first consider, the three ways to buy crypto and then the procedure for how to buy crypto through an Exchange.
The 3 ways to buy Crypto
Similar to banks, Exchanges allow you to deposit money into an account and use that credit to purchase crypto coins. Like a bank, you can have different accounts for different currencies and in this case, also different digital wallets for different crypto coins or tokens. You can swap coins using the going coin value rate and many Exchanges also offer trading services where you can speculate on cryptocurrency value. Some Exchanges also perform as online stock market trading platforms letting you buy or invest in coins in parallel to stocks and commodities. Some well known Exchanges are: Binance and Kraken for crypto-only purchases and Robinhood and eToro for stock market and crypto. The advantage of official Exchanges is that they operate under strict financial rules. Through them you can buy and sell coins at the going rate and they are as safe as an online bank for storing your money and coins. They are not all equal so when looking for an Exchange you will want to check:
- If you can open an account with them as some of them only operate within certain countries and require a stringent identity verification process.
- If they accept your local currency.
- If they offer the coins you are interested in.
- Transaction fee and spread (which is an overhead fee on top of the value of the coin). These can vary significantly.
- Safety and security as well as reputation.
- Do you have full control of the coins and can withdraw them at any time?
Direct purchase from a private individual. In some cases, this can be the only way to buy coins for those who do not have access to official Exchanges. The risk can range from fairly safe, if you know and trust the person you are buying from, to very risky, if you are dealing with a total stranger. The price can also be significantly higher than market price as you are at the mercy of what the seller is demanding. For improved safeguards, there are peer-to-peer crypto platforms where the money is kept in an escrow account and not released to the seller until the buyer receives the coins. Airtm, is such a platform and Binance also offers a peer-to-peer service.
Currently this is only possible for Bitcoin and only in some countries. You would need a recognised credit card to make the purchase. Some Bitcoin ATMs will also allow you to sell your coins through them.
Process of buying through an Exchange
Most people buy through Exchanges and the basic steps to buying crypto with them is more or less the same.
- Verify your identity and connect a bank account to an Exchange
- Transfer funds to the Exchange
- Purchase coins through the Exchange
- Transfer coins to a digital Wallet.
1. Identity Verification
As part of their financial obligations to the host country, each Crypto Exchange needs to verify your identity and corresponding bank account to assist in tracking money spent through the crypto Exchange.
Be aware that most big exchanges report to the relevant tax authorities and this is why they require strict identity verification.
2. Transferring fund to the Exchange
Once you have been verified and approved, the Exchange will provide a mechanism for you to transfer funds into the Your account. This may involve a currency conversion fee as many Exchanges will only operate in the major currencies: USD, Euros, GBP, etc.
3. Purchase coins through the Exchange
Your available funds can be directed to purchase coins. Not all cryptocurrencies can be bought on all Exchanges and some Exchanges may deal exclusively with only one type of coin. Be aware that the same Exchange might have a different selection in different countries.
There is an overhead fee when buying, you always buy at a higher price than the market and sell at a lower price. This is what is called the spread and it can vary by coin and from an exchange to an other. This is very important to factor in if you plan to day trade crypto.
4. Transfer the coins to a digital Wallet
All cryptocurrencies are stored in a digital wallet and users can obtain a wallet to hold their coins. Exchanges will have their own wallets in which they can hold your coins for a fee. Note also that wallets typically cannot mix cryptocurrency types and therefore require separate wallets. The procedure for transferring coins out of the Exchange wallet to a personal wallet should be followed carefully as the process can vary and loss of coins is possible. It is like sending money to the wrong bank account or to the wrong currency account.
As always, NeoCasbah is not offering financial advice, nor are we financial advisors. CryptoCurrencies are inherently volatile and your assets are at risk. At NeoCasbah, our intention is to help you navigate the Crypto world so that you know where to start looking for answers. Everyone is different, so find what works for you. Stay safe!