If you’re new to cryptocurrency, figuring out which digital currencies to purchase and how to purchase them is the relatively easy part. Doing so is similar to the process of buying traditional assets like stocks on through a brokerage.
However, once you buy digital assets, you have to decide where to store their private keys.
Most beginners use either a centralized crypto exchange, a traditional brokerage that supports crypto assets or a payments app to make their first crypto purchase.
If you already own some crypto and want to trade it for other crypto without going through the Know Your Customer (KYC) process, you might consider using a decentralized exchange (DEX), though using one requires some technical know-how.
Centralized exchange. These exchanges are where crypto investors can buy and sell their crypto assets through an interface provided by a third-party broker. Most centralized exchanges offer an easy method for making instant crypto purchases and include educational materials for beginners. Popular centralized crypto exchanges include Coinbase, Kraken and Gemini.
Traditional brokerage. Some brokerages through which you can purchase traditional assets like stocks and exchange-traded funds (ETFs) now support crypto coins and tokens, as well. For example, you can buy Bitcoin alongside shares of Apple stock on Uphold, eToro or SoFi. Keep in mind, though, that some traditional brokerages custody your crypto for you and don’t offer you the option of moving it to a wallet for which you hold the private keys.
Payment apps. You no longer have to open an account with a crypto exchange or traditional brokerage to gain some exposure to the crypto asset class. You can use payment apps like CashApp, PayPal or Venmo to purchase Bitcoin and other crypto assets. However, only CashApp lets you transfer your Bitcoin or crypto out of its custody.
Decentralized exchange. If you already own crypto and want to trade it for other crypto assets without going through the KYC process, you might consider using a DEX like Uniswap or THORSwap. To do this, you’ll need to know how to use a browser extension crypto wallet like MetaMask or XDEFI Wallet, which can be a little tricky for newer users.
Make sure the exchange is registered as a Money Service Business (MSB) with the Financial Crimes Enforcement Network (FinCEN) or as a trust company.
Avoid centralized crypto exchanges that are based offshore and don’t require a Know Your Customer (KYC) check.
See if the exchange supports the coin or token you’re looking to purchase.
Find out whether or not the exchange permits you to move the digital assets you purchase from its custody to a crypto wallet for which you hold the private keys.
Research whether the exchange publishes a proof of reserves, which is a third-party audit of the amount of crypto the exchange holds.
See if the exchange offers two-factor authentication (2FA) for your account.
If you’re just dipping your toes into the crypto waters, Fidelity recommends starting with Bitcoin (BTC) before purchasing other crypto assets.(1)
However, you may already know you want to purchase a crypto asset other than BTC. In that case, simply check beforehand to make sure that the exchange you’d like to use supports the asset you want to buy.
The following are some of the most popular types of crypto.
Bitcoin (BTC) The original cryptocurrency, Bitcoin (BTC) is the first digital asset to exist on a blockchain. BTC is often called a store of value because it’s perfectly scarce — there will only ever be 21 million Bitcoins. BTC is often referred to as digital gold. In Fidelity’s “Bitcoin First” report, the authors explain that bitcoin “is fundamentally different from any other digital asset” because it’s the only digital asset that has monetary properties.
Ethereum (ETH) The second-most popular crypto in terms of market capitalization, Ether (ETH) is the native asset of the Ethereum blockchain, which serves as a platform for decentralized applications (dapps) built via smart contracts. ETH fuels transactions on Ethereum. The network is best known for its decentralized finance (DeFi) applications and for the non-fungible tokens (NFTs) it supports.
Alternative Layer 1 coins There are many alternative base layer, or “Layer 1”, smart contract blockchains like Ethereum. And each of these other Layer 1s has its own cryptocurrency. Alternative Layer 1s and their native coins include Cardano (ADA), Solana (SOL) and Avalanche (AVAX).
Layer 2 Coins Layer 2 blockchain networks are built on top of other blockchain networks to help the base layer blockchain to scale. Layer 2 blockchain networks and their native tokens include Polygon (MATIC) and Arbitrum (ARB).
Meme Coins Meme coins are the gambling chips of the crypto space. Coins and tokens like Dogecoin (DOGE) and Shiba Inu (SHIB) have no intrinsic value, and their prices tend to be driven by the memes issued by supporters on social media.
3. Choose a payment method and place your order
Pay with cash. Most platforms let you deposit money from your bank account or via a wire transfer. You can also buy crypto with a debit or credit card or a payments app like PayPal or Apple Pay. With some crypto brokerages and exchanges, you can deposit cash instantly, whereas with others, you may have to wait a few days until the money transfer clears. Also, keep in mind that fees for using credit and debit cards tend to be high.
Pay with crypto. You may already own some crypto and want to sell it for some other crypto. In this case, you can transfer it to that broker or exchange on which you want to trade it so long as the platform accepts crypto deposits. Certain platforms like SoFi, eToro and Webull don’t accept crypto deposits (or allow withdrawals).
Once you find a platform that accepts deposits, make sure it supports both the crypto you already own and the one you want to buy. On some exchanges, these two cryptos may be a trading pair, which means you can directly swap one for the other. On other exchanges, you may need to sell the crypto you already own for cash or another crypto first and then buy the new crypto you want.
4. Select a storage method
Once you’ve purchased your crypto, you’ll then have to decide where to store its private keys.
Some exchanges and payment apps like eToro, SoFi and PayPal hold the private keys to your crypto for you and don’t give you the option to transfer it out of their custody and into your own.
Other platforms like Kraken, Robinhood and CashApp do permit you to transfer your crypto out of the platform’s custody.
You can leave your crypto in the custody of a brokerage or exchange, but it’s important to know that you don’t technically own it when you do this. Instead, you own an IOU for your assets and can’t use them in a peer-to-peer transaction or put them to work in a dapp.
If you opt to take custody of your crypto, two of the most popular options for non-custodial wallets — wallets that enable you to hold the private keys to your crypto — are software and hardware wallets.
Software wallets. These are a type of hot wallet, which is a wallet that’s connected to the internet at all times. Software wallets are a good place to store or manage assets that you plan to use or trade in the near future. These wallets include MetaMask, Atomic Wallet and Exodus.
Hardware wallets. These wallets are sometimes referred to as cold storage wallets. They include actual physical devices that either never have to be connected to the internet or only have to be connected when in use. These wallets include the Ledger Nano S Plus and the Trezor Model One.
Include your address, phone number and any other information the platform requests
Set up two-factor authentication (2FA)
Is investing in crypto worth it?
Deciding on whether or not to invest in crypto is a personal decision and is often based on your investment thesis, time preference and risk tolerance.
For example, if you believe that Bitcoin (BTC) is digital gold, and you’re willing to wait years to make a return on your investment, then you might find crypto worth investing in. Though the price of BTC has been volatile over the past decade and a half, it’s still climbed from less than $0.01 to almost $70,000 at its peak.
If you’re just in the market to speculate in an attempt to get rich quickly, you may want to think twice about investing in crypto, especially if you have a low-risk tolerance. Buying a highly volatile crypto coin or token because you’ve heard from friends or family that you can make some quick, easy money isn’t a solid investment plan, as the drops in the prices of these cryptos can be gut-wrenching.
Historically, if you’ve held an asset like BTC or ETH for more than four years, you’ve found yourself in profit. Keep in mind, though, that past performance does not indicate future results.
Other ways to invest in crypto
You don’t have to invest in digital assets directly to gain exposure to the crypto asset class. You can also invest in either crypto stocks or crypto ETFs to indirectly invest in crypto.
Crypto stocks. You can invest in Bitcoin, crypto and crypto-adjacent companies via crypto stocks like Block Inc (SQ), Coinbase Global (COIN) and Riot Platforms Inc (RIOT). Such stocks are available via traditional brokerages. The price movements of some of these stocks tend to correlate with the price movements of major crypto assets like Bitcoin (BTC) and Ethereum (ETH).
Crypto ETFs. While many are awaiting an institution like Fidelity or BlackRock to bring a spot Bitcoin ETF to market, there are also currently a number of other crypto ETFs available to invest in. These include the ARK Next Generation Internet ETF (ARKW), the Amplify Transformational Data Sharing ETF (BLOK) and the ProShares Bitcoin Strategy ETF (BITO).
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Beginners often buy cryptocurrency through a traditional brokerage like Robinhood, a centralized crypto exchange like Kraken or a payments app like CashApp, as these platforms make it easy for crypto newbies to make their first crypto purchases.
The best way to buy cryptocurrency differs based on your willingness to use new platforms as an investor and your technical proficiency. For example, if you want to invest in crypto as well as traditional assets all on one platform, then you might stick to using a brokerage like Robinhood or SoFi. And if you aren’t comfortable navigating what can sometimes be the confusing interface of a crypto exchange, then you may opt to use a payments app like CashApp to buy crypto instead.
Yes, you can buy $100 worth of crypto. Many platforms let you buy as little as $1 worth of crypto. And you can also buy fractions of crypto assets like Bitcoin (BTC) or Ethereum (ETH), assets for which whole coins can cost up to thousands of dollars.
In Fidelity’s “Bitcoin First” report, it recommends investing in Bitcoin (BTC) before other cryptos if you’re new to the space. BTC is one of the least volatile crypto assets, aside from stablecoins, because it has the largest market capitalization. With that said, BTC is still a very volatile asset, so invest cautiously.
Frank Corva is a cryptocurrency writer and analyst for digital assets at Finder. Frank has turned his hobby of studying and writing about crypto into a career with a mission of educating the world about this burgeoning sector of finance. He worked in Ghana and Venezuela before earning a degree in applied linguistics at Teachers College, Columbia University. He also taught writing and entertainment business courses in Japan and worked with UNICEF in Namibia before returning to the US to teach at universities in New York City. Earlier in his career, he spent years working as a publicist and graphic designer for record labels like Warner Music Group and Triple Crown Records. During that time, he was also a music journalist whose writing and photography was in published in Alternative Press, Spin and other outlets.
Learn about BitFinex cryptocurrency exchange where you can buy and sell 100+ coins and tokens. Discover features, fees and more in Finder’s BitFinex review.
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