Open a Wallet
The first thing to do before attempting to purchase any cryptocurrency is to open a digital wallet. As such you’ll be able to store all of your cryptocurrency. However, depending on your budget and on your security needs there are different types of wallets.
For example, let’s say that you were trying to store Bitcoins. Consequently, your wallet options include:
Online or software
An online Bitcoin wallet gives you accessibility from any computer with access to the internet. However, this certainly isn’t the most secure way to store your Bitcoins and is susceptible to hacking. Examples include Bitcoin Core, Breadwallet and MultiBit HD. Alternatively, there is specific software that you can download onto your computer or device in order to manage, store and trade your cryptocurrency.
You can buy external storage devices on which to hold your Bitcoins. The benefit of not being directly connected to the internet allows greater security from theft. Examples include the Trezor Bitcoin safe, the Pi Wallet and the Ledger HW.1 USB Smartcard.
A paper wallet is a physical print out that contains a secret code known as a private key. This paper wallet can be kept in a safe or a secure location. Private keys are produced by your online wallet when you purchase a Bitcoin. The printed private key is linked to the Bitcoin address in your wallet. The private key can be loaded into your digital wallet when you which to make a transaction with the Bitcoin.
Once you’ve opened a wallet there are three ways to buy Bitcoin and other cryptocurrencies. First you can buy directly from Bitcoin holders. Second, you can buy on cryptocurrency exchanges. Finally, instead of buying the cryptocurrency directly you can buy financial products that track the price of the cryptocurrency.
Purchasing cryptocurrency direct with a seller requires access to a few select sites. Sites such as LocalBitcoins facilitate the negotiation of prices and the terms of thee trade. The site allows for the use of escrow services should a buyer or seller wish for the additional protection.
Sites such as LocalBitcoins can assist with the facilitation of a face-to-face meeting. At a meeting such as this both parties would need access to their Bitcoins.
Exchanges are a means of buying actual cryptocurrency in order for you to hold them in your wallet. An exchange is an online platforms that facilitate the purchase. In the western world some of the best sites that allow the direct purchase of Bitcoins include:
In China some of the top exchanges include:
Cryptocurrency product exchanges
If you don’t fancy the security risks of actually owning Bitcoin and cryptocurrency you can instead purchase via other financial products. As such, there are a number of trading platforms that have added the facility to trade in financial products that track the prices of cryptocurrency. Examples include:
Buying through a broker such as any of the ones above allows you to trade in cryptocurrency whilst paying on a credit card or Paypal. Trading via a broker provides speed in terms of executing transactions, comfort in the accessibility of customer service help and reassurance from the presence of regulators monitoring the platforms.
A few words of warning
Generally, it’s difficult to buy cryptocurrency with a credit card. The reason being that it is possible for a credit card user to phone up their credit card company and ask for a charge back. Consequently, it’s hard to prove that the cryptocurrency purchase was or wasn’t made.
As such, Bitcoin is generally bought via direct bank transfer. However, the vast majority of cryptocurrency are purchased using Bitcoin or other cryptocurrency.
Whilst most Bitcoin and cryptocurrency exchanges require proof of identity they may not necessarily provide the same protection over your data as banks. Furthermore, there is unlikely to be any insurance for the funds in your wallet.
Mt Gox war story
The lack of protection can have terrible consequences for its users as in the case of the now failed Mt Gox exchange.
Mt Gox was a Bitcoin exchange that closed in 2014 with $63m debt. Unfortunately, the exchange managed to lose 750,000 of customer Bitcoins as well as 100,000 of its own. Interestingly, the fate of the 850,000 Bitcoins is still unclear. However, the lesson to learn is that the customers lost money and had little recourse against the company once it was declared bankrupt.