See our article dedicated to the risks of buying cryptocurrency.
Buying the most popular cryptocurrencies is extremely easy after setting up an account on an exchange and verifying your identity.
General Cryptocurrency Process
Coinbase.com was the first cryptocurrency exchange to go public on NASDAQ as COIN. It brought crypto into the mainstream and other exchanges are in fast pursuit.
- Create an account on Coinbase.com, Binance.us or any other exchange
- Secure your account fully with all available security options such as 2FA
- Complete all available verifications: address, identity, bank account etc.
- Add payment sources (checking account)
- Wait for a small deposit and verify the amount
- Purchase any crypto token with USD from your payment source
Buying “Alt” Coins
Each exchange differs in the way it operates and in the tokens they support to sell and trade. Some exchanges offer direct swapping of tokens for others where others allow outright purchase like a common retail product.
Let’s quickly go over each format
- Centralized (CEX)
- Decentralized (DEX)
Paypal is a great example of a CEX. Anyone with an account can purchase the supported tokens with a fiat payment source.
A DEX is a platform like Uniswap, where only peer-to-peer transactions occur. This setup aims to keep their services fast and trustworthy by keeping banking entities out.
Hybrid cryptocurrency exchanges integrate aspects of both in an effort to offer the best of both worlds. Each hybrid exchange may be different so if keeping out a middle-man is your goal then you will need to research each platform.
Is Cryptocurrency Anonymous?
Any and all currency in the United States is governed by the Security and Exchange Commission (SEC). They work hard to apply laws and regulations on cryptocurrencies and anything that could be deemed a “security”. That is why taxes on cryptocurrencies is a serious subject, the same as it would be on the stock market. Only a lawyer or tax professional can guide you safely on current and local tax laws and you should never follow legal advice from online resources on the matter.
That stated, most cryptocurrency was built with privacy in mind. But as you may be aware, public ledgers and wallet activity can be linked to your identity in many ways. Tokens such as Monero (XMR) offer “stealth” addresses and propose to hide sender, receiver and amount information but this article is not a guide to privacy.
Where Should I Keep my Tokens
Keeping your tokens within an exchange’s “wallet” is known as hot storage. You do not own this wallet per say but it has been assigned to your account. You may use its public key to send and receive tokens but its secret key, the encryption that governs the wallet on its blockchain, is not owned by you.
Keeping tokens in a wallet on your own device is another method that may help you feel more secure. This is often the case for long term investment strategy but does include its own risks.
Some opt to create a paper wallet for off-line storage. This is the process of sending tokens to a wallet that resides on the blockchain which is not owned by any exchange and is also not on your own device. The paper wallet consists of basically noting down the private and public keys in order to access the wallet at some future time.
What are the risks?
Investing in cryptocurrency is risky. Just as some have gained great wealth with their investments many others have lost. A certified public accountant (CPA) and perhaps legal and tax professionals should evaluate your financial position before any investment. Only then could a strategy be guided through research and education on cryptocurrency purchases. Advice on the internet is not legal, tax or accounting advice and should never be part of any life decisions such as financial investment.