This is the fourth article in our how to use cryptocurrency section. So far we’ve explained how to safely store cryptocurrency, introducing the crypto wallet. We then moved on to how to make transactions - sending and receiving - before explaining what role an exchange plays in bringing buyers and sellers of cryptocurrency together.
This article will now walk through the steps for how to buy cryptocurrency for the first time. We are going to use bitcoin for our example, though the steps are largely the same for other cryptocurrencies.
We’ll be using Coinbase as the example exchange - a Centralised Exchange, as discussed in the previous article.. We have no relationship with Coinbase but feel they provide one of the easiest to follow customer journeys for the novice.
Regardless of which exchange you choose, the process of buying for the first time will start with Sign Up/Security and Verification. The next part of the process - adding funds and buying - can either be combined into Instant Purchase - via debit/credit card - or separated by Linking your Bank Account, followed by the buying step.
There are pros and cons to each which we highlight.
You’ll need to sign up for an account to buy cryptocurrency from a centralised exchange. You’ll have been through a similar sign up process countless times, though you’ll find that social sign-up - Google, Facebook or Twitter - isn’t generally available.
The decision of what email address to use for Sign Up is an important security consideration. Unfortunately, hackers target crypto exchanges and their users. This shouldn’t put you off, but it is recommended that you either use a secure email address specifically for buying cryptocurrency - such as Protonmail - or you make sure the email account used has two-factor authentication and a strong password.
You’ll generally need to show you control the email address used by clicking a link within a Verification Email - again, a standard online process.
Once you’ve verified your email it is strongly recommended that you turn on Two-Factor Authentication for your Exchange Account using an app like Google Authenticator rather than an SMS service. ( We explore Security fully in article six).
When buying cryptocurrency for the first time you’ll need to prove your identity and verify a mobile number. Often simply abbreviated to passing KYC (Know Your Customer).
This ensures that the exchange isn’t breaking any rules around where it can accept customers from and guarantees customers are of the correct age.
During peak periods - often when the price of cryptocurrencies is rising/falling dramatically - the process of verification of KYC submission may take up to 24hrs or longer.
Bear this in mind and read the submission guidelines carefully for how to upload a photo of either your Passport, Driving License or National ID. This will avoid potential delays and painful exchanges with customer service.
If you are uncomfortable with uploading personal documents, check the individual policy on how the exchange manages your data.
Once you have created an account and passed KYC, the simplest and quickest way to buy cryptocurrency is using a credit/debit card.
This allows you to combine payment and purchase into one transaction. The convenience does however come at the expense of the higher fees for card purchases (see table 1).
Pay close attention to any restrictions on credit card purchases; some card issuers prohibit crypto purchases, while certain exchanges only support 3D Secure cards and won’t accept pre-paid cards..
Cards are also a one-way payment method, you cannot generally withdraw to them.
With Instant Buying you are purchasing at what is known as Market or Spot Price, in other words, whatever the price of the chosen cryptocurrency is at the exact time of purchase.
If you want to time your purchase at a specific price, Instant Buying isn’t appropriate. We explore this is in greater detail in our section on how to trade cryptocurrency.
Here are the steps:
In our section on earning crypto we introduce a concept called Cost Averaging. In simple terms this recommends regular, small purchases to average out price changes. This is a good way to start building an investment. Look for exchanges that offer a recurring buy option, such as Coinbase.
To make a recurring purchase you simply need to follow the steps above but change from One Time Purchase to the required frequency e.g Daily, Weekly, Monthly. The transactions will then repeat at exactly that time, regardless of price.
The alternative to instantly buying cryptocurrency with a credit/debit card is to link your bank account directly with the exchange, and select it as the payment method. This takes slightly longer, but is cheaper and unlike using a debit/credit card, you can (in general) sell and withdraw the proceeds directly to your bank account (more detail on this in the next article). Which is certainly worth thinking about.
Here are the steps:
It might be that once your bank account is linked you need to add funds as a separate step and then follow steps 3 and 4. This approach gives you more freedom around when to buy which we discuss later in this section.
As part of the process of creating an account with an Exchange you automatically get a web wallet (jump to this article for more information). This is like an online bank account or App where you can check the value your balance in fiat (Euro/Dollar etc) which hopefully increases over time.
Your newly purchased cryptocurrency will stay in your new exchange wallet - in the custody of the exchange - until you choose to use the knowledge from the previous lessons which will enable you to perhaps send it to your non-custodial wallet, where you control the private keys.
Even though you've just discovered how to buy cryptocurrency, the next article will explain how to sell or convert one cryptocurrency for another.
Next step: Selling & Converting CryptoGo to next step