This is a 5-part beginner’s guide to investing in cryptocurrency. Part 1 covered the fundamental understanding of Bitcoin, Blockchain and Cryptocurrency. This Part 2 is a step-by-step guide on how to buy cryptocurrency.
In the past months, I’ve been showing friends how to buy their first cryptocurrency.
Over late-night Facebook conversations, I answered tons of questions about the crypto buying process. I remember my first time was an exciting by scar process.
So I took friends’ questions and turned them into a step-by-step guide on how buy your first cryptocurrency.
This post follows my usual disclaimer that none of my content should be used as legal, financial or medical advice. It’s for entertainment purposes only.
This is a meaty guide, so here’s an overview of the steps in this guide:
- Starting with small initial crypto purchases.
- Sign up for Coinbase, the dominant crypto exchange.
- Secure your account with Authy or Google Authenticator.
- Use GDAX (log in through Coinbase) to buy crypto with less fees.
- Test a transaction.
1. Start Small: You don’t have to buy an entire Bitcoin.
The common misconception about buying Bitcoin is that you have to buy in whole numbers, e.g. 1 entire Bitcoin. Which can be a lot of money.
Most cryptocurrency, including Bitcoin, is divisible.
Think in fractions. You can buy 0.001 BTC (that’s Bitcoin’s “ticker” symbol):
That means if you’re just getting started, you can invest a small amount of money you’re willing to lose, say $100 USD, into Bitcoin.
In another article I noted the psychological importance of starting small and not treating Bitcoin like a lottery ticket.
“Don’t invest more than you can afford to lose” is common adage in crypto-land, so think of buying cryptocurrency as a gamble with risks; it’s no different from investing in a stock which can go up or down.
Some friends have decided to throw in their first $100, others have allocated 10% of their wealth to cryptocurrency.
Decide ahead of time how much money you would be completely okay parting with.
2. Open a Coinbase (cryptocurrency exchange) account
How do you buy Bitcoin? You can buy it either online or offline. We’re only going to talk about how to get cryptocurrency from exchanges.
Just like you need to sign up for Fidelity or Scottrade to buy stocks, you need to open an account with a cryptocurrency exchange to buy Bitcoin.
Two caveats about opening accounts on cryptocurrency exchanges
Before you even open an account, know that most exchanges will require sensitive information like home address, social security number and photo of your driver’s license. Be aware that you’re giving up your personal data in this process.
Also know that the account verification process can take a while. Especially in boom times when tons of people are trying to get into cryptocurrency, getting verified (and thus access into a cryptocurrency exchange) can take days if not weeks.
So, you still want to do this? Let’s review the top crypto exchanges worth your time.
The most reputable cryptocurrency exchanges in the U.S.
There are hundreds of cryptocurrency exchanges, so which one do you choose?
When choosing an exchange, there are multiple factors to consider, like:
- Legality of the exchange in your country (e.g. Bitfinex, one of the biggest exchanges in the world from China, does not accept U.S. customers)
- Trading fees (it’s how the exchanges make money)
- Reputation and safety of the company. How long have they been around? Do they have good customer support?
- Availability of coins you want to buy
Based on all the above factors, my diehard recommendation is Coinbase.
It is the simplest and safest option for most people to get started. Coinbase by far has the easiest-to-use user interface out of all the exchanges I’ve used. The company was founded in 2012 (early for crypto days) and even offers $250,000 FDIC protection on your U.S. dollars.
Here’s something to sweeten the pot: join Coinable with my referral link and get an extra $10 in Bitcoin.
This would be $10 extra that you otherwise wouldn’t get by just signing up on your own. I also get an extra $10 :)
Step 3: Secure your crypto with two-factor authentication
When you first sign up for cryptocurrency exchanges, you’ll probably get prompts to use “2FA” security, or 2-factor authentication.
What this means is that when you log into your account, you’ll also need to log into an authentication app (hence “2 factor”) to get a temporary code.
In the past, this meant getting a text message via SMS on your phone. This isn’t safe; if your phone number gets compromised, then a hacker can also get the SMS code to log into your account.
The safer way is to use an authentication app like Authy or Google Authenticator. These apps require you to log into the authentication app on your phone, which then generates a temporary code required to log in.
As you get more advanced, there are other ways to store your cryptocurrency off of the exchanges. This option is for people who want to maximize their security (in case an exchange gets hacked) and hold for their crypto for a long time. Frequent traders don’t do this so much, as they want their money to be liquid and easily moveable on the exchanges.
The process is not different from selling stocks, then holding that cash in a briefcase. This involves using offline, hardware or “paper” wallets, which deserves an entire different article. Understand the concept behind digital wallets here.
Step 4: Buy your first crypto…with less fees
Got approved from Coinbase? Perfect ??
There’s a little known trick to buying your crypto with less fees.
Ordinarily, you’ll get charged a fee when buying crypto on Coinbase – this is common across most exchanges.
Using a $100 example, Coinbase will charge you 2.99%:
If you’re buying crypto frequently, you can see how these fees add up.
The little known trick is that Coinbase has a platform for advanced traders called GDAX.
After account approval on Coinbase, you can simply log into GDAX with your existing Coinbase credentials.
GDAX and Coinbase are owned by the same company. I see them as essentially the same service with varying features & fees.
When buying the exact same crypto on GDAX, the fee is between 0.10% and 0.25% for BTC (Bitcoin) and 0.10% and 0.30% for ETH (Ether). This is already way less than the 2.99% rate on Coinbase.
But you can potentially pay 0% fees with limit buy and sell orders:
Here’s how that works…
All exchanges have an “order book,” which is a record of positions that buyers and sellers make:
According to GDAX, the order in which orders are placed in the order book determines whether you’re a “taker or maker,” which then determines your fees:
When you place an order which is not immediately matched by an existing order, that order is placed on the order book. If another customer places an order that matches yours, you are considered the maker and your fee will be 0%.
When you place an order that gets partially matched immediately, you pay a taker fee for that portion. The remainder of the order is placed on the order book and, when matched, is considered a maker order. The fee is 0% for that part of the total order. – GDAX Fees
Let’s use an example limit buy order of Bitcoin at the price of $10,000.
If your order sits on the order book and another trader comes along to buy your crypto, then you are the “maker” in this trade and pay 0 fees. Nice, right?
There’s more nuance to how this works per GDAX’s “post-only” option:
It’s an option to avoid taker fees, with some tradeoffs:
- Limit order without “Post Only”: Parts of your order will be considered a taker or maker order, depending on when you execute this within the order book. Good if you want to maximize your chances of having your order filled at a “first available” basis, while willing to pay more in potential taker fees.
- Limit order with “Post Only”: Your entire order will be considered a maker order. Good if you want to minimize trading fees, at the potential cost of your order not being filled (the marketplace can’t find an exact match for you).
The lesson is that fees are generally cheaper on GDAX than Coinbase. Within GDAX, fees can be cheaper with limit orders, and potentially free if you have post-only maker orders.
Step 5: Test a transaction
It’s hard to get a feel for how cryptocurrency works until you make a transaction with it.
There’s something magical about sending a transaction, then waiting for the # of “confirmations” it’s processing on the blockchain until that crypto is verified and gets in the hands of whoever’s receiving it.
It’s not too different from receiving money through Venmo or Paypal…but now it’s tied to this digital token which may increase or decrease in value.
Play with it. Send it to that person your new Tinder love. Buy some from the exchange. Or, sign up with my link and get some free BTC:
When you invest your first $100 in Coinbase using my link, you get an extra $10 worth of Bitcoin.
There’s something cool about waking up to an Gmail notification about getting free cryptocurrency.
You’ve probably heard about other coins and exchanges – Part 3 walks you through alternative cryptocurrencies (“altcoins”) and exchanges worth opening accounts on.
Want access to my list of favorite crypto resources? Grab it here:
[et_bloom_locked optin_id=”optin_4″]Link to Oz’s Cryptosheet (Google Sheets)[/et_bloom_locked]