How to Buy Your First Cryptocurrency: A Step-by-Step Guide

Are You Thinking About Buying Cryptocurrencies?

If you are contemplating buying cryptocurrencies, you are joining a rapidly expanding group of individuals who view digital assets as appealing investments.

Buying Cryptocurrencies Today

Today, purchasing cryptocurrencies is feasible through numerous channels – whether it’s Bitcoin, Ethereum, or any of the thousands of coins available in the crypto market.

Investing in Cryptocurrencies

Whether through crypto exchanges, crypto funds, or direct investments in crypto companies, purchasing cryptocurrencies today can be as straightforward as investing in the stock market.

Detailed Guide to Trading Cryptocurrencies

In this comprehensive guide, we will cover everything you need to know about trading cryptocurrencies, expanding your portfolio, and all the considerations along the way.

Step 1: Understanding Cryptocurrencies

What Is a Cryptocurrency?

Cryptocurrencies and their underlying blockchain technology have become significant concepts in the financial and technology sectors over the past decade.

Definition of Cryptocurrencies

Cryptocurrencies are digital assets that utilize cryptography to secure and verify transactions and control the creation of new units, allowing them to operate independently of central banks and governments.

Uses of Cryptocurrencies

They can be used for various purposes, including as a medium of exchange, a store of value, and a speculative investment. The latter point significantly contributes to the popularity of cryptocurrencies.

Completing Your First Purchase

No matter why you decide to buy cryptocurrencies, this article provides all the necessary steps to complete your first purchase.

Step 2: Which Cryptocurrency Should You Buy?

Choosing the Best Cryptocurrency to Buy

Since Bitcoin’s inception over a decade ago, thousands of other cryptocurrencies have entered the market, with many also disappearing. Selecting the right cryptocurrency to buy can quickly become challenging.

Overview of Popular Cryptocurrencies

We don’t offer investment advice, but we can provide an overview of some popular projects and concepts. For detailed information on the best cryptocurrencies and how to evaluate crypto investments, check out our article: Best Cryptocurrencies 2024.

Bitcoin

Bitcoin is the oldest and arguably the most well-known cryptocurrency. The first Bitcoin block was mined on January 3, 2009, and the coin has experienced tremendous value growth since then.

Bitcoin Value

As of early 2024, the value of a Bitcoin is approximately €45,000, down from nearly €64,000 at the end of 2021.

Application of Cryptocurrencies

Despite significant value fluctuations, cryptocurrencies like Bitcoin are the closest to traditional fiat money in their application.

Ethereum

The Ethereum network is a more advanced application of blockchain technology that supports smart contracts and decentralized applications (dApps). These programmable processes can be executed without a central authority, forming the foundation for the Web3 ecosystem.

Ethereum’s Cryptocurrency

The cryptocurrency of the Ethereum network is called Ether, which holds the second-largest market capitalization among cryptocurrencies, after Bitcoin.

Altcoins

“Altcoins” is a collective term for all cryptocurrencies other than Bitcoin. These altcoins vary greatly in their applications. Many altcoin projects have high ambitions, but only a few stand the test of time. Beginners in cryptocurrency trading should exercise caution with altcoins.

NFTs

NFT stands for Non-Fungible Token. Unlike other cryptocurrencies, each NFT is unique and attributable, making it suitable for proving ownership and authenticity. NFTs have been used to tokenize digital artwork, ownership certificates, and even sneakers.

DeFi

DeFi, or Decentralized Finance, enables traditional financial applications on the blockchain without a central authority. For example, it facilitates lending without banks or operates as a proof-of-stake blockchain through crypto staking.

Step 3: Choose a Crypto Exchange or Broker

Buying Cryptocurrency through a Crypto Exchange or Broker

To buy or sell cryptocurrencies, the easiest way is through a crypto exchange or a traditional broker.

What Is a Crypto Exchange?

A crypto exchange is a digital marketplace where buyers and sellers can trade cryptocurrencies directly with each other. The exchange charges a small fee for each trade, with the prices determined fairly by supply and demand.

Trading Pairs

Crypto exchanges offer a wide range of trading pairs, which can be combinations of traditional fiat currencies and cryptocurrencies (e.g., Euro and Bitcoin) or between different cryptocurrencies (e.g., Ethereum and Solana), providing a lot of flexibility when buying cryptocurrencies.

Popular Crypto Exchanges

Some of the most popular crypto exchanges include Coinbase, Binance, and Kraken.

What Is a Crypto Broker?

A crypto broker acts as an intermediary, often a person or company, between the buyer and seller. Unlike a crypto exchange, the broker sets the price for the currency.

Features of Crypto Brokers

Crypto brokers typically offer fewer trading pairs and charge higher fees but provide an easy and user-friendly way to buy cryptocurrencies, making them especially popular with first-time buyers.

Step 4: Create a Trading Account

Setting Up Your Trading Account to Buy Crypto

Creating a trading account with a crypto exchange or crypto broker is usually straightforward and can be done in just a few minutes.

Opening an Account

To create an account, you need to fill out a form with your details, such as your full name, email, and a strong password. Confirming your email address is necessary to proceed.

Confirming Identity

After confirming your email, the KYC (Know Your Customer) process begins. KYC is a legal requirement for financial service providers to prevent fraud, money laundering, and terrorist financing.

Providing Identification

To purchase cryptocurrencies, you must confirm your full name, date of birth, address, and provide an official identification document.

Step 5: Deposit a Currency

Topping Up Your Trading Account

To buy cryptocurrencies, you need fiat money or another cryptocurrency. Therefore, you must deposit a currency into your trading account before trading on an exchange.

Depositing Fiat

To deposit fiat currencies such as Euros or Dollars, the exchange will provide a bank account and payment instructions for uniquely assigning the deposit to your trading account.

Depositing Cryptocurrencies

To deposit cryptocurrencies, you must generate an address for the corresponding wallet. Learn about the process and important considerations: Best Crypto Wallets.

Other Payment Methods

Some exchanges and brokers also offer options to buy cryptocurrencies via credit card, PayPal, or other payment methods, simplifying and speeding up the process.

Step 6: Place Your Order

Placing a Buying Order on a Crypto Exchange

An order specifies how you buy or sell a cryptocurrency. Crypto exchanges offer various order types, and here are the most important ones at a glance.

Market Order

A market order is an instruction to buy or sell a cryptocurrency at the current market price. It is executed immediately and is typically used to quickly enter or exit a position.

Limit Order

A limit order is an instruction to buy or sell a cryptocurrency at a specific price or better. For example, if the current price of a cryptocurrency is €1,000, you could place a limit order for €800, which will be executed only when the price reaches or falls below the specified price.

Stop Order

A stop order is an instruction to buy or sell a cryptocurrency at a specified price or lower. For example, if the current price of a cryptocurrency is €1,000, you could place a stop order for €1,200, which will be executed only when the price reaches or exceeds the specified price.

Other Order Types

There are other order types, such as Stop Limit Order, Stop Loss Order, and Trailing Stop/Trailing Limit Orders, which allow you to buy or sell cryptocurrencies under specific conditions.

Step 7: Wait and See

Executing a Buying Order

The execution of your order depends on various factors.

Market Order Execution

A market order is executed immediately, provided there is enough liquidity for the cryptocurrency. Highly liquid cryptocurrencies like Bitcoin, which are traded frequently, see market orders executed instantly, with manageable short-term price fluctuations.

Limit and Stop Order Execution

For limit and stop orders, the respective conditions must be met before the order is executed.

Step 8: Protect Your Cryptocurrency

Safeguarding Your Newly Bought Cryptocurrency in a Wallet

Congratulations on buying your cryptocurrency! Whether it’s your first purchase or your hundredth, it’s crucial to consider how to keep your cryptocurrencies safe.

Managing and Protecting Your Investments

Due to the decentralized nature of cryptocurrencies, you act as your own bank, meaning you are responsible for managing and protecting your crypto investments.

Using a Crypto Wallet

This is done through a crypto wallet. There are different types of wallets, each with its own advantages and disadvantages. Choosing the right wallet requires careful consideration. Refer to our detailed guide on the best crypto wallets in 2024 for more information.

Step 9: Withdraw Cryptocurrencies

Withdrawing Your Cryptocurrency Purchase from the Exchange or Broker

If you prefer not to store your cryptocurrencies on the exchange, you will need to withdraw them to a different wallet. All you need is the wallet address of the destination wallet.

Withdrawal Process

To withdraw, find the “Withdraw” or “Send” menu on the exchange and confirm the new wallet address. Ensure the wallet address is correct and that it supports the cryptocurrency; an incorrect or unsupported wallet address will result in the loss of your cryptocurrencies, as crypto transactions cannot be reversed.

Step 10: Sell Cryptocurrencies

Selling Your Cryptocurrency

When you decide to sell your cryptocurrency, you need to follow steps similar to those for buying.

Transferring Cryptocurrency to an Exchange

First, the cryptocurrency must be on an exchange.

Placing a Selling Order

Then choose the appropriate order type and the conditions under which you want to sell the cryptocurrency.

Waiting for Order Execution

After that, you wait for the order to be executed.

Tax Considerations

Remember, taxes may apply when selling or exchanging cryptocurrencies. Learn more about this topic in the section below or in our crypto tax guides.

Things to Consider Before Buying Cryptocurrencies

Security

A financial system without banks and other central institutions means you are responsible for the security of your crypto investment. This includes choosing a trusted crypto exchange for purchasing cryptocurrencies and a good crypto wallet for storing your coins.

Fees

There are fees associated with buying, selling, and sending cryptocurrencies. These fees are covered by you and go to the exchange and/or the validators of the blockchain network.

Market Volatility

The crypto market is known for its high volatility, where the price of a cryptocurrency can fluctuate dramatically within days or even hours. Be aware that while prices can rise quickly, they can also fall just as fast.

Taxes

In many countries, trading cryptocurrencies is a taxable event. Although buying cryptocurrencies is usually tax-free, selling and possibly exchanging cryptocurrencies are tax-relevant transactions.

Tax Reporting

Currently, crypto exchanges do not deduct taxes for you. Therefore, you must declare your transactions in your annual income tax return.

Scams & Losses

Scams, hacking, and other illegal activities can lead to cryptocurrency losses. First-time buyers should familiarize themselves with basic safety precautions, such as ensuring the crypto exchange has two-factor authentication and deposit protection. Additionally, store cryptocurrencies in a wallet where you control the private keys.

Avoiding Crypto Scams

Read more about how to avoid crypto scams in our dedicated article.

Alternative Ways to Invest in Cryptocurrencies

Crypto Trusts

A crypto trust is an investment vehicle that holds cryptocurrencies on behalf of investors, similar to a traditional mutual fund, with a trustee managing the assets. Investors can buy shares representing a portion of the trust’s assets. Crypto trusts typically charge a management fee and can be traded on public exchanges.

Crypto Mutual Funds

A crypto mutual fund is a professionally managed fund that pools money from investors to invest in cryptocurrencies. These funds can invest in various cryptocurrencies and digital assets, using different strategies to generate returns. Crypto mutual funds often require minimum investments and charge management fees.

Crypto ETFs

A crypto ETF (exchange-traded fund) tracks the price of one or more cryptocurrencies. Like traditional ETFs, crypto ETFs are traded on public exchanges and can be bought and sold like stocks. They allow investors to invest in a diversified portfolio of cryptocurrencies without owning the underlying assets. Crypto ETFs also charge a management fee and may have minimum investment requirements.

Investing in Blockchain Companies

Many blockchain companies are publicly traded on exchanges, allowing investors to buy and sell shares like any other stock.

Crypto Portfolio Tracker: Keep an Eye on Your Investment

Tracking Your Crypto Assets

It’s easy to lose track of your portfolio’s performance if you own different cryptocurrencies or manage them in various wallets. Track all your crypto assets on exchanges and wallets in one central location with our free crypto portfolio tracker.

Integrating Wallets

You can easily integrate your wallets through crypto exchange APIs or using your public keys, allowing you to track all your transactions and price developments in real-time. Try it for free now!

Bonus: Do I Have to Pay Crypto Taxes?

Tax Obligations for Cryptocurrencies

In many cases, yes, you do have to pay taxes on cryptocurrencies. Trading cryptocurrencies is taxable in many countries, and the tax regulations can vary significantly.

Tax Reporting Requirements

Since crypto exchanges do not deduct taxes, each person must declare their profits, losses, and income from cryptocurrencies in their annual tax return.

Crypto Tax Calculator

Our crypto tax calculator automatically analyzes your crypto transactions and provides legally compliant tax reports with pre-filled forms for your tax return. Learn more about the Blockpit tax calculator for cryptocurrencies.

Wrapping Up

Ease of Buying Cryptocurrencies

Buying cryptocurrencies is very easy. With the right crypto exchange or broker, you can be up and running and placing your first order in minutes.

Beginners and Cryptocurrency Investment

Even beginners can start investing without any problems if they follow our guide.

Informed Purchasing

Before making your first purchase, ensure you are well-informed about the cryptocurrency you want to buy, the exchange or broker you plan to use, the options for storing your cryptocurrencies with the right wallet, and the possible taxes incurred when trading crypto.

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