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Bitcoin was the first cryptocurrency, created in 2009 and it remains the most well-known today. Many people are interested in cryptocurrencies as a way to trade for profit, with speculators sometimes causing prices to soar.
What is the process behind the functioning of cryptocurrency?
Non-Bitcoin cryptocurrencies are collectively referred to as "altcoins" to distinguish them from the first cryptocurrency, Bitcoin.
Read More: Finance Definition
How to buy cryptocurrency
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If you're interested in purchasing cryptocurrency, there are a few steps you'll need to follow to ensure that the process is done safely. Generally, the process can be broken down into three steps:
1. Step 1
The first step in buying cryptocurrency is selecting a platform to use. Typically, you can opt for either a traditional broker or a dedicated cryptocurrency exchange.
- Traditional brokers: These are online platforms that allow you to buy and sell cryptocurrency, as well as other financial assets such as stocks, bonds, and ETFs. These platforms tend to have lower trading costs but fewer crypto-specific features.
- Cryptocurrency exchanges: There are a variety of cryptocurrency exchanges available, each offering different cryptocurrencies, wallet storage options, interest-bearing accounts, and more. Many exchanges charge fees based on the assets being traded.
When comparing different platforms, you should consider the available cryptocurrencies, the fees they charge, their security measures, storage and withdrawal options, and any educational resources they provide.
2. Step 2
Once you have chosen your platform, the next step is to fund your account so that you can begin trading. Most crypto exchanges allow users to purchase crypto using fiat currencies such as the US dollar, the British pound, or the Euro using their debit or credit cards, although this can vary by platform.
It is important to note that purchasing crypto with a credit card can be considered risky, and some exchanges do not support this method of payment. Additionally, some credit card companies do not allow crypto transactions. This is due to the high volatility of cryptocurrencies, and the potential for going into debt or incurring high credit card transaction fees for these assets.
Additionally, some platforms may also accept ACH transfers and wire transfers. The accepted payment methods and time required for deposits or withdrawals can differ per platform, and the time for deposits to clear can also vary depending on the payment method.
Another important factor to consider is the fees involved, which can include deposit and withdrawal transaction fees, as well as trading fees. These fees can vary by payment method and platform, and should be researched beforehand.
3. Final Step
The final step in buying cryptocurrency is placing an order on the chosen platform. This can be done through the broker's or exchange's web or mobile platform. If you want to purchase cryptocurrency, you can do so by selecting "buy," choosing the type of order, entering the amount of cryptocurrency you wish to buy, and confirming the order. The process is similar for "sell" orders.
In addition to buying cryptocurrency directly through a broker or exchange, there are other ways to invest in crypto. These include:
- Payment services: Platforms such as PayPal, Cash App, and Venmo allow users to buy, sell, or hold cryptocurrencies.
- Bitcoin trusts: It's possible to buy shares of Bitcoin trusts with a regular brokerage account, which allows retail investors to gain exposure to crypto through the stock market.
- Bitcoin mutual funds: There are Bitcoin ETFs and Bitcoin mutual funds available for investment.
- Blockchain stocks or ETFs: You can also invest in crypto indirectly by investing in companies that specialize in the technology behind crypto and crypto transactions or companies that use blockchain technology through their stocks or ETFs.
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Once you have purchased cryptocurrency, it is important to store it securely in order to protect it from hacking or theft. This is typically done through the use of crypto wallets, which are physical devices or online software that store the private keys associated with your cryptocurrencies. Some exchanges provide wallet services, making it easy to store your cryptocurrency directly through the platform. However, not all exchanges or brokers automatically provide this service.
There are different wallet providers to choose from, and the terms "hot wallet" and "cold wallet" are often used to differentiate between them:
- Hot wallet storage: "Hot wallets" refer to crypto storage that uses online software to protect the private keys associated with your assets.
- Cold wallet storage: In contrast, "cold wallets" (also known as hardware wallets) rely on offline electronic devices to securely store your private keys.
It's worth noting that cold wallets tend to charge fees, while hot wallets typically do not.
What can you buy with cryptocurrency?
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When it was first introduced, Bitcoin was intended to be a means of conducting daily transactions, allowing individuals to purchase everything from a cup of coffee to a computer or even high-value items such as real estate.
While this has not fully come to fruition, the number of institutions accepting cryptocurrencies is increasing. Nevertheless, large transactions using Bitcoin are still relatively uncommon.
Despite this, it is possible to buy a wide range of goods and services from e-commerce websites using crypto. Here are a few examples:
- Technology companies and e-commerce sites
Technology companies and e-commerce sites have begun accepting cryptocurrency as a form of payment on their websites. Some examples include Newegg.com, AT&T, and Microsoft. Overstock, a popular e-commerce platform, was one of the first sites to adopt Bitcoin as a payment option. Other companies such as Shopify, Rakuten, and Home Depot have also begun accepting cryptocurrency.
- Luxury goods
Several luxury retailers have begun accepting cryptocurrency as a payment method. One example is the online luxury store Bitdials, which offers high-end watches such as Rolex and Patek Philippe for purchase with Bitcoin.
- Car
Car dealerships, ranging from those that sell popular brands to luxury dealers, are now accepting cryptocurrency as a form of payment.
- Insurance
In April 2021, Swiss insurance company AXA announced that it would accept Bitcoin as a form of payment for all of its insurance services, with the exception of life insurance due to regulatory issues. Additionally, a US-based insurer called Premier Shield Insurance also accepts Bitcoin for premium payments. If a retailer does not accept cryptocurrency directly, it can be used with a cryptocurrency debit card such as BitPay in the US.
Read More: Guide to Financing a Car
Cryptocurrency fraud and cryptocurrency scams
In addition, transactions involve a two-factor authentication process. For example, a user might be required to enter a username and password to initiate a transaction and then enter an authentication code sent via text message to their personal cell phone.
- Understand how to store your digital currency: Once you purchase cryptocurrency, you will need to store it. You can choose to keep it on an exchange or in a digital wallet. Different types of wallets have different benefits, technical requirements and security measures. It is important to research your storage options before investing.
- Diversify your investments: Diversifying your investments is essential in any good investment strategy, and this applies to investing in cryptocurrency as well. Do not put all your money in one currency, such as Bitcoin, just because it is the one you are familiar with. There are thousands of options available, and it is better to spread your investment across multiple currencies.
Keep in mind that cryptocurrency is a relatively new and speculative market. Investing in something new comes with its own set of challenges, so be prepared. If you decide to invest, make sure to do your research and start with a conservative investment amount.
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