Decided you would like to enter the market of cryptocurrencies and blockchain technology? This step by step guide is written for non-technical people. You can buy bitcoin, ethereum or other cryptocurrencies from your home in a few minutes – the steps are all here.
First, you need an account on an exchange
– where you deposit USD, EUR or other supported currency and exchange it for cryptocurrency. (TIP – get accounts in all main currencies, so it’s easier to work with crypto currency exchanges – TransferWise will help you do that in minutes for free – read the review)
Think of an exchange like an online bank, where you take your money and buy other money.
In order to register, you usuallly only need an email and an address. Some exchanges give you a maximum limit of how much can you spend daily or monthly (about 300 USD) without further verification. Others won’t allow you to deposit money until you verify yourself (this is known as KYC – know your customer legislation).
To verify yourself, you usually need a copy of your passport or ID and a recent copy of a bill that verifies your address. I recommend scanning your passport and/or ID and having a scan of a recent bill (max 3 months old) as a proof of address. Having these handy makes registration on exchanges and other cryptoservices much easier. If you don’t trust a third party with your passport or proof of address – remember – this is the new way how things are done, you are either an early adopter or paranoid last user, you can’t be both. Proof of address is a standard that has been around for years (PayPal and many other services) and banks, Facebook etc already have a huge amount of your personal details.
Once verified, you can deposit money usually as follows:
- A credit card (higher fees – more expensive, but faster – instant actually) or
- a bank account (lower fees or free, f.e. SEPA) or check if there’s an ATM close to you – or bitcoin ATM map here. To get GBP, USD or EUR accounts easily, check my TransferWise review.
SECURITY TIP – Don’t forget to set up 2FA security (two factor authentication – to log in, a password isn’t enough, you will receive either an SMS to your phone or use Google Authenticator to generate a code). That way it’s much less possible for a hacker to enter your account just by guessing your password.
If you don’t want to go through the hassle of setting up an exchange account and buying cryptocurrencies, transerring them to a wallet, check if there’s another alternative or meet & pay in cash option in your area on Localbitcoins.com.
Second, you need a wallet to store your coins
– you don’t want to keep all your investments on an exchange, it’s more risky
Bitcoin or other cryptocurrencies are secure. Bitcoin is very secure – it hasn’t been hacked so far. Blockchain is very secure. But exchanges are only as secure, as is their system / team knowledge. They can (and have been) hacked. Hackers can find a way how to take small amounts from their transactions or how to redirect entire transactions, even if for a very short time. Once stolen, it’s very hard to get anything back, so it’s safer to store your coins in your own wallet.
There are 3 main types of cryptocurrency wallets:
Software wallets – programs that run on your computer or phone. They are as safe as your computer is – if you don’t have an antivirus or have dodgy software and spyware on it, someone might gain access to your wallet. So don’t install it on any machine, only on clean and secure ones.
There’s many software wallets available, Exodus is very easy to use, but you pay higher fees on BTC, Mycelium for android phones is also easy and let’s you choose lower fees – but it’s phone only. See a more complete list of available wallets and how they work here and all posts about cryptocurrency wallets here.
Read this medium post about why security is important and all the many ways that a hacker can steal your coins.
Hardware wallets – safest option – but not free – you have to purchase it – they are like USB sticks – plug them in, a user interface starts, you set it up and can store supported cryptocurrencies on them. When finished, you pull them out and store them safely offline. Hence they are safer and much harder to hack. But easier to loose (have you ever lost an USB key? Bet you did) – so make sure you store them safely. At the time of writing, there are 3 key players: Trezor wallet (first hardware wallet out there), Ledger Nano wallet and KeepKey wallet.
Paper wallets – you print out a QR code that stores the value of your coins and your access key (called a seed or recovery phrase (mnemonic phrase)) – all on a piece of paper. Basically same as hardware wallet, but on paper. Hard to hack (imagiine!) and probably even easier to lose.
Which wallet should you choose? Depends on how paranoid you are. I use a software wallet (Electrum) + Mycelium on my phone and hardware wallet (Trezor 2). On the Software wallets, I keep smaller amounts in case I need to send stuff here and there. Trezor holds most of my cryptocoins, as it’s safest. I also have some on Bitfinex.com (for lending).