If You're Ready to Start Buying Cryptos, Read This First
Editor's note: Now that you're a blockchain expert, you're ready to buy cryptos.
But where do you start?
In today's Masters Series – originally published as a special report for Crypto Capital subscribers – editor Eric Wade explains what you need to do in order to convert some of your U.S. dollars into bitcoin. And then, he details how you can easily exchange your bitcoin for one of the hundreds of other cryptos in the world...
If You're Ready to Start Buying Cryptos, Read This First
Crypto exchanges are an integral part of the crypto-asset ecosystem. They let you convert cash into bitcoin, and bitcoin into one of the hundreds of other cryptos out there.
These exchanges vary tremendously in terms of user-friendliness, security, regulatory protection, number of cryptos they trade, and whether they support the dollar-to-crypto conversion or not.
In my experience, the best way to understand exchanges is to break down the exchange ecosystem into two key objectives...
Objective 1: Convert U.S. dollars (or fiat currency) into bitcoin, the digital "reserve currency."
Objective 2: Convert bitcoin into other crypto assets.
This essay is all about the two main types of crypto exchanges you need in order to achieve the two objectives above. The two types of exchanges I'll be covering are...
- Crypto-fiat exchanges
- Crypto exchanges (Bonus: Integrated-exchange wallets)
So let's get started...
First, we want to convert U.S. dollars (or other fiat currency) into bitcoin.
The most common way to do this is by opening an account with a crypto-fiat exchange. These are exchanges that allow you to deposit currency and convert it to bitcoin.
Now, because these exchanges are taking cash from you and holding it on your behalf, opening an account requires some due diligence by the exchange. It's a similar level of diligence that you would expect when opening a bank account or a brokerage account.
Crypto-fiat exchanges need to conduct know-your-customer ("KYC") and anti-money laundering ("AML") checks on you for their internal compliances. Expect the exchanges to ask for your full legal name, address, banking details, and a form of identification.
The specifics of the documents required will vary based on where you live. Generally, you should expect to provide a good-quality scan of a valid passport or driver's license and, in some countries, proof of address, like a utility bill.
You'll also be asked to set up two-factor authentication ("2FA") using your mobile device. I strongly encourage you to always use 2FA on crypto-related sites.
After you've set it up, the process works like this...
Every time you log in to the site, you'll first enter your username and password. Then, you'll open your 2FA app (Google Authenticator and Authy are the market leaders) to get a randomly generated code. You'll need to enter that code on the website.
This ensures hackers can't access your account without having access to your username, password, and mobile device.
Now, no one-size-fits-all crypto-fiat exchange exists. Everyone has different needs.
Personally, I have used Gemini and Kraken, and to a lesser extent, Coinbase. Of those, I would strongly recommend Gemini and Coinbase, as Kraken's user interface is confusing and less than ideal for beginners.
San Francisco-based Coinbase is one of the longest-running and most well-liked exchanges, so that and Gemini are my top two picks for converting your cash into both bitcoin and Ethereum.
You'll notice in the table that these crypto-fiat exchanges support between five and 30 cryptos. But more than a thousand cryptos exist.
How do we access those? We go to a crypto exchange.
Unlike crypto-fiat exchanges, crypto exchanges do not touch any fiat currencies like dollars or euros. These exchanges are "crypto-to-crypto" only (though some are beginning to offer limited support for credit cards).
You need to open an account with a crypto exchange, and fund it using bitcoin or another crypto.
These exchanges trade cryptos in pairs just like currency trading. Cryptos, for the most part, trade against bitcoin. The following image is taken from an exchange called Binance. You'll see a list of some cryptos, and they are all priced against bitcoin (BTC)...
There are hundreds of crypto exchanges globally. And because these exchanges don't touch dollars or other currencies, they have fewer regulatory requirements. That means they are open to residents of almost every country and are quicker to set up.
The downside is less government oversight, which means we don't like leaving much money on these exchanges at any given time. You should generally not use these exchanges for storing your cryptos.
With crypto exchanges, you may still need to provide some KYC and AML information, like a proof of address and ID.
Many of these exchanges limit the amount of crypto you can withdraw every day, depending on how much KYC information and how much security (like 2FA) you have provided. On some exchanges, you may be allowed to withdraw more crypto if you choose to provide identity documents.
(Note: In June, Binance announced it is no longer allowing U.S.-based users to create accounts on the exchange. Binance will service existing U.S. accounts through later this month, when it is expected to launch a U.S.-compliant exchange on Binance.US.)
Finally, to exchange cryptos, you can also use integrated-exchange wallets.
Integrated-exchange wallets (like Exodus) are multi-asset wallets that also have direct crypto-to-crypto exchange integration. This allows you to exchange cryptos from within your wallet without having to open an account with an exchange.
Exodus provides a user-friendly way of storing cryptos in a wallet and exchanging them.
Here's a screenshot from my Exodus wallet. You'll see I have the bitcoin wallet open, and you'll see some transactions going in and out.
If you look to the left of my transaction history, in the second column, you'll see that Exodus contains a range of other wallets for around 15 different cryptos.
I can also use the "exchange" function to easily exchange my bitcoin to Ethereum, for example. When I do this, my bitcoin will be sent to an exchange, and I'll receive Ethereum back into my Ethereum wallet in Exodus, as you can see in the image below.
I highly recommend wallets with integrated exchanges for folks who are just starting out.
They are easy to use, they support a lot of my Crypto Capital recommendations, and they are a great way to ease yourself into this completely new asset class.
So in conclusion, crypto-fiat exchanges are the on-ramp from fiat to bitcoin. But these exchanges typically support a limited number of cryptos.
In order to access the hundreds of other cryptos out there, you need to use a crypto exchange like Binance or an integrated-exchange wallet like Exodus.
Please be aware that it can take a few days to get these exchange accounts open, particularly the crypto-fiat exchanges. These exchanges are dealing with a lot of new account opening requests, so you will need to be patient.
But once your accounts are open, you'll be ready to enter the world of crypto.
Good investing,
Eric Wade
Editor's note: If you're looking to get started with cryptos, you absolutely must have a guide like Eric. He keeps a better pulse on the crypto markets than anyone we know...
In just the past year, Eric has traveled to Hong Kong, Singapore, Beijing, San Francisco, and Las Vegas to meet with some of the top crypto experts. Thanks to these insider contacts, he learned about a major event that will shake up the crypto world starting later this week. This shift could cause one tiny crypto to rise 50 times over the long run.
Eric put together an urgent presentation with all the details. And for a limited time, you can access all of his research in Crypto Capital at 55% off the normal cost. Learn more here.