Help me buy my first cryptocurrency!

By maya | Blocksparks | 26 Apr 2019

$1.13 tipped


 

I am not a financial advisor, I am not a cryptocurrency expert. But, I believe strongly in the importance of bitcoin in particular as the future of money, and in blockchain and decentralised ledger tech generally, to create new paradigms for data and value transmission in the future.  As such I think there’s a strong chance that some cryptocurrencies could be worth a lot more than they presently are – possibly by a huge multiplier.

ready for your first moves in bitcoinBut while I create a lot of educational content to try and explain the options and possibilities and principles involved, that is for anyone reading or listening to it to take or leave, and evaluate against their own needs. I have no interest in, nor mandate for, suggesting that any individual buy crypto, everybody’s risk tolerance and time preference is unique. Make up your own mind, based on your own priorities and mindset.

However, I am inevitably the person that a lot of people eventually come to and ask, “How do I get started buying a bit of this stuff for the first time then?” And for that reason, I thought I would write down the steps I have gone through more than once, with a friend who asked me this question.

Why do you want to buy crypto?

Firstly, I’d want to explore your reasons for investing, just a little bit. I am not responsible for your choices, but, I feel obliged as a friend to point out the extremely speculative nature of the asset class you are considering. Perhaps your investment will increase 1000 fold, BUT it could also plummet to zero. I would advise you never to invest more than you could afford to lose completely, if there were some ‘black swan’ event which wiped out digital assets as a category in some unforeseen way, and further, never to tie up money you might need to liquidate in a hurry: With such volatility in pricing, you need to able to leave your investment alone for the long term. Day trading cryptos is for experts with nerves of steel and underpants of Teflon.

I would also want to check, in all seriousness, that you weren’t being blackmailed or extorted, or being coerced to send crypto to some party to whom you were vulnerable for any reason. This red flag would flutter hardest if you’d never been interested in crypto before, and particularly if you asked me first about privacy coins like zcash or monero, instead of the bitcoin that most people begin and end with.

I am not saying I would refuse to help you in this event, but if you were my friend then it’d be a problem shared, and perhaps there’d be a better solution we could find together. And if you needed crypto to complete an illegal transaction or something, I wouldn’t want to make your business my business, it’s your money… I’d simply want to be sure YOU understood all the implications of what you were doing and why, including risks as I saw them, and any alternatives you might not have considered.

So let’s say we’ve established that you’re acting on your own free will, you’re sober and considered and ready, to make your first crypto purchase. What would we do next?

Well, I am going to assume that like a lot of people, you’re not an investment expert or even a part-time trader. If you’re used to using forex marketplaces for example, you don’t need my help – just switch to a brokerage of your choice and everything will look pretty familiar.

But if you tend to leave stuff like that to the experts and all you want to do is buy a bit of crypto, then the simplest route is via Coinbase.  I have a referral link to Coinbase which I invite you to use – if you do so, then we both receive a small payment once you start trading. (If you hate referral links and don’t want the free money, just go to coinbase.com!)

What, Coinbase, seriously?

Now, a lot of people in the crypto world hate on Coinbase. I get it.

Cryptocurrency came out of the cypherpunk libertarian backlash against traditional financial institutions, to create a decentralised digital and private way to send value from one person to another. The original Bitcoin whitepaper was subtitled “A Peer-to-Peer Electronic Cash System”, and did not at any point mention vast centralised bank-like services with tax reporting, ‘know your customer’ procedures and custody of keys.  For many people, the intrinsic values of self-sovereignty and privacy are at the very heart of crypto, and if that makes it all bit more technically challenging, then that’s a price gladly paid by the first wave of adopters…

But you know what? Those same pioneers want and NEED mass adoption too, and therein lies the contradiction. They know that for greater uptake, growth, and stability, they need more and more people to get on board. And that means accepting that people need different entry points which make them feel comfortable to engage with something completely new and risking their own money. For some people, it’s going to need to look and feel as straightforward and familiar and as easy-to-not-mess-up as possible. Later on they can graduate to metamask and professional trading portals or decentralised exchanges (like our friends at Local Coin Swap – a great place to get started trading peer to peer, but many people will find it confusing for making their first ever purchase. Take a look if you’re feeling adventurous – but let’s assume I’m still holding your hand and we’re going to go with Coinbase for now, just to get you started.)

Firstly, you need to create your Coinbase account. This is pretty easy and straightforward to do, but pay attention to security here. Think about your long term goals in terms of crypto – this is why I asked those nosy questions. Even when you use a centralised service like Coinbase, you are always 100% responsible for your own funds when it comes to crypto, and the time and other resources you apply to protecting it has to make sense in terms of what you’re risking.

For now, make sure you use a strong password – complex, lengthy and unique. And consider setting up 2-factor authentication when Coinbase invites you to do so (all this means is that, when you log into your account, they will either send you a text message or you’ll log into an app like Google Authenticator, to confirm that you are definitely YOU. If you are you, it adds a few seconds of extra hassle at each login. But if you’re not you, then you won’t get in. Yes, you can come back and set this up later if you want to – but my advice is to bake-in the maximum protection from the start. Let’s do this properly, not rush it.

Once you have a Coinbase account, and you’ve verified your email and logged back in, you need to get funds – normal fiat currency funds, like pounds or euros or dollars – into your account to start with. You do this by connecting a payment source to Coinbase, and there are a number of options you can explore in the app. They are presently rolling out integration with apps like Paypal for both withdrawals and deposits, but for now the main options are to fund your account by bank transfer (better value, slower), or debit card (fast but not cheap).

Within “settings”, then “linked accounts”, you can add your bank or card information.

Then you can make the payment, either from within the app for card funding, or by making a deposit from your bank itself to do the transfer (eg a SEPA transfer in Europe). Depending on the vagaries of the olde worlde money system, this might happen instantly, or you might have to twiddle your thumbs for a couple of days. Believe me once you start using crypto regularly, you’ll find this anachronistic quirk of the past even more annoying. For now though you need to get old money into the place where you can use it to buy new money, and you just have to wait for that transfer to do its thing.

You can now buy crypto on Coinbase directly using your debit card, without pre-funding a wallet, for maximum efficiency – and maximum fee! I feel strongly that slow and steady is the way to go with crypto – even on entry-level platforms there is potential to make mistakes, so a staged and patient process of moving funds from your bank account to your Coinbase fiat account, then purchasing crypto, is what I would recommend for your first go.

But eventually, within minutes or days, you should have a fiat currency balance showing in your Coinbase account. You’ll see a bunch of other accounts in there, for a range of currencies, all presently set to zero.  You’re good to go, time to buy your first crypto!

What should you buy?

Sorry – I  am not going to tell you which crypto to buy. You need to do your own research.

A couple of years ago, Coinbase offered you a choice of the top 3 cryptos: Bitcoin, ether and litecoin, that was it. Then the Bitcoin Cash hard fork happened, and they added that, and then had to consider Ethereum Classic, and now they seem to offer new tokens for you to choose from every couple of months. Criteria for listing is far from transparent, and some inclusions have led to vociferous critical debate within the crypto community (but, pretty much any change tends to do that).  They used to offer a ‘bundle’ product which allowed you to invest in a basket of top cryptos, which it rebalanced for you, but for some reason they deprecated this and you need to make your own decisions again – which is probably for the best.

Coinbase still lists only a scant fraction of the more than two thousand in existence with sufficient volumes to be listed on Coinmarketcap (one place you can start exploring and learning).  If you have no idea and you just want to spend $200 on a bit of crypto then then I would suggest (but not advise) you to stick it all in bitcoin. If you are planning to add to your holdings steadily and grow a portfolio then you need to put in the time to learn about the different coins and tokens and their use cases and plans and who’s behind them and their history, and all sorts of stuff… So for the sake of this article, I am going to assume you did your research and sensibly concluded that buying your first little bit of bitcoin was the place you wanted to make a start.

To do this, you can go to the “buy-sell” tab in your browser or app, and select bitcoin. (I am not including screenshots, as it looks slightly different in every browser, and they update the UI regularly. You need to work through this stuff and figure it out, based on how it looks to you and your setup anyway).

You’ll be offered tabs with “buy” and “sell” details on. Make sure it is selected that bitcoin is what you are buying, on the buy tab, and if you have connected a debit card, I suggest that you deselect this as the payment source and opt for your bank account instead, for the reasons discussed above.

Then you choose how much you want to buy. You can choose a specific amount in your local wallet currency, or you can choose how much in bitcoin you want to end up with… but let’s say you sent $200 to your wallet and you want to spend it all, well you easily can. Just enter the amount, or select ‘buy max’ in the currency box.  Then on the right of the screen, it will be transparently broken down for you to show exactly how much bitcoin you’re buying, less the fee involved.

Fees and the business model

Coinbase takes a processing fee, and this includes the actual blockchain transaction cost from the bitcoin miners.

It also includes a spread on the actual conversion, because on the Coinbase consumer platform you are offered a ‘spot’ rate only, based on the current cost of the cryptocurrency on the open market. Once you graduate to their professional platform or any of its competitors, you’ll get a much more complex range of options such as stop-loss and margin purchases, even derivatives like options, but on Coinbase it’s a case of: here’s what we’ll sell you some bitcoin for right now (which could change every few minutes), do you want it? Yes/no, pretty simple.

You now own some bitcoin!

When you click to confirm your transaction, it’s effectively instant. The balance disappears from your fiat wallet and now shows in your bitcoin account. At that moment, the two amounts, demarcated in crypto as your portfolio balance, will be unchanged. Then the bitcoin price will either go up, or it will go down. Or both, in rapid succession. You can sit mesmerised for a bit, watching it flutter about, until you decide that this path will quickly lead to madness (don’t blame me).

So what are you going to do with it?  Well, you can leave it sat on Coinbase, if it’s just a few hundred dollars worth. Yes, I know this is by most yardsticks of good practice, this not sound advice – you don’t really own that crypto, if you don’t have direct personal custody of it. But, as we discussed before, not everybody wants that responsibility, or you might want to learn more about the options first. Coinbase has not ever been hacked, unlike many other exchanges. Of course, they could be in future, or you could be the victim of a phishing scam – many people prefer to set up a separate email account to use only for crypto, to minimise this likelihood. Set up your 2FA and practice good password hygiene.

If you are not going to trade it or send it anywhere, you can enable Coinbase Vault – this is a bit more secure, another layer away, but still not in your direct custody. You could regard this as analogous to a deposit account, if your regular Coinbase wallet is like a current account. Like a bank deposit account, it also takes slightly longer and more faff to get it out and spend it or send it anywhere.

You can spend it – Coinbase is now rolling out a debit card product, so you can actually use crypto to buy things online almost anywhere. And a growing number of online merchants accept bitcoin and a range of other cryptos. Again this is not advice, but… if you bought your crypto in the belief that it will increase in value, you might not want to do this, but hang on to it instead. Which is why I have no personal experience of these products.

You could send your bitcoin off to a professional exchange, and trade it for more obscure and risky coins… There are a couple of thousand to choose from, and who knows, maybe one will ‘moon’ and make your fortune. So long as you took my advice to never invest more than you could afford to lose outright, theoretically you can’t go wrong. But like I said, your risk tolerance is your business.

You could sell it back for fiat at any point, cash out – just use the ‘sell’ tab instead of the ‘buy’ one, the crypto will be exchanged for your fiat currency, and you can then withdraw it to the bank account or card from whence it came. Sell at the right moment, and you can make more than you put in. Free money!

You could send your bitcoin off the exchange to a wallet – we’ll discuss wallets in an upcoming article, but it could be an app on your phone, on your computer, or on a separate bit of hardware. Such offline, ‘hard’ wallets offer the greatest security, but they have a purchase cost, so it will all depend on the value of the crypto you want to protect. You could leave it on the exchange and then find it increases tenfold, then decide to purchase a hardware wallet…  You can even create a paper wallet, to store your private keys in. Paper cannot get hacked – but it can get lost, stolen, damaged, etc.

So, lots to think about. As Andreas Antonopoulos famously says, ‘your keys, your crypto. Not your keys, not your crypto’ – and while your funds are on Coinbase you don’t truly hold them. But exactly the same applies to your money on deposit in the bank. They don’t keep it sat in a little pile for you ring-fenced with your name on it in case you need it, in fact, if you want a large amount of it in hurry it could take days, because everyone’s money is effectively mixed together (and lent out to other people).  Only their accounting distinguishes who holds title to what. If too many people want to take their money out of the bank at once, bad things can happen, as many remember from the 2008 financial crisis.

But even after living through that era, most of us still trust banks with our old-fashioned fiat money, not least as they are protected by various government guarantees, and we offset the risks of them making serious mistakes against the risks of us losing it or getting robbed, if we tried to keep it stuffed in the mattress.  So that’s how many people look at services like Coinbase Vaults – like a bank account or safety deposit box, representing a degree of hands-off security with which they feel comfortable.

Anyway, your crypto, you decide.

You’re now invested and part of the future, and the exciting journey is only just beginning. It’s great to have you along for the ride!

      originally published at https://www.blocksparks.io/help-me-buy-some-cryptocurrency/


maya
maya

Maya Middlemiss is the CEO and lead writer at BlockSparks


Blocksparks
Blocksparks

BlockSparks are the marketing communications specialists for the blockchain space - sharing news, information, and trends, about cryptocurrency and blockchain startups worldwide

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