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How to Buy Cryptocurrency Safely

The cryptocurrency craze hit its most recent peak at the end of 2021, when its market valuation dramatically shot up from $965 billion to around $2.6 trillion in a few days. Think you might want in on this? If so, it’s no surprise. After all, potentially massive winnings sound appealing for anyone’s portfolio. However, cryptos aren’t regulated by central authorities like banks or governments. That means there is no protection if a user makes ill-made investments in a volatile digital asset or gets scammed. Whether it is a good investment is another debate, but buying crypto is certainly worth considering.

So, what’s the best way to buy cryptocurrency? Well, it’s important to first understand the entire process and each step involved. Let’s dive in and get to know the crypto world, starting with brokers and crypto exchanges.

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What is a broker?

A cryptocurrency broker is an individual or an organization acting as an intermediary to facilitate cryptocurrency transactions between buyers and sellers. In short, a broker acts as an intermediary, which is necessary in traditional asset purchases and buying crypto through centralized entities. More advanced users can purchase directly, without a liaison through a decentralized exchange.

What is a crypto exchange?

A cryptocurrency exchange, or crypto exchange, is an online marketplace where users can buy and sell cryptocurrencies based on market prices.

The first step to purchasing cryptocurrency is to choose a broker or a crypto exchange. Once you’ve done that, follow the below steps to ensure a seamless buying process:

1. Decide where to buy crypto

While there are several risk-minimized payment methods to invest in cryptocurrencies, a centralized crypto exchange is perhaps the most user-friendly option for newcomers. Centralized exchanges regulate cryptocurrency transactions as a neutral third party to reassure clients that they receive the finances they're paying for. These exchanges often trade crypto at market rates; their revenue comes from fees for other services.

Several online crypto brokers provide access to stocks and cryptocurrencies for investors more familiar with conventional brokerage accounts.

Other more experienced users can also opt for decentralized crypto exchanges, which we’ll cover in detail in the next section.

Centralized vs. decentralized exchange

A centralized crypto exchange acts as an intermediary for buyers and sellers. Users can buy and sell crypto for traditional, fiat currencies like the U.S. dollar or the euro. They can also use other cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH). Centralized exchanges act as reliable brokers in transactions and often play the role of custodians, preserving and protecting your money. Most money enters the crypto world from people’s bank accounts via centralized exchanges.

Some of the most popular centralized crypto exchanges are:

  • Binance
  • Bitfinex
  • Bithumb
  • Bitstamp
  • Coinbase
  • Gemini
  • Huobi Global
  • Kraken

While centralized exchanges are great for newcomers, they also come with their own set of disadvantages. Here are the basic pros and cons of centralized exchanges:

Pros Cons
User-friendly and easy to navigate Users don’t custody their money and are thus susceptible to hacks and potential defaults that they can’t control
Reliable trading platforms Mostly charge transaction fees

In addition to centralized exchanges, crypto buyers and sellers also have the option of using decentralized exchanges, which are crypto marketplaces that don’t involve any intermediaries. Instead, decentralized exchanges use smart contracts and decentralized applications (dApps) to execute transactions.

Smart contracts are specific-use contracts and agreements that automatically activate once two parties meet a set of predetermined conditions. In contrast, dApps are applications that exist on a blockchain and offer specific functions or utilities to users—sometimes using smart contracts—depending on the app.

Some of the most popular decentralized crypto exchanges are:

  • Curve
  • dYdX
  • PancakeSwap
  • Sushiswap
  • Uniswap
  • Venus

Some pros and cons of decentralized exchanges are below:

Pros Cons
Can be less expensive as there are less costs to operate the applications There are no regulations or resources to get money back if lost
Users self-custody the data They are usually less easy to use

Worldcoin App

Another way to claim crypto—instead of buying it—is through applications. Companies like Worldcoin provide users with apps to claim a free share of their cryptocurrency. Once downloaded, a user’s mobile app will locally create a crypto wallet address to claim their Worldcoins and third-party tokens through drops. 

2. Choose how to pay

Although thousands of cryptocurrencies exist globally, the most popular options are usually offered for users to buy in fiat currencies like the U.S. dollar or the euro. You'll almost certainly need to utilize traditional currency to purchase cryptocurrencies if you're a first-time buyer. However, if you’re an experienced buyer, consider paying for new crypto through your existing crypto holdings. 

3. Fund your account

If you want to purchase crypto, you can add money to your cryptocurrency account by connecting your bank account, approving a bank transfer, or making a purchase with a debit card or credit card. These transactions can take minutes or hours or several days, depending on the exchange or broker, so you might have to wait before you can use the new funds.

4. Choose a cryptocurrency

Once your account has the necessary funds, you can start purchasing crypto. You can pick from thousands of cryptocurrencies, including popular ones like Bitcoin and Ethereum. You can also buy stablecoins like Tether or DAI.

Once you've selected a cryptocurrency, you can insert its code or ticker symbol (for example, Bitcoin's code is BTC) and the exact number of coins you want to purchase. You can also consider buying fractions of cryptocurrencies instead of a whole coin. For example, you can buy one-hundred-millionth of a bitcoin (0.00000001 BTC).

How to choose a cryptocurrency

With thousands of available cryptocurrencies, you'll find them ranging from practically worthless to worth billions of dollars in market value.

If you're considering investing in cryptocurrencies, it might help to begin with one that is widely exchanged and has a solid market presence. However, it's important to note that cryptocurrency is a volatile sector that doesn't guarantee stability unless you opt for stablecoins. Here’s a list of the world’s largest cryptocurrencies by market cap (at the time of writing):

  • Bitcoin: $418 billion 
  • Ethereum: $185 billion
  • Tether: $66 billion
  • USDC: $55 billion
  • Binance Coin: $41 billion
  • Binance USD: $18 billion
  • XRP: $17 billion
  • Cardano: $16 billion
  • Solana: $13 billion
  • Dogecoin: $9 billion
  • DAI: $7 billion

5. Decide where to store your cryptocurrency

Crypto exchanges aren't reinforced by institutions like the Federal Deposit Insurance Corp. (FDIC), making them vulnerable to hacks and cyberattacks. Blockchain encryption also means you could be locked out of your own account if you forget or lose access to your private keys or sequence codes. You have little-to-no control over how you hold your cryptocurrency if you purchase it through a broker. However, buying crypto via an exchange gives you more options, like custodial wallets.

What is a custodial wallet?

The default method for storing cryptocurrency is a custodial wallet. Your cryptocurrency is held by a third party using either cold wallets (offline storage) or hot wallets (online storage). Sometimes, these third parties will combine both. The crypto you purchase through cryptocurrency exchanges, applications, or brokers is usually stored in a digital wallet under their custody. However, you can move it to your personal hot or cold wallet if you wish to keep it there instead.

But not all cryptocurrency platforms support this approach. Some applications and brokers only allow you to trade cryptocurrency without the ability to move it elsewhere. In such a scenario, you have no choice but to use that platform's custodial wallet.

Custodial wallets are popular options with many users due to the many advantages on offer:

  • They require minimum effort from the user
  • They make crypto easily accessible
  • There’s no harm in losing your wallet as long as you have access to your account

Cold vs. hot wallets

Cold wallets are offline methods of storing cryptocurrency and are called “cold storage,” while hot wallets refer to online methods of storing crypto and require an internet connection to operate. 

Below is a table demonstrating their pros and cons:

Pros Cons
Cold wallets Highly secure Inconvenient for users
Hot wallets Easy to use Susceptible to cyberattacks and hacks

Check out our post here to learn more about custodial and cold and hot crypto wallets.

Things to consider before buying crypto

There are several other factors to consider, especially for beginners. It helps to ask yourself these questions, especially during the early stages of consideration:

Is cryptocurrency a good investment avenue?

Cryptocurrencies are growing in popularity, thanks to institutional and retail appeal. But is crypto investment a good fit for you? Crypto can be a wise investment if done in a suitable capacity, but experts advise users to be wary of crypto's volatility.

Patience is the key

Due to fluctuations in the cryptocurrency possibly every month, it's essential to exercise caution and study the market before investing. Cryptocurrencies, dApps, and NFTs may appeal to users due to their hype, but it's important to be patient and make a rational decision regarding spending your hard-earned money.

Did you do your research?

Many individuals invest in cryptocurrencies by trying to take advantage of the market's volatility to turn a profit. However, it's challenging to make money using cryptocurrencies. Coin prices are determined by the supply and demand of its users and the general public. Nevertheless, the crypto community is growing with more opportunities. New companies are on the horizon that aim to offer the best crypto in their unique ways. An example is Worldcoin, which aims to provide everyone on the planet with a free share of their cryptocurrency. 

At Worldcoin, we take your security and privacy seriously, offering the ideal combination of anonymity and participation to partake in the crypto ecosystem. Join our growing community and subscribe to our blog to stay updated on Worldcoin’s launch later this year.

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