In basic terms, cryptocurrency is a digital currency that isn't regulated or controlled by any government or other financial authority. Cryptocurrency relies on secret codes to verify transactions. While Bitcoin has entered the mainstream, there are actually more than 700 types of cryptocurrency. To use cryptocurrency, buy some from an online exchange and choose a digital wallet to keep it secure. You can save it, or use it to purchase goods and services by exchanging your secret codes.[1]
EditSteps
EditAcquiring Cryptocurrency
- Decide what types of cryptocurrency you want. There are many different cryptocurrencies out there. Which cryptocurrency is right for you depends to a large extent on what you want to do with it. Newer cryptocurrencies may be more volatile, and likely won't be widely accepted as payment for goods and services.[2]
- Bitcoin was the first cryptocurrency. It's the most well-known and the most valuable. It's also accepted in many places as currency, including online retailers and brick-and-mortar merchants.
- Litecoin is also accepted by many retailers. If you want to use your cryptocurrency to purchase goods and services, Litecoin may also be a good choice.
- If you're looking at smaller niche cryptocurrencies, do some research first to make sure it will suit your purposes.
- Choose a cryptocurrency exchange. There are hundreds of cryptocurrency exchanges, but not all exchanges work in all countries. Different exchanges also offer different types of cryptocurrency, accept different methods of payment, and charge different fees.[3]
- Compare 3 or 4 exchanges to choose the one that's best for you. Make sure you understand the exchange's interface and how to use it. Because exchanges are extremely vulnerable to hackers, carefully assess each exchange's security.
- On crypto exchanges, higher fees don't necessarily correspond to better service or more protection. Generally, choose an exchange that offers the cryptocurrency you want for the lowest fees possible.
- Create a trading account. To buy cryptocurrency, you must register as a user and verify your identity. To start, you'll provide basic information about yourself, including your name, address, phone number, and email address. You'll need to scan both sides of a government-issued photo ID to verify your identity.[4]
- The exchange will send you an email with a code you'll use to verify your email address.
- You'll typically also be texted a code that you'll have to enter to log onto your account. This code is part of two-factor identification (2FA), and makes your account more secure than simply entering a username and password.
- Connect your method of payment. If it's your first time buying cryptocurrency, you'll have to use fiat currency, which is national currency such as dollars or euros. Most exchanges will allow you to pay by connecting your bank account, or by using a credit or debit card.[5]
- Some crypto exchanges accept payment through other payment services, such as PayPal.
- Depending on the method of payment you choose, it may be 3 to 5 days before the connection is completed and you can make your first purchase.
- Place your order for cryptocurrency. Typically, you'll specify the type of cryptocurrency you want and the amount of "coins" (or fractions of a coin) you want to purchase. You may also have the option of specifying the amount of money you want to spend. The amount of cryptocurrency you get for that money depends on the value of that cryptocurrency.[6]
- Cryptocurrency exchanges work similar to stock exchanges. If you're familiar with placing an order to buy or sell stock, you shouldn't have any trouble navigating orders for cryptocurrency.
- You can also buy one type of cryptocurrency with another type of cryptocurrency. The values of different cryptocurrencies relative to each other fluctuate.
EditSpending or Holding Cryptocurrency
- Keep your private keys secure until you're ready to spend your cryptocurrency. When you go to spend your cryptocurrency, you do so by giving the merchant or other person your private key. Anyone who has your private key has control over the cryptocurrency.[7]
- Once someone has your private key, they can send your cryptocurrency wherever they want. Don't give anyone your private key unless you are paying for goods or services.
- Your cryptocurrency will likely be safe if you keep it in your exchange account for a few days. If you're not going to spend it, though, you should choose a separate wallet.
- There are several different types of wallets available that will secure your private keys. Choose the one that provides the best balance of convenience and security for your needs. The best wallet for you will depend on how you plan to use your cryptocurrency.
- Use cryptocurrency for purchases from online retailers. Many online retailers large and small accept various cryptocurrencies. More popular and established cryptocurrencies, such as Bitcoin, are typically more widely accepted.[8]
- Tech retailers and service providers, such as Microsoft, are more likely to accept cryptocurrency. However, other online shopping sites, such as Overstock, take cryptocurrency as a method of payment.
- Look for cryptocurrency logos near the shopping cart or payment page to determine whether the website takes cryptocurrency. If one of your favorite shopping sites doesn't accept crypto, you might send a suggestion and recommend they start.
- Buy goods or services from local merchants who accept cryptocurrency. There are some small businesses that have started accepting various cryptocurrencies. If you've set up a mobile wallet, you can exchange cryptocurrency for goods and services from these merchants. The process works similarly to how you would pay with your phone using a credit or debit card.[9]
- To determine whether a merchant accepts the type of cryptocurrency you have, look for a logo near the cash register. This will generally be in the same place where a merchant would display logos for the credit cards they accept.
- Build an investment portfolio with your cryptocurrency. Rather than spending cryptocurrency, many people choose to hold it in the hopes its value will increase exponentially. If you're thinking about doing this, keep in mind that any cryptocurrency is a relatively risky investment.[10]
- Including cryptocurrency in a diversified portfolio could be successful. However, balance your cryptocurrency with more conservative investments to avoid a significant loss.
EditChoosing a Crypto Wallet
- Download software for more control over your crypto transactions. With a software or desktop wallet, you don't have to rely on the availability of a service to complete cryptocurrency transactions. Software wallets give you more security and flexibility than many other types of wallets.[11]
- You may have more security if you download your wallet software to a dedicated computer that remains offline except when you're processing a transaction.
- Depending on your connection speed, the blockchain may take as long as 2 days to download. Start the download before you make your first order. That way your cryptocurrency isn't sitting in your account at the exchange, where it is more vulnerable to hackers.
- Try an online wallet if you have a small amount of cryptocurrency. Online or web wallets aren't as secure as other types of wallets, so they aren't ideal for large amounts of cryptocurrency. However, if you only want small amounts and plan to use them mainly to purchase goods and services from the internet, a web wallet may be the best option for you.[12]
- Web wallets also have fairly intuitive interfaces, and are similar to other types of online accounts. If you aren't particularly tech-savvy, a web wallet may be easier for you to use.
- Hybrid wallets, such as Copay, can be accessed on multiple devices, and are generally a little more secure than web-only wallets. These may also come in handy if you plan to use your cryptocurrency at brick-and-mortar retailers in addition to online.
- Use a mobile wallet for convenient, easy access to your cryptocurrency. While mobile wallets provide you the most freedom of access to your cryptocurrency, they may not necessarily be the most secure. However, they are user-friendly and can be a good for beginners.[13]
- Mobile wallet apps are available for both iPhone and Android smart phones. Some, such as Breadwallet, allow you to manage your account with a username and password. Others, such as Airbitz, do not actually store your cryptocurrency, providing a little more security.
- If you have a mobile wallet, make sure your phone cannot be accessed without a secure password, and keep it locked at all times when you're not using it.
- Buy a hardware wallet to secure larger amounts of cryptocurrency. Hardware wallets are offline devices that only store cryptocurrency. Since no additional software can be installed, they aren't vulnerable to hackers like other wallets. These devices start at around $100, so are best for larger amounts of cryptocurrency that you plan to hold for investment purposes.[14]
- Hardware wallets will give you the best security for your cryptocurrency. However, if you store your cryptocurrency on a hardware wallet, you won't be able to access it conveniently.
- Hold cryptocurrency for long-term investment with a paper wallet. A paper wallet stores both your public and private keys on a piece of paper in the form of a QR code. Since it's just a piece of paper, it's completely invulnerable to hackers.[15]
- To regain access to your cryptocurrency, you simply scan the codes. You'll have to have another wallet, such as a web wallet, to scan your cryptocurrency into if you want to use it.
- While paper wallets aren't vulnerable to hacking, they remain vulnerable to the same threats any piece of paper would be. For example, if your paper wallet burns in a fire, you've lost all access to your cryptocurrency the same as if cash were burned in a fire.
EditWarnings
- While it is possible to mine cryptocurrency, the process is complicated and expensive. It also requires significant recruiting power. If you're interested in mining cryptocurrency, consider joining a mining pool to combine resources.[16]
- Since cryptocurrencies are actually considered assets rather than currency, whenever you use cryptocurrency, you typically must also pay capital gains taxes.[17]
EditSources and Citations
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