Note: This is a guide for absolute beginners.
- Create an account with local online exchange
- Transfer fiat money into the account
- Exchange fiat for available cryptocurrencies on the exchange
- Once you have your first crypto you can use it to buy coins on other exchanges
If the local exchange doesn’t offer the particular cryptocurrency you are after, then you can open up a secondary account with any exchange around the world that does offer it. Once you convert fiat to any cryptocurrency, then it is easy to exchange with any other crypto asset (altcoin).
The most challenging part is indeed the first purchase using fiat currency. Not all exchanges will offer purchase of crypto in your country’s domination. Also some exchanges will only accept users from the country they are based in.
Exchanges offer convenience and transparency of price- they are also fairly low fee- especially compared to buying typical shares for example. But if you do not have a local online exchange then there are other methods of purchasing bitcoin and other cryptocurrencies. Other methods could include (depending on where you live):
- Bitcoin ATMs
- Retail outlet that may offer bitcoin purchase (e.g. news agency)
- Facebook or other online forums
- Wire transfer foreign currency to an exchange that deals with that foreign currency (if the exchange allows this)
Facebook and online forums can be a bit risky as you are placing blind trust in the seller to fulfill the sale after you transfer them the money. You also need to have some knowledge on wallets and have one setup in order to receive your cryptocurrency. With the advent They are also not as common.
You reduce such risks through an online exchange. On top of this, as more online exchanges pop up, each will offer different features or enhancements. Most exchanges now:
- provide real-time pricing
- ability to purchase more than just bitcoin
- provide liquidity (enough volume so that you can buy sufficiently and quickly)
- graphing and analytical tools
- online multi wallets to store multiple cryptocurrencies
Remember, you don’t need any of this if you just want to simply buy some cryptocurrency. In which case you essentially need one that converts fiat to crypto.
Once you have your first bitcoin – or any other coin for that matter- it gets easier to purchase other cryptocurrencies. For example nearly all exchanges offer BTC pairs- allowing you to buy other crypto with bitcoin. Some exchanges offer more pairs, e.g. ETH, LTC, etc. So that you can buy other coins with Ethereum, LiteCoin etc.
The following example is from BTCMarkets.net which allows you to trade between the Australian Dollar, BTC or a limited range of other popular coins.
Say you find a reliable online exchange but it only allows you to purchase bitcoin. In that case, you can open up a second account with any other preferred exchange around the world, send your bitcoin to that exchange, and buy other crypto with bitcoin. You no longer need fiat currency to buy or trade.
In the same example, if you wanted to sell your crypto, you’d have to sell for bitcoin on the second exchange, transfer the bitcoin back to the local exchange, and sell that bitcoin for fiat.
The good news is that most exchanges now offer more than just Bitcoin. So you can buy or sell fiat for a range of cryptocurrencies without being limited to buying or selling bitcoin first. But every exchange is different, and every exchange is limited on which crypto pairs it offers, as well as the altcoins it offers for buying or selling.
The following example is from Bittrex.com which allow you to trade in three different markets (or pair options): BTC, Ethereum, or USDT. Meaning you can exchange other cryptocurrencies directly for Bitcoin, Ethereum or the USDT.
Storing your bitcoin and cryptocurrency
Once you buy bitcoin or any other cryptocurrency, you need a mechanism to store it. The exchange on which you purchase your bitcoin or crypto should allow you to store it there as well. As each cryptocurrency requires it’s own private key (address) you will need a wallet to store each cryptocurrency.
The benefit of an online exchange is this also- they provide multiple wallets within the one account. This means you can access all your currencies through the exchange. However, there are numerous pitfalls and risks associated with storing all your crypto in an exchange. Although they do provide a convenient storage method, they are not the safest.
Methods for storing crypto is discussed in detail in a separate article.
Online exchanges will let you enhance some security measures though. It is strongly suggested that you:
- Create a strong, unique password greater than 8 alpha-numeric and special characters
- Set up two factor authentication (and also backup your two factor authentication code)
- Follow any enhanced verification protocols on the exchange (ID verification)
- Turn on any email notifications if available
- Optionally, also allow specific IP transfers only (requests will only be processed from specific IP addresses)
In summary, it is getting easier and easier to purchase cryptocurrencies. As the industry expands we can expect different online and offline service providers to increase- giving us more options. The biggest hurdle is purchasing using fiat currency. So find an online exchange that allows you to purchase using the currency of your choice first. Once you have your first cryptocurrency, you can use it to buy other crypto offered through any other exchange.